2. What were the three most compelling strategic justifications for the AOL / Time Warner combination? Which of these have any continuing validity?
Its strategic synergy was expected to come from three pillars: 1) providing Time Warner an attractive way to sell its movie contents; AOL’s 20 million subscribers who use AOL as an internet portal to Web would be a potential target to buy rich movie or show contents produced by Time Warner. 2) providing AOL a powerful tool for distributing its services; Times Warner’s 13 million cable TV subscribers would be a potential target to buy contents from AOL through the cable and internet lines, and 3) the combined company may sell advertising and electronic commerce to the entire customer base. This may reduce marketing costs and other administrative costs.
However, we now know these synergies have not been valid for both companies. The difference in the culture of the top management and also the employees was so different: top-to-bottom hierarchy with myriad of old-cable media organizations of Time Warner and young internet boom driven entrepreneurs of AOL were so different and the cultural clash was too inevitable to make any post-merger integration. Also, the estimated cost synergy, $1 billion, was too high to achieve from the first place. Lastly, an important initiative that AOL’s transition to broadband and monetizing the Time Warner’s $13 million subscriber base was just a dream or an illusion without any detailed analysis of the precedent or