AOL and Time Warner’s merger is finally complete, allowing the new company to get down to business.
AOL Time Warner finally came into being last Friday, as the FCC gave the merger regulatory approval. The new company has one of the world’s largest movie, music and publishing operations. It also has a major share of the US cable systems and cable networks market, as well as the huge AOL Internet business.
The merged company has clear market dominance in the US, with over 20 million Internet subscribers. Unlike many ISPs, AOL is highly profitable. Even better, a third of its revenues in 2000 came from eCommerce transactions; the company is in partnership with many manufacturers to market everything from GM’s cars to computers. Time Warner improves this coverage further – as well as the obvious content provision advantages, it also brings cable networks with 13 million subscribers. This will be essential in the delivery of broadband services to consumers.
However, there is a problem: the rest of the world. Time Warner’s content is globalized; people everywhere listen to artists like Madonna and watch movies like The Matrix. But in the consumer base and delivery arenas, the merged company is weak – particularly in Europe, which will be the most important consumer Internet market outside the US in the medium term. Although AOL has four million subscribers in Europe, it does not control any of the ‘new media’ distribution channels through which its offerings need to be distributed. It does not have any major alliances with telcos, satellite or cable broadcasters – all of which will be rivals in providing consumers with entertainment portals.
AOL Time Warner is too big to be marginalized in Europe. It is the dominant non-telco ISP and is strengthened by its enormous US revenue base. For example, its size and market clout allowed it to roll out a flat-rate Internet access offering as soon as BT introduced its wholesale package, before any other ISPs could. Its high-quality content will also always be in demand. However, if it is to become the market leader outside its core territory, AOL needs to be more successful in tailoring its offering to local consumers and forming alliances with those who control local networks.
