| Executive Summary
AOL and Time Warner currently hold large market share in the city of Athens. AOL is the largest Internet service provider to Athens City. Time Warner holds a monopoly in Athens City with cable service. This report analyzes the AOL Time Warner merger and how it will affect Athens. The report also details marketing strategies and recommendations that will enhance service to Athens residents. Findings Merger
Benefits For Each Company
Time Warner will use AOL’s online presence to market its various entertainment products and services. The company aims to increase publication and service subscriptions by advertising to AOL members. Recommendations
Benefits For Athens
Conclusion
Company Overview AOL Time Warner focuses on what it calls "core growth drivers," which are its publication and subscription services, advertising, commerce, and content. The company offers services and products in an array of businesses ranging from entertainment and music to cable networks, programming, and publishing, and Internet access and related services. For an in depth listing of AOL Time Warner business interests see Appendix A. Cable Industry Position Cable Television Industry AOL Time Warner is among the nation's largest cable providers, servicing 12.6 million subscribers across the United States. The company is America's third largest digital cable television provider with approximately 2.33 million users. Although digital cable television subscribers are relatively few, the number of customers who receive digital cable is growing at a rapid rate. Digital cable is expected to reach forty-three percent more homes each year for the next five years, with a total of 60 million subscribers by 2005 (globind.com, 2001). Digital Cable. Digital cable allows consumers to receive hundreds of additional television channels, at increased quality and clarity. Households can get digital cable through their pre-existing cable wires. Twelve cable channels are compressed to the size of one traditional wire. The result is an array of services at a reasonable monthly rate. AOL Time Warner predicts a 4 million-subscriber increase by 2003, totaling more than 6 million digital cable customers (globind.com, 2001). See Appendix B for a description of digital cable technology. Broadband Industry AOL Time Warner has the capabilities to bring a wide variety of new technology to different areas of the U.S. They are steadily expanding in both the digital cable market as well as the broadband industry. The broadband industry, consisting of DSL, cable modem, and wireless connection, is "the always-on gateway to a new world of Internet-based services delivered at lighting-fast speeds to households and businesses" (broadbandcompass.com, 2001). Cable Modem. The use of a cable modem offers the fastest download
speeds available to home users. It is supposed to be able to generate
up to 30 megabits per second. This is comparable to 500 times the
speed of the normal dial-up modem (home.cnet.com, 2001). For a detailed
explanation of ways to connect to the Internet, see Appendix C.
Macro Opportunities International Market By 2006 AOL Time Warner hopes to generate one-third of company revenue from outside the United States. The company anticipates bringing in approximately half of its revenue from international markets by the year 2011. Europe. AOL Time Warner has begun to look abroad for previously untapped markets. One division of AOL, AOL Europe, is implementing the "AOL Anywhere" program which allows subscribers to access their America Online accounts from any computer with Internet access. Recognizing the prevalence of mobile phones in European culture, AOL Europe is beginning to offer a service called AOL Portal. Members will be able to access Internet services through their mobile phones. AOL Europe estimates that by 2003 one-third of Internet users will be using their mobile phones to log on to the web (img.aoleurope.com, 2001). China. AOL and China.com have launched a new Internet service offering a full range of AOL's features and services. Subscribers will have AOL mainstays such as e-mail, chat, and Instant Messaging at their disposal. In addition, China subscribers also will be able to use the company’s global dial-in service that is available in over 100 countries (McMahon, 1999). Advertising AOL Time Warner Campaign. AOL Time Warner can receive affective and inexpensive advertisement online. One way they do this is through AOL’s Affiliate Program. With this web masters can put an AOL banner on their website, thus giving AOL advertisement to anyone who visits the webmasters page. The web master gets $20 each time a visitor clicks on the AOL banner and joins AOL. AOL gets free advertisement through personal web pages where the users puts an AOL Instant Messenger link for visitors to add them to their buddy lists (www.aol.com). AOL Time Warner will get much advertisement through its cross-promotion activities also. Examples which were explained in detail in the cross promotions section include: pop-up windows to Time Warner assets; interactive Time Warner assets online; and AOL exposure in Time Warner movies, magazines, and television shows. For a more in-depth look at advertising possibilities refer to Appendix D. Synergy Financial Synergies. AOL Time Warner plans to increase their overall subscription service as the year progresses. CIBC World Markets analyst John Corcoran said he was impressed by AOL’s subscription base, which gained 2.1 million members in the fourth quarter to reach 26.7 million worldwide (Sanders, 2001). AOL is predicting that it will add over 6 million subscribers in 2001 and that with the help of advertising through the Internet, Time Warner subscriptions will increase significantly within their popular magazine line. Corcoran stated that AOL’s strong advertising and e-commerce revenue, which increased 65% over last year’s fourth quarter, also impressed him. The company is now predicting that growth in these areas will continue to increase to approximately 40%-50% within the next year. This is partly due to the fact that AOL is attempting to convert Time Warner Cable viewers into AOL subscribers (Sanders, 2001). AOL Time Warner is also planning on launching a new area within the company highlighting a Digital Media. With the use of AOL’s infrastructure, Digital Media will give subscribers the opportunity to watch live performances of Time Warner artists. If successful, this market is projected to have the opportunity of grossing $225 million. AOL Time Warner executives warned of a possible slowdown in the first three months of 2001. However, the company still remained committed to year-end targets of revenue growth of 12% to 15%. This increase estimates a $40 billion revenue growth and adjusted earnings (before interest, taxes, depreciation, and amortization) to grow about 30%, reaching $11 billion (Sanders, 2001). Operational Synergy. The company is expecting to realize $1 billion in merger-related savings. This is going to be possible with the elimination of 2,400 jobs within AOL Time Warner. The elimination of the jobs is expected to save the company $300 million, and by paying some employees less cash salary in exchange for stock options, saving the company an additional $100 million. AOL Time Warner is planning on buying back over $5 billion in their company’s stock. They are looking to reinvest in their own business for the future (Sanders, 2001). "Thanks to the strong growth prospects for our company, we're able not only to continue to invest in our world-class businesses, but to use a portion of our growing financial capacity to buy