The largest financial deal in history was the best kept secret ever, and with good reason. If news of the $190 billion AOL buyout of Time Warner had leaked, the latter’s shares could have shot through the roof, making the deal difficult, and appearing to reduce the premium AOL was paying. As the news broke, Time Warner went up 40 percent to $90. AOL’s stock went down. Media is still cool, but online is hot.
Time and CNN now owned by AOL? Tiny Indiaworld valuated at Rs 500 crore? What next? How about the Times Group or Living Media bought out by an upstart dot com company?
AOL is profitable: 12 to 15 percent profit after tax on $1.5 billion per quarter revenues. And it has $1 billion worth of tie-ups with Compaq, Casio, CBS and Wal-Mart for its AOL anywhere campaign.
Yet…this online services company with under $10 billion in revenues buys out the world’s largest media group. Creating a fully integrated media supergroup valued at $350 billion, and revenues of over $30 billion.
I remember the pre-Net-boom days, when CompuServe was the big-name online service, and AOL was coming up. Then AOL bought CompuServe. Today it is the largest dial-up ISP in the world, with over 20 million subscribers. AOL Time Warner now owns Time, Fortune, CNN, Warner Bros, Netscape, HBO, ICQ, AOL Instant Messenger, TBS, TNT, Cartoon Network, Warner Music Group, Winamp, and a number of other publications and brands, apart from AOL, aol.com and CompuServe.
AOL gets a critical broadband distribution platform for its interactive services, and Time Warner’s brands and content. This is a blow to Microsoft, which is now excluded from content from any entity in this group. Yet it’s also it’s likely that other content providers looking for a big dot com tie-up will now look at little else but Microsoft, given that AOL is likely ruled out for them. But Microsoft should be familiar with this strategy: If you can’t beat them, buy them. AOL was fighting for open access for ISPs to cable networks from AT&T, Time Warner, et al. Now it has simply bought out one of the big networks.
Music is the third big acquisition: Warner Music is one of the Big Five record companies, and it too gets an outlet for promoting its music. Barely a week later, Time Warner bought out UK music giant EMI.
How well the mother of all mergers works will be watched closely by online companies, businessmen, financial analysts, stockholders–and print media giants across the world. This is it:
megamerger, convergence, superbrand.com. A validation of the power of the Internet. The shape of things to come.