10 years later: the AOL-Time Warner merger

January 11, 2010 9:27 AM

How the AOL-Time Warner Merger Went So Wrong Interviews with the key players involved with the AOL-Time Warner merger about its euphoric rise and pitiful fall.

My opinion -- not a single one of these people (Steve Case, Jerry Levin, Bob Pittman, Ted Leonsis, et. al) takes any sort of responsibility. In fact, most of the Q&As are about how other people screwed up. The Time Warner people believe that it was AOL's puffed-up hot air and lack of accountability that screwed the deal from panning out. The AOL people keep going on and on about the "culture" at Time Warner -- more or less calling the company and its executives luddites without actually directly doing so.

The choice quote comes from Ted Turner, who was the largest shareholder in Time Warner at the time: "I’d like to forget it. That’s what goes through my mind. I almost didn’t do this interview because I didn’t want to dig it up again. Let it pass into history. The Time Warner-AOL merger should pass into history like the Vietnam War and the Iraq and Afghanistan wars. It’s one of the biggest disasters that have occurred to our country."

posted by zooropa (19 comments total)

All the TW guys had to do was talk to some usenet geek for 5 minutes, and they would've realized that AOL was not the way to go.
posted by Melismata at 9:35 AM on January 11, 2010 [3 favorites]

All the TW guys had to do was talk to some usenet geek for 5 minutes, and they would've realized that AOL was not the way to go.


Plus, they would have learned that the Enterprise would totally have defeated a Star Destroyer if they fought.
posted by Copronymus at 9:39 AM on January 11, 2010 [26 favorites]

Ted Turner seems to be confusing a disaster for the country with a disaster for his bank balance.
posted by Joe Beese at 9:40 AM on January 11, 2010 [4 favorites]

Well the AOL people didn't screw up. They bought a business with real cash flows using massively over inflated AOL shares. In fact, as stupid as the deal was for TW, it was equally brilliant for AOL and its shareholders.
posted by JPD at 9:41 AM on January 11, 2010 [11 favorites]

It went "wrong" because AOL was massively overvalued. This isn't rocket science. When they were doing this, it seemed obvious to me.
posted by Ironmouth at 9:42 AM on January 11, 2010 [2 favorites]

That was always so weird. I mean, but the time the merger happened it seemed like not only had the dot-com bubble burst, or was at least on the down-slope (maybe Time Warner thought they were getting a good deal based on past valuation?). And not only that, it was also clear that AOLs business model, charging for modem-based internet access by the hour, was completely dead and not coming back. Although apparently their subscribers peaked in 2002.

They seemed like a dinosaur as far back as '98.
posted by delmoi at 9:42 AM on January 11, 2010

Ted Turner seems to be confusing a disaster for the country with a disaster for his bank balance.

What's good for Ted Turner is what's good for the country.
posted by grouse at 9:43 AM on January 11, 2010

America OFF-line. AM I RITE?!!?!
posted by blue_beetle at 9:55 AM on January 11, 2010 [1 favorite]

Ted Turner seems to be confusing a disaster for the country with a disaster for his bank balance.

To be fair, the ensuing loss of hundreds of billions of dollars in stock value was also bad for a lot of pension funds and retirement accounts. Time Warner is an S&P 500 company, which means a lot of people were affected, many of them neither rich nor stock market speculators.

Still, putting it up there with Vietnam and Iraq is pretty hyperbolic.
posted by jedicus at 9:55 AM on January 11, 2010 [1 favorite]

My view has always been the same as JPD's -- that while it was a disaster for TW, and its shareholders, it was a coup for AOL and their stockholders. That they as good as bought TW with Monopoly money. Is there something we're missing somewhere?
posted by tyllwin at 9:57 AM on January 11, 2010

I worked in a TW company at the time; they converted our profit-sharing balances to AOL stock options at a price-per-share well over what the stock was currently selling for. That was really great.
posted by drmanhattan at 9:59 AM on January 11, 2010

I was working steadily under contract for Time's Canadian edition in 2000-01, and the chaos of the merger was sufficiently broad in scope that even I caught a few glimpses of it.

In particular, Time had this antiquated internal computer network that all the old Time hands had nevertheless habituated themselves to quite well, because it operated more or less like a digitized version of the kind of handwritten and telexed document editing that they'd cut their teeth on. It was a creaky old thing, but it worked. All at once, they were forced to switch over to a shiny new intranet that AOL had cooked up, and it struck me, in my limited exposure, as the Geocities of corporate intranets. Just awful in every regard, no one understood it, no one by the sound of it had even really checked ahead of time to see how intranets were being used by magazine staffers.

As one such staffer at the Toronto bureau put it to me, "They're in the business of making dog food, so they're making us eat it."
posted by gompa at 10:35 AM on January 11, 2010 [4 favorites]

I worked at AOL (originally at Spinner.com, which they'd bought in May 1999), and it wasn't a win for us either. Our employee stock options, which had been doing pretty well, went underwater soon after the announcement, and never even came close to recovering before I left.

I never felt like there was a real plan for making the most of the merger. We did a few halfhearted cross-promotions, but that was about it.
posted by aneel at 10:36 AM on January 11, 2010

JPD:

"as stupid as the deal was for TW, it was equally brilliant for AOL"

Yes. My own feeling about it always was (and continues to be) that Steve Case saw the late-90s Internet Bubble (and his company's own dial-up business) on the edge of popping and hooked AOL onto a viable company so that it would survive the ensuing collapse. Which it did, although that wasn't a great thing for TW.
posted by jscalzi at 10:41 AM on January 11, 2010 [2 favorites]

The funny thing is is that because Time Warner had a large cable network in major metro areas, at the time of the merger TW was in fact the better prepared company to get broadband to it's subscribers.
posted by PenDevil at 11:01 AM on January 11, 2010 [1 favorite]

The merger of Time Warner and AOL should serve as a warning tale of any media corporation seeking to buy Facebook. Walled garden crap doesn't work on the Internet, guys.
posted by