back stock at a time when we believe our shares are undervalued," the company said in a statement (thestreet.com, 2001). Tax Synergy. AOL Time Warner has the opportunity to save approximately $11 billion dollars in tax write-offs. The reason for this is somewhat complicated. The company has given its employees a stock option that sets a fixed price for which they are able to buy AOL Time Warner stock. If the market price of the stock goes above the fixed price, “the options become profitable, and employees may exercise them, or buy the underlying stock” (Pender, 2001). There is a stipulation that states that employers are allowed to deduct all of their employees’ options on their tax returns. So basically, the employees’ profits are considered compensation to the company and are therefore tax deductible. If AOL Time Warner’s stock stays above the fixed price, the company estimates they may not have to pay taxes for the next four to five years. Some analysts also believe that this scheme may even work forever and the company will never have to pay federal taxes again. For a complete employee agreement see Appendix E. Micro Opportunities Promotional Opportunities The merger of AOL and Time Warner created a mass media giant through the combination of AOL’s online services and Time Warner’s vast cable and media assets. The overall goal will be to convert the media properties into an interactive format. AOL Time Warner already has many programs implemented to design cross promotion, but there will be additional opportunities in the future. Time Warner. AOL will use its marketing clout to market Warner Bros movies, sell more music, and induce more TV viewers to buy Time Warner digital cable and premium channels (Gunther, 2001). AOL software will be packed with references to Time Warner publications, films, and music (zdnet.com, 2001). Pop-up windows will be the main way to promote Time Warner through the AOL service. It has already been effective in generating sales of magazines and cable subscriptions (Farrell, 2001). Warner music will get much promotion via AOL service. AOL will provide online interactive activities promoting the label’s artists and their upcoming releases. The consumer attention that an upcoming album receives online will be a way to gauge record sales for an upcoming release. Warner Brother’s movies and television shows will be promoted in much of the same way (Orenstein, 2001). AOL. AOL will receive promotion through Time Warner’s vast media presence. AOL will have many references to their services in Time Warner’s movies, magazine advertisements, television advertisements, and CD packaging. Essentially, Time Warner provides AOL with a broad base of free advertisement in all areas of media. (See Appendix D for a detailed layout of cross promotions.) Opportunities AOL and Time Warner have many resources to offer each other. The merger has created ample opportunity for the companies to bring together their intellectual properties to create innovative products and ideas. AOL Benefits. The main benefit for AOL will be the higher speed access to Internet customers via a cable modem, DSL, wireless, or satellite. With this AOL will not only be a leader in providing Internet service, but they will also have input in the customer access part of the industry. This ties into AOL’s marketing strategy called AOL Anywhere. The Internet is becoming more and more central to people’s lives and the AOL Anywhere strategy aims at providing people with access to the Internet anytime they want it. AOL sees this as the next stage in the development on the web. The strategy will provide customers with Internet access through interactive TV, handheld devices, the telephones, and cellular phones. AOL Anywhere will increase people’s time spent online and the more time spent online directly correlates to higher online sales (aol.com, 2001). AOL TV. AOL TV is the center of the AOL Anywhere strategy and directly ties in with the cable presence of Time Warner. Incorporating AOL TV into Time Warner’s digital cable box will solve the past problems of separate set-up boxes and slow Internet hookup (Healey, 2000). It will provide users the opportunity to be online as they are watching television. Users will be able to email, search the web, and chat with friends all at the same time they are watching TV on the same screen. AOL TV will also provide interactive programs that correspond with certain shows on TV (Watkins, 2000). Eventually the product will enable viewers to call up and order news and entertainment on demand right from the TV screen (Lieberman, 2001). Time Warner Benefits. AOL will be a vital platform for Time Warner to promote awareness of their large media properties. Virtually all of Time Warner’s products will be provided in an online format with interactive features. It is also predicted that AOL Time Warner will provide the opportunity for customers to buy a co-branded cable Internet box in the future. A co-branded cable Internet box would be equipped with movies on demand, a downloadable music service for Time Warner assets and an AOL Time Warner “start page.” This service would provide a pay-per-view type of structure. This type of service is expected to arise in 2001 or early 2002. According to Youssef Squali, an Internet analyst for ING Barrings, “Assuming consumers have a broadband connection—either through your computer of cable box—you will be able to download the music, the movie or maybe use your cable box as a telephone” (zdnet.com, 2001). For more information on cross-promotion see Appendix F. Marketing Proposals Below are our suggestions for targeting three main Athens demographics: students, faculty, and other Athens residents. See Appendix G for survey results and analysis. Students During Ohio University’s precollege program, AOL Time Warner can hire upper-class students to distribute merchandise, such as T-shirts and cups, and promote the benefits of AOL Time Warner products and services that are available to students living in residence halls. As students come to rely on the AOL Time Warner platform of products in their daily lives and move to off-campus housing, the company can continue to offer its array of services. We recommend direct mailings of promotional materials to students’ home addresses during the months of July, August, November, and December. These materials will be directed toward parents of students, and will showcase the scholastic benefits of having Internet access in off-campus housing. AOL Time Warner should also allow different screen name users on the same account to log on simultaneously. Currently, only one screen name per AOL account can access the Internet at a time. The ability for multiple housemates to surf the web at the same time is a desirable feature of an ISP. As with all billing, students ought to receive one itemized bill for both AOL Time Warner cable and Internet service. OU Link OU Link is a website that would be created and maintained by the staff at Athens Time Warner. AOL Time Warner can hire MIS undergraduates to maintain the site, as well as contribute their outlook to what is posted on the site. It will be marketed toward Ohio University students and will offer current events info that is relevant to the lives of OU students, as well as serve as a vehicle to market AOL Time Warner products and services. “Bobcat Buddies” will be a buddy list system similar to AOL’s hugely popular buddy lists, but “Bobcat Buddies” will display OU buddies who are currently online. Members of any of the three ISPs that will be using AOL Time Warner’s cable infrastructure could register their