AOL-Time Warner: How a sure thing fizzled<\/p>\n
Ignatius Haryanto, Contributor, Jakarta<\/p>\n
There Must Be A Pony in Here Somewhere: The AOL Time Warner
\nDebacle and the Quest for the Digital Future
\nKara Swisher with Lisa Dickey, Crown Business, 2003
\nxi + 306 pp<\/p>\n
Back in January 2000, the world was shocked when an unprecedented
\nmega deal was signed between America On Line, an established
\nInternet provider in the U.S., and major media company Time
\nWarner.<\/p>\n
Time Warner itself was a merger of Warner Bros Company,
\nholding leading film, record and other media companies, with Time
\nitself a combination of Time magazine,Sports Illustrated and
\nother major print media. When the merger was signed, it combined
\na total US$247 billion in assets from both companies.<\/p>\n
What a combination: AOL controlled the hardware of the
\ntelecommunication industries, and Time Warner could support its
\npartner with its varied information and entertaiment content.<\/p>\n
But there was to be no happy ending for this marriage of
\nindustry leaders. After the mega merger, both companies slumped
\non the stock market, their prices falling further and further
\nseemingly every month. The directors may blame the fallout from
\n9\/11 terror attacks on the entertainment and information
\nindustry, but that would only be a scapegoat.<\/p>\n
This book takes us behind the scenes of the merger, and tries
\nto answer why the collaboration of the best media and
\ncommunications companies did not work. Is it just a case of
\nincompatible yin and yang, or more about having two captains
\nsetting a course for disaster?<\/p>\n
Swisher is an acclaimed technology columnist for the Wall
\nStreet Journal, who covered the mega deal and is author of the
\n1997 book AOL.com. She enriches the book and an already
\nfascinating tale by interviewing several important figures from
\nboth companies.<\/p>\n
Mega mergers among companies have been common since the mid-
\n1980s, and from one merger to another the value always increased.
\nThe AOL-Time Warner marriage was a phenomena in itself, breaking
\nall previous records. Their expected convergence, or synergy, the
\nkey word during the decade of media mergers, simply did not pan
\nout.<\/p>\n
But the losses, not just material but also of face, were huge
\nto the two giant corporations and their leaders. CNN founder Ted
\nTurner, already ranting on a daily basis to AOL Time Warner CEO
\nGerald Levin about the problems resulting from the merger,
\neventually branded the latter a \"liar and a thief\" as he lost $7
\nbillion.<\/p>\n
At the heart of the problem were the very different corporate
\ncultures of the various parties.<\/p>\n
\"At Warner, if you didn't make mistakes, you'd be fired
\nbecause you weren't taking enough chances, At Time, the attitude
\nwas, don't make mistakes,\" an executive of Time Warner said.<\/p>\n
Another issue was the \"creative accounting\" from AOL, which
\nTime Warner was aware of before the deal was signed but
\nconsidered a minor discrepancy. In hindsight, the parties appear
\nto have been blinded by the huge scope of the deal, without
\nconsidering that the minor problems would add up to cause its
\ndownfall.<\/p>\n
Swisher does not set about citing who should take the main
\nresponsibility for the disaster, since there were many potential
\nperpetrators, the situation was convoluted and the \"suspects\" and
\nthe \"victims\" were often one and the same. The situation is
\ncomplex, a combination of arrogance, ignorance and dissimilar
\ncorporate cultures.<\/p>\n
Moreover, it turned out the Internet business was not really
\nas promising as hoped. Just a month after the mega deal was
\nannounced, the Nasdaq index dropped to its weakest level, and
\nother Internet companies were swept up in the turbulence.<\/p>\n
Internet businesses, on the one hand, depend greatly on the
\nadvertising industry, yet subscribers reject their use because of
\nprivacy reasons. Thus, advertisements are not really a miracle
\nfor Internet businesses, and cannot lift them up in the era of
\nbig competition among media industries. Meanwhile, for a group
\nlike Time Warner, glowing advertisements always followed each new
\nproduct from the group.<\/p>\n
One high-ranking executive of AOL had already warned about the
\nmatter, but the response was not sufficient to take action.
\nBefore the deal, AOL shares were worth $90, but one year after
\nthe deal they were only $50.<\/p>\n
Steve Case, first AOL Time Warner CEO, is a former technology
\nreporter for Washington Post, and he headed AOL after eight
\nworking years, with AOL only in business for 15 years. Initially,
\nAOL was only an online video-game provider, and compared to Time
\nWarner, five times older than AOL, its products were too few and
\nlacking creativity. Some people at Time Warner undermined Bob
\nPitchman from AOL, since they doubted his creativity in leading a
\ncompany that had long depended on this quality.<\/p>\n
Gerry Levin had an optimistic plan for a television
\nrevolution, believing that television would be used to play
\ninteractive games, for film on demand, shopping and so on. The
\nidea was great but misguided, as the world was looking instead to
\nthe brave new world of the Internet.<\/p>\n
The moral of the story is similar to that found in the Greek
\ntale of Icarus, who arrogantly flew to close to the sun and then
\ncame crashing to earth. Swisher offers 13 ways for AOL to fix
\nitself after the debacle, but a lot of damage has been done
\nalready. One of the casualties was Case, who resigned from his
\npost in May 2003.<\/p>\n
What should have been a happy, sure-thing tale ended up as a
\nconfounding tragedy.<\/p>",
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