AOL Time Warner: So Happy Together?

AOL Time Warner's management is going to have work extra hard to prove that bigger is indeed better.
Joseph RadiganJanuary 15, 2001

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Now that waiting game is over and AOL Time Warner is one, combined company, what’s next for this monster? One guess is as good as another, but a big question is whether management is justified in its confidence that it can harmonize its diverse operations in publishing, music, movies, cable TV service, cable production and Internet access.

For example, Andrew Watt, a director with Standard & Poor’s credit services, says the merger is by no means a slam dunk. That doesn’t mean he sees a crash and burn up ahead; just that he’s not nearly as bullish as management on the merger’s prospects.

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Apart from the soft economy and the slowdown in advertising growth, “there’s no real risk the company is facing,” Watt says. But it’s not going to be easy for management to get the combined businesses working together efficiently.

“In the short term, there’s some positive buzz,” says Elizabeth Sun, senior program director for electronic business strategies at the Meta Group. “They can take advantage of being able to sell a lot of Time Warner content to AOL subscribers.” But it’s by no means guaranteed that the extra readers will renew their magazine subscriptions.

Sun says the big question is that the corporate cultures of the two firms are so different that management will have to work extra hard to get employees working together. AOL has bought a huge media company that has been through two large mergers in the last decade, and it never really integrated its operations with either one.

“Time Warner has always been decentralized, and they’ve always been encouraged to do their own thing,” Sun says. In order for the merger to work, that decentralization will have to be cast aside.

On its own, AOL never had much of a problem centralizing its operations under one roof. But for most of its existence, it was a relatively small company focused mostly on Internet access.

Now the same management that came out of nowhere and dominated one of the hottest sectors of the New Economy is faced with integrating at least half a dozen diverse businesses. The last abrupt change in AOL’s operations was the shift to flat pricing, and the company fumbled it miserably with widespread service outages as the company couldn’t keep up with the increased demand for its service.

This time, the stakes are much higher.

Granted, one of the presumed blessings of the New Economy is that all manner of businesses are melding together on the Web, but that doesn’t necessarily mean it’s practical to run all these businesses under one roof.

Still, the combination offers advantages for both partners. One is that AOL now has a clear broadband strategy, thanks to its acquisition of Time Warner’s interest in Roadrunner. So too, Time Warner now becomes the content conglomerate with the strongest Internet strategy. That’s significant. Plenty of other media companies have gone nowhere with their Web initiatives.

For example, Disney is still struggling to lift its portal into the top tier of the Web business, says Thomas Kierstad, a research manager with International Data Corp. The jury’s still out on Disney’s chances.

Kierstad notes that simply marrying a content business with a Web entity doesn’t mean the two are working together in a complementary fashion. That’s the next step, and a lot of people want to see if AOL can take it.