screen names on the “Bobcat Buddies” database. Presently, AOL users can only contact fellow AOL subscribers through Instant Messaging. Students would then be able to instant message friends on the Athens campus, even if they are not America Online members. OU Link will also offer an Athens campus student directory that not only contains student addressees and phone numbers, but any personal information students wish to include. OU Link will also advertise upcoming events at Ohio University. Students will be able see, for example, which concerts are coming to OU, which Midnight Movies are scheduled to play in the Athena, different UPC events schedules to take place, and other current events. The site will also contain links to Time Warner magazines such as Entertainment Weekly, Time magazine, and People magazine. Users will also be able to access music and video clips of Time Warner artists, movies, and television shows. There will also be a weekly listing of programs shown on AOL Time Warner’s cable channels. As with the Time Warner website, users will be able to download various net applications, including Netscape and Realplayer. The site will be free, but will advertise AOL Time Warner cable and ISP subscriptions. OU Link will be a multi-faceted, cutting edge website that keeps students up-to-date on the issues surrounding their university community. Faculty AOL Time Warner can emphasize its digital cable channels, high speed Road Runner ISP, and other premium services to university faculty members. Because faculty members are likely to already have Internet access in their homes, they are more likely to invest in a high speed Internet service provider than, say, an Athens resident who is relatively new to the Internet. Like students, OU faculty would appreciate the convenience and ease of cable services and Internet access being lumped onto one bill. (survey results) Other Athens Residents In order to increase the number of Athens households with Internet access,
we propose a radio campaign stressing the importance and impact web access
has on students' lives. Included in this campaign will be facts and
figures about how AOL@school is helping students become computer literate.
This would not only raise awareness about AOL@school, but also create goodwill
for AOL Time Warner within the community.(www.school.aol.com, 2001)
Risks Risks of Large Corporate Mergers Some financial experts are pessimistic about AOL Time Warner’s ambitious financial projections. On a recent television news show, one analyst asked AOL Time Warner CEO Gerald Levin to explain why Viacom, a significantly smaller company, has outperformed Levin’s new “monetization machine.” Levin’s response: “There is no comparison.” (www. horizonpcs.com, 2001) Corporate Culture. AOL and Time Warner have distinctly different corporate cultures. Time Warner's management is more staid, and more adept at traditional business. AOL, on the other hand, had more laid back managers, with employees who are more technologically minded. While Time Warner employees think of the transaction as a merger, America Online views it as more of an acquisition. America Online executives did a majority of planning for the merger. AOL executives made provisions for the transition and mapped how the companies would fit together. Since then, AOL managers have nabbed a majority of the top jobs at AOL Time Warner, leaving Time Warner employees, and the business community as a whole, to wonder just how Time Warner will fit in(Carney, 2001). Local Competition. See Appendix H. FCC Restrictions and Antitrust Issues. While the FCC has approved
the finalization of the AOL Time Warner merger, fairly stringent restrictions
were placed upon the company. An in-depth look at the FCC's decisions
regarding the merger, and antitrust statues with which the company must
comply is found in Appendix I.
Fixed Wireless. One problem that could face Time Warner in Athens is the possible immergence of Local Multipoint Distribution Service (LMDS) in the college setting. Virginia Tech is taking part in the nation’s first partnership between a university and the “private sector for the deployment of a point-to-multipoint LMDS network. This is still in the early stages of production but if successful could sweep across the U.S. sometime in the future (Lide, 1999). The key to the success of LMDS at universities is the close density
of the schools. Those schools that are within a 10-kilometer range
have the capability of using such a service. If a potential location
for a terminal is found within the hill surrounding Athens, then a potential
problem may arise for Time Warner. Right now this seems unlikely
but with future technology there may be a way to have all users have a
clear line-of-site to the terminal (Lide, 1999).
2003 Snapshot Businesses Athens businesses will benefit from the AOL Time Warner merger in years to come. First, the company has already completed technological updates that facilitate faster Internet access. Many Appalachian businesses have not yet established a web presence, so Athens area companies will have the advantage of not only being connected to the Internet, but having high speed access. According to the Appalachian Regional Entrepreneurial Initiative, or AREI, this quicker access will make Athens businesses more efficient, and therefore give them a competitive advantage over other Southeastern Ohio companies. We also foresee an expansion of services available on the web. Papa John’s and Pizza Inn already accept food orders over the Internet. The possibilities of having an Internet presence extend beyond ordering a pizza. Clothing stores, bookstores, and virtually any other Athens businesses are expanding into e-commerce, if they have not already taken steps to do so. The Greater Athens Community The next few years will undoubtedly see an increase of Athens residents with Internet access. Due to more computers in Athens homes, and AOL@school in the classroom, more students will learn how to use computers and navigate the web. Cable customers will also enjoy enhanced television quality and sound. Consumers can also look forward to more Internet service provider options, as at least three other ISPs will be using AOL Time Warner’s superior cable systems. The University Ohio University now purchases AOL Time Warner’s standard package for dorm rooms at the rate of $33.95 per month per room. Within the next few years, OU will give students the option of purchasing a digital cable package for an additional $10 per month. This fee will cover the cost of more than 100 additional channels, including more premium movie channels. Conclusion While the large scale business aspirations of AOL Time Warner may seem
remote, they have a substantial impact on the city of Athens. The
merger will benefit students from elementary age to the university level
by providing primary schools with educational Internet services and serving
the OU community with high speed Internet access. Also, Athens businesses
will have the competitive advantage of web access in a region where e-business
is not yet the norm. Cable television subscribers will enjoy more
channels, better picture quality, and sharper sound. AOL Time
Warner has already finished the cable systems necessary to deliver ISPs
and digital cable to Athens households and businesses. By the year
2003, Athens businesses will be more productive and efficient, elementary
schools will have more children proficient at using the web, and Ohio University
students other Athens residents will have a wider range of digital cable
television and Internet access options at their fingertips.
Appendix A: Company Overview Appendix A
The company has interests in six different business categories. These include: Interactive Services and Properties
Appendix B: Digital Cable Technology Appendix B
Digital Cable Digital Cable is a new phenomenon in the technological world. Along with the many choices and clarity offered through digital cable, it is easy to control and affordable. This service, now one of the latest advances in entertainment technology, offers a variety of over 200 channels in addition to better precision and control. It functions by digitally compressing the information that it receives. Before the video signals can be “compressed,” they must first be “digitized.” Dividing analog pictures into thousands of picture elements called pixels creates digital pictures. Each pixel is then given a digital code that identifies its color and placement (directv.com, 2000). High Definition Television (HDTV) In order to reap the full benefits of Digital Cable a different television is necessary. It is possible to still use the cable but you will not be able to receive the full digital clarity. Analog televisions do not have the capabilities to compress all of the digitized information – high definition televisions do. HDTV is a new type of television system that brings improvements in both the production and reception of television broadcast systems. Two of the most distinguished features of HDTV are its aspect ratio and increased lines of resolution. HDTV has the capabilities to allow films to retain their original size and resolution, also allowing the sound to be delivered in “digital-quality 5 channel digital audio” (cnet.com, 2001). Widescreen. This feature refers to the number of horizontal lines in the picture. The aspect ratio of HDTV is 16:9 (Width: Height) compared to today’s televisions that have the ratio of 4:3 (directv.com, 2000). Equipment. Many companies are now selling set-top boxes that will
make digital signals work on a standard television. Currently these boxes
are very expensive ranging from $1,500 -$2,000, but they are expected to
become cheaper and more common amongst households. (cnet.com, 2001)
Appendix C: Types of Internet Connection Appendix C
Below is a description of available ways of connecting to the Internet. From dial-up to wireless, there are many choices for the everyday consumer. The main keys to all of them are speed, availability, and cost. Narrowband Dial-Up Internet Access (Analog). When an individual connects to the Internet though a phone line they are connecting through a modem. The user will dial the telephone number of their Internet Service Provider (ISP) and then be connected to the ISP’s data network through their phone company (Roycroft, 2000). Dial-up modems have the capability of working at the speed of 56 kilobits per second. This is a relatively low speed, sufficient for email, but not good for using the Web or downloading files. Another problem that this type of access will incur is overcrowding. When there are a large number of individuals connected at one time, called a peak period, a user may receive a busy signal when attempting to dial or get knocked offline once already connected (firingsquad.gamers.com, 1999). It is expected that dial-up access will continue to be the leading type of connection used to access the Internet for the next few years. This service is expected to lose a lot of its market in the future, however, once broadband is offered throughout more areas and becomes cheaper in price. Dial-Up Internet Access (Digital). Another service that is offered through local telephone companies is Integrated Services Digital Network (ISDN). This service is the same as the original dial-up access except the connection between the user and the ISP is digital instead of analog. This connection has the capability to provide data rates of up to 128 kilobits per second to its users. The main downfall of this type of connection is the cost. The difficult installation procedures, expensive infrastructure upgrades, and customer service nightmares are the reasons making ISDN an unpopular choice for connection (Roycroft, 2000). Broadband Broadband access is steadily becoming more and more popular in North America. A key aspect of broadband is that the connection it creates is always on. There is never any need to dial up to an ISP when you want to connect. This feature, along with faster speeds, makes broadband stand out above dial-up access. Digital Subscriber Line (DSL). This service is another type of connection offered through a local telephone company. DSL differs from the narrowband dial-up services however. The technological difference is that DSL bypasses the telephone company all together and therefore has a constant connection. Another difference is that DSL has the potential to reach data rates of up to 6 megabits per second (cnet.com, 2001). The DSL is normally about 27 times faster than the commonly used dial-up analog modem. Unfortunately there are some downfalls to using DSL. It is available in limited areas and is somewhat expensive. Just like ISDN you will need to have specific equipment installed in your house. The purchase of a special modem and other equipment tend to build quite a bill. DSL is different from ISDN in that it uses higher frequency signals in the telephone wires to transmit data. These frequencies range higher than the normal frequencies used by voice communication over the same lines (cnet.com, 2001). Cable Modem. Cable modem access is not available everywhere. If it is offered it will be through @Home or Road Runner. These two companies control about 95% of the market. There is also a big difference in its potential speed and actual speed. The Ethernet card in a computer slows the cable modem down to about 4 mbps. This speed is still one of the fastest available. The key to the cable modem is that they run through the cable line into the house. Users can watch TV, talk on the phone, and surf the Web all at once. About 95% of houses have cable systems, which suggests that cable broadband has the potential to reach most houses in America (Roycroft, 2000). Satellite. The use of a satellite dish for Internet is concept that is yet to really catch on in America. The satellite provides speeds of up to 400 kbps, which is slower than a cable modem, but the speeds remain constant no matter how many people are online. This service is also available to anyone in the U.S. with an unobstructed view of the southern half of the sky (cnet.com, 2001). Some problems that satellite connections cause are that you still need a phone line, a 56 kbps analog modem, and some type of ISP. There is also a speed problem. Latency, which is the time it takes commands and data to travel to and from the satellites, may sometimes mean slower speeds. The start up costs for this type of system are also extremely higher than a cable modem or DSL (cnet.com, 2001). The way that this system works is that the satellite is asymmetric. The dish that is on your house can receive signals but not transmit them. That is where the modem comes in. It transmits the received message, creating a very lopsided download/upload ratio (firingsquad.gamers.com, 1999). Wireless. Fixed wireless is a fairly new type of Internet connection. Local Multipoint Distribution Service (LMDS) is one type of fixed wireless connection. LMDS uses a network in fixed locations that go from one main point to antennas on houses (Roycroft, 2000). LMDS “is a low powered microwave technology with a high frequency that can travel only a short distance” (Lide, 1999). This distance is limited to about 10 kilometers. With such a high frequency, a very short unbendable wavelength is created. This means that in order for LMDS to be able to service customers, there must be a clear line-of-site between the transmission site and the receiving building (Lide, 1999). Appendix D: Advertising Appendix D
Advertising Revenues Advertising Council. The Advertising Council is a team of marketing and sales executives from each part of the company. They discuss advertising relations and how to best move forward as a combined company. AOL Time Warner will generate about 25% - 30% of revenues in 2001 from advertising. This is with a projection of enormous growth in AOL’s ad revenues and a steady rate in Time Warner’s (McKegney, 2001). Agencies. Another task for AOL Time Warner is to get AOL more involved with agencies. Previously less than 5% of their ad revenues came through agencies. AOL needs to build stronger ties with agencies because they will useful in pushing cross media packages (Fine, 2001). Online Advertisement. With the merger AOL Time Warner will have enhanced advertising due to their ability to offer promotional packages that include both traditional and online components. American Online offers advertising through their mediaspace program. Advertisers can go to the mediaspace page of the AOL website and see the many brands on AOL where they can advertise their products. Top advertisers through AOL’s advertising opportunities include Amazon.com, Monster.com, Barnes&Noble.com, and Compaq. This advertising program offers a lot of advertising opportunities with its partnered ad sales. This is an inventory of advertising options offered by AOL that list key web sites and co-branded areas on the internet that will give greater exposure to targeted audiences. Advertisements through AOL will come through such things as pop-up windows and banners across AOL owned online properties. AOL will also offer advertising through its instant messaging service, interactive TV, and wireless devices (www.aol.com). Other Media Advertisement. Since AOL Time Warner is big in all aspects of the media they will have additional advertising income other than through the Internet. Advertisers will be able to come through such AOL Time Warner channels as TV commercials, magazine advertisements, and radio advertisements. Time Warner owns many TV channels and publications through which they offer mass advertisement. AOL Time Warner will be able to offer discounted advertising rates to
advertisers with their broad reach in the media industry. For instance,
an advertiser could buy a package where they advertise in a Time Warner
magazine and then also have a banner across one of AOL’s online presences.
This would be very beneficial for advertisers cause they would be reaching
a larger audience. AOL would be wise to offer cross-media discounts
because this will be a successful way to gain a larger advertising base.
Appendix E: Employment Agreement Appendix E
Job Description. Besides the basic terms of employment, it is important for an infant company like AOL Time Warner to explicitly describe job tasks and responsibilities in written agreements with new employees. For example, a recent college graduate with a degree in MIS may visualize
his position at AOL Time Warner as consisting of projects completed in
an office setting. Conversely, a person who has just earned a bachelor’s
degree may instead wish to work installing and servicing equipment rather
than toiling in a cubicle. Either way, both expectations are reasonable,
and it is of utmost importance that workers are cognizant of the duties
associated with their jobs.
Top management and other key persons should be prohibited from directly
competing with AOL Time Warner following their termination of employment
with the company. In such a fast-paced and growing industry, a twelve-month
restraint of trade is ample. In regards to the Athens area, workers
who leave the company ought to be kept from working for cable companies
in the immediate southeastern Ohio area, as well as Columbus.
SECTION TEN-EMPLOYEE’S INABILITY TO CONTRACT FOR EMPLOYER In spite of anything contained in this agreement to the contrary, Employee shall not have the right to make any contracts or commitments for or on behalf of Employer without first obtaining the express written consent of Employer and shall have no authority to write checks on behalf of the Employer. In the event the Employee enters into any agreement or writes any check on behalf of Employer that is not specifically authorized in writing by Employer, Employee shall indemnify Employer for any costs incurred by Employer in connection with such agreement or check. SECTION ELEVEN-MISCELLANEOUS Choice of Law and Forum. Also, all AOL Time Warner agreements must clearly state the choice of law and forum in the event that the mediation attempts are unsuccessful. It is in AOL Time Warner’s best interest to insist that any court proceedings take place in New York City, where AOL Time Warner is headquartered. The company’s own legal resources would be easily accessible, and a New York jury may be more sympathetic to a corporation that provides employment and revenues for the city. Therefore, New York law should also be used to adjudicate disputes. A. This agreement contains the complete agreement concerning the
employment arrangement between the parties and shall, as of the effective
date hereof, supersede all other agreements between the parties. Neither
party has made any representation with respect to the subject matter of
this agreement not specifically included in this agreement nor has either
party relied on any such representation in entering into this agreement.
IN WITNESS WHEREOF, each party to this agreement has caused it to be executed at __________ on the date indicated below. EMPLOYER:
_____________________________
EMPLOYEE:
_____________________________
Appendix F: Cross Promotion Appendix F
Publications Promotion AOL provides online access to much of the content from Time Warner publications. Customers will also find online subscription offers and book offer. Consumers will likely be able to pay for their AOL service and annual magazine subscriptions for one low monthly price on the web to avoid the costs of paper and mailing (www.zdnet.com). Credit card billing online should improve renewal rates along with reducing costs accumulated through renewal mailings (Gunther, 2001) Time Inc. CEO Don Logan says, “Down the road, this will increase our circulation profitability dramatically”(Gunther, 2001, p. 75). With joint marketing efforts AOL has already sold over 800,000 trial subscriptions to Time Inc. magazines. This was done widely through the use of pop-up windows on the AOL web site (Farrell, 2001). AOL added InStyle magazine to the Time Inc. lineup, along with CNN.com and Entertaindom.com. Time Warner magazines will be promoted aggressively through AOL’s dial-up (OR 180-01, 2000). Netscape The company is reconstructing its Netscape so that it will a gateway to all Time Warner media properties. This will include everything, including personal finances, news, and entertainment. Time Warner previously attempted the same idea in the mid ‘90s with its Pathfinder. Pathfinder has a failed attempt by the company. The merger has provided Time Warner with Netscape’s tools, software, and staff, which should provide them the ability to create an affect gateway this time (Orenstein, 2001). Music AOL will have a big hand in the promotion of Warner Music. AOL plans to take over Warner’s digital music operations. This would free up resources and allow the music label to focus more on developing new talent. To promote Warner Music albums, AOL has done such things as provide listening parties and live chats online to coincide with the release date of albums. To sell subscriptions AOL software has also been embedded in Warner music CDs (Orenstein, 2001). Another technique is for AOL to offer downloadable hits that might attract new subscribers. Members of AOL will have access to promotional music clips from Warner Music’s huge catalog of artists (OR 180-01, 2000). AOL will want to gain access to more releases from Warner Music, including exclusive access to hits prior to store release. This would benefit Warner Music too. According to an analysis by Bernstein Research, they could save as much as $68 million a year by having AOL subscribers act as a test market to avoid albums that will likely be failures in the stores. There are also plans to include more Warner Music artists on Spinner (Lieberman, 2001). Movie Many of Warner Brothers movies will be promoted on AOL services. “The Perfect Storm” is a prime example of very successful promotion of a movie by AOL. The movie was trailing its leading rival in consumer awareness by 50% before its premier. After being promoted by AOL, “The Perfect Storm” jetted ahead 50% (Watkins, 2000). Moviefone is an AOL service that gives you movie listings, show times, trailers, information and ticketing. It makes the movie going experience more convenient and helps to promote Warner Bros movies and sell tickets (aol.com). There is to be a Time Warner music and video library online, which can be reached with a subscription. For approximately $10 a month consumers will be able to scroll through 5,000 movie titles and download movies on demand. This will maximize Time Warner’s content through AOL’s services (www.zdnet.com). A notable promotion of AOL by Time Warner was 1998 Warner Brothers movie, “You’ve Got Mail.” The two main characters in the movie develop a relationship by chatting on AOL (OR 180-01, 2000). WB Television Shows The WB had its most successful fall ever after heavy promoting of the shows and stars by AOL on the Internet (Gunther, 2001). Warner Bros Retail Stores The retail stores will promote AOL service by making AOL disks available in the stores. AOL is also promoted through Time Warner promotional mailing and product shipments (OR 180-01, 2000). Financial Sites (CNN Money) AOL will aggregate all of Time Warner’s financial sites into a personal-finance channel available online and supported by AOL and Netscape. This will save AOL Time Warner money and drive customers to Time Warner content (Gunther, 75). CNN Money will tie together the financial-news network more closely to Money magazine online. The cross promotion of CNN Money will gain them exposure to AOL’s large amount of subscribers (Farrell, 2001). AOL Software AOL software has also started to be packaged with Warner Music Group
CDs. Time Warner print publications and references to Time Warner films
and music artists are promoted throughout the site downloaded with AOL
software CDs (www.zdnet.com).
Appendix G: Survey Results Appendix G
An AOL Time Warner survey was conducted on Athens City residents. Over 600 residents were contacted randomly yielding 416 responses. The questions were centrally focused on the benefits that will emerge for Athens City’s residents as a result of the merger. Questions also focused on what services residents currently are utilizing. This part was done to be able to successfully draw comparison between current and futures benefits. The questions regarding communication utilization of Athens City residents provided some insight into current market conditions. It was discovered that 89.6% of the people surveyed currently have cable within their homes. The 255 Athens City residents ages 18-25 that were surveyed showed that close to 90% have cable. This age category is the largest in population due to the external environment influence of Ohio University. The effect of this influence in conjunction with the large population clearly represents a great target market for AOL Time Warner. The survey of existing conditions proved that close to 90% of the residents
surveyed own a computer. Currently 44% of residents are not satisfied
with the speed of their Internet service provider. The dissatisfaction
with current Internet speeds within each age group was found to be constant.
Athens City residents are seeking better service to increase their customer satisfaction. This is most evident in the results, which described that 73.4% of residents surveyed would be willing to spend more for an Internet service provider 50 times faster. AOL Time Warner can provide this faster service and satisfy the demands of the customers. 52% of current residents reserve Time Warner’s standard service package of 62 channels. Digital cable in correlation with Time Warner’s outstanding service would give it the ability to offer a better cable package to Athens residents with over 200 channels. If this increase in cable service were offered 68% of Athens City residents would be willing to pay an additional fee for it. Athens City also possesses some competition for the Internet service of AOL Time Warner. Frognet is the leading competitor to AOL in providing Internet service to residents. Frognet provides service for 26% of the people surveyed while AOL still is the leading ISP with 43.7% AOL needs to focus on increasing their Internet service market share. The emergence of Frognet and other Internet service providers has resulted in a smaller percentage of Athens City market share and revenues for AOL Time Warner. AOL Time Warner has a strong presence in Athens City. This presence
is due to a monopoly in cable service and a strong Internet service.
This existing strong presence with the ability to offer better services
such as faster Internet service, increase cable service, and more efficient
customer services gives AOL Time Warner an unsurpassable competitive advantage
in Athens City.
Appendix H: Local Competition Appendix H
AOL Time Warner has a limited base of competition in Athens, Ohio. Local competitors from Internet service providers are CoreComm (formerly Eurekanet), Dragon Net, Dial Net, Frognet, Bright Net and Verizon wireless. There are no other companies in Athens that provide cable services, therefore Time Warner controls the total Athens cable market. Satellite systems such as DIRECTV and DISH network are available in Athens and offer a substitute to cable subscription. CoreComm Eurekanet is now known as CoreComm. CoreComm is a dial-up Internet service provider. It offers Internet service for a fee of $19.95 per month. A subscription to this provider will feature unlimited Internet access, 3 email boxes, 10 megabytes of web space, and 24-hour toll free technical support. You also gain access to the CoreComm Usenet News server and its thousands of newsgroups. If you sign up for a full year, you will get a discounted rate that breaks down to the equivalent of $15.75 per month (eurekanet.com). Frognet Frognet also offers a dial-up Internet service for only $19.95 per month. With Frognet you will receive unlimited hours of usage and unlimited email accounts. Customers get 50 megabytes of web space, 25 free email boxes, and free Internet classes. Paying in advance can lower your monthly fee to just $16.58 per month. Frognet also offers high-speed ASDL access for the same price with the same features (frognet.net). Dragon Net Dragon Net is a smaller competitor in the Athens area. They offer customers an unlimited dial-up service for $18.95 per month or $119.40 per year. Dragon Net claims that their rates are designed for the moderate Internet user (dragon.net). Bright Net Bright Net offers their dial up service for the same price of $19.95 per month for unlimited access. There is an additional one-time activation fee of $15.00. They offer customer a dollar off each month if pay their bill via email and/or set up an automatic payment method. This service provides an easy to install system that gives the customer a web browser, an email client, ftp, and chat clients. Customers also get full-time technical support and personal web space (horizonpcs.com). Dial Net Ohio University offers students that live off campus and faculty the option to purchase Dial Net as their Internet service provider. The service allows users to access email accounts, search the Internet, and reach another account on the network. Dial Net rates are $19.95 per month or as low as $0.25 per hour depending on the time of day. There is no activation fee for Dial Net. This provider does not have unlimited hours as many of the previous providers do (cns.ohiou.edu). Verizon Verizon offers a DSL Internet service. The monthly rate is $39.95 for a one-year contract. This is a much-higher speed access to the net than the traditional dial-up connections. It provides an instant connection without tying up your phone line (verizon.com). Internet Service Provider Standard Service Provided Prices
DIRECTV DIRECTV is currently the number 1 satellite service in the United States. Customers receive more than 225 channels in digital quality picture and sound. It offers a wide variety of pay-pre-view events and numerous premium channels. The rates for packages start at $21.99 per month and up to $82.99 per month as you add premium channels to your viewing package. The equipment you need to purchase to subscribe to DIRECTV costs approximately $50 up to $150 depending on the quality of the dish you purchase (directv.com). DISH Network This is another satellite service that provides a substitute to cable
in Athens, Ohio. The basic package plan costs $35.99 per month.
The most expensive package costs $49.99 per month. The first package
consists of 50 channels and the most expensive package consists of about
150 channels. DISH also offers pay-pre-view shows and premium channels.
DISH equipment costs about $100 with installation (dishnetwork.com).
Satellite System Packages Prices
Appendix I: FCC Regulations and Antitrust
Appendix I
FCC Approval Conditions The Federal Communications Commission approved the merger of America Online and Time Warner, allowing the companies to create the world’s biggest media company. The FCC commissioners handed down the decision a year and a day after AOL and Time Warner first announced their intent to merge. The agency was concerned about the combined company’s potential market power, and took longer to green light the transaction than company executives anticipated. The FCC unanimously voted to allow the merger, but imposed stricter sanctions that analysts expected. AOL is required to immediately open its instant message service to one rival. Instant messaging allows Internet service users to contact one another in real time, pop up boxes. The medium is widely expected to become a broad platform for trading not just greetings, but music files, and even video clips. Instant messaging is more than just a means of dropping a line, or making last minute plans with a fellow Internet user. IM is being recognized as a major communications tool. Instant messaging services allow users to call instant meetings, have free, fast-paced conversations regardless of distance separating the participants, and event keep track of which friends and family members are online through buddy lists. Many IM services also carry voice communications, which essentially eliminates the need to place a costly long distance telephone call. In addition, AOL Time Warner must open its network to two more competitors
before it can market “advanced, IM-based high-speed services the involve
streamlining video” (Time, January 2001). The company has no immediate
plans to offer such a service.
The commission also included language to protect smaller Internet service providers that look to offer service over AOL Time Warner’s cable network. AOL Time Warner must allow other Internet service providers to control the ‘first screen’ that subscribers see when they sign on. The ability to dictate the first image Internet users see when they log on is an important marketing advantage. AOL Time Warner is also required to allow nonaffiliated Internet providers to directly bill their customers. AOL must also allow Internet service provider Earthlink and two other competing ISPs to offer its services via Time Warner’s cable infrastructure. The company could not move ahead with its own broadband plans until the three competing ISPs were established through AOL Time Warner’s cable systems. Richard Parker, director of the Federal Trade Commission’s Bureau of Competition, says that all these measures are designed to ensure that “there is never going to be a time when AOL will have first-mover advantage.” The idea is to give local and regional ISPs a head start in reaching households before AOL Time Warner is allowed to have its turn at bat (Multichannel News, January 2001). The FTC has appointed a ‘monitor trustee’ to supervise the company for the next five years. The trustee will oversee AOL Time Warner and make sure that the cable network and interactive television services allow competition. This solution is not without critics. Some analysts fear that the ‘AOL czar’ will block AOL Time Warner’s progress with excessive bureaucratic rules and regulations. The concept of a monitor trustee is not entirely new. Federal Judge Harold H. Greene oversaw the telecommunications industry for 11 years after AT&T was broken up in 1984. His approach to industry regulation was decidedly interventionist, and is seen as something to avoid. More recently, the Justice Department considered appointing a similar professional to regulate Microsoft, but rejected the idea as being unfeasible. (Business Week, January 2001). On the other end of the spectrum, the czar could turn out to be ineffective. In the past, the FCC has drawn criticism for being too attentive to lobbying by industry executives. Only time will tell if the concept of an AOL czar will serve to protect the growth of the company, while fostering competition. Two Republican FCC commissioners were against leveling strict business practice sanctions against the AOL Time Warner merger. Similarly, the new FCC Chairman, Michael Powell opposes the FCC’s open access and instant-messaging restrictions. Bush administration officials are widely expected to be more sympathetic to the arguments of AOL Time Warner, and also tend to shy away from government regulations of industry (Broadcasting & Cable, January 2001). While AOL Time Warner will be establishing itself in a fairly friendly political climate, it still must be cautious to reign in its market power. Antitrust Considerations Although the FCC has approved the final AOL Time Warner merger, the company must still be cognizant of federal antitrust laws. The four basic antitrust laws covered by Dr. Marinelli are outlined below, along with particular concerns that pertain to AOL Time Warner. The Sherman Antitrust Act The Sherman Antitrust Act prohibits agreements, combinations, and conspiracies that restrain commerce. Also, monopolies or attempted monopolies are made illegal by the act. The general merger of AOL and Time Warner could have been stopped had FTC and FCC officials thought that the combination of the companies would create a monopoly in the Internet services or media industries. Per se violations, or actions that inherently violate the Sherman Antitrust Act are price fixing, market division, quantity or quality limitation, group boycotting, reciprocal agreements, and patent misuse. While a company is not considered a monopoly due to large size alone, huge companies are vulnerable to be scrutinized as a monopoly power. Section 2 of the Sherman Antitrust Act holds that as long as a company has grown due to “superior managerial skill, product efficiency, and internal growth” it cannot be found to be a monopoly power. The unmatched size of the newly meshed AOL Time Warner does not necessarily warrant an antitrust violation, but it opens the corporation up to special review. The Clayton Act of 1914 The Clayton Act of 1914 is intended to stop illegal acts before they escalate to become Sherman Antitrust violations. Section 3 of the Clayton Act is most pertinent to AOL Time Warner. This section of the act prohibits exclusive dealing, requirements contracts, and tie-in arrangements. Exclusive Dealing. AOL Time Warner must be careful not to block other ISP and cable providers’ access to customers through exclusive contracts with subscribers. Also, the company cannot, say, give preferential cable TV service to customers who are also America Online users. Requirements Contracts. This provision goes hand in hand with the exclusive dealing portion of Section 3. Just as AOL Time Warner must not shut out cable and Internet Service providers through exclusive contracts, it may not require customers to purchase all media services through the company. Tie-In Arrangements. A tie-in arrangement occurs if a purchaser must buy a less desirable product or service in order to obtain a more desirable product or service. The Microsoft Antitrust case centered around Microsoft’s ‘inclusion’ of its web browser with its operating systems platform. Similarly, it would not be wise for AOL Time Warner to bundle is diverse services into a package that cannot be broken into specialized parts. Robinson-Patman Act of 1936 The Robinson-Patman Act prohibits discrimination of goods or services quality. While the company must take special pains to comply with all antitrust statutes, this act is not of special pertinence to AOL Time Warner. Of course, the company must not adhere to any predatory price practices, but that is not a new condition of business. The Federal Trade Commission Act of 1914 The Federal Trade Commission Act serves to cover all anticompetitive acts not specifically covered by other antitrust legislation. It is meant to stop “unfair methods of competition in commerce.” While the Clayton Act prohibits certain business practices, the Federal Trade Commission Act makes illegal an anticompetitive “class of conduct.” Antitrust Considerations Abroad Most antitrust laws covered above are applicable to business done overseas. Trade must not interfere with interstate commerce or commerce with other countries. This pertains to business practices beyond our borders as well as those in the United States. As AOL Time Warner looks to expand into foreign markets, it must also
be aware of other nations’ antitrust legislation. Most foreign countries
have modeled their own antitrust policies after that of the United States.
Still, the company must not only obey American antitrust laws, but also
follow the different nuances of foreign antitrust regulation as it conducts
business abroad.
With the reservations the FTC and FCC have about this merger, antitrust
considerations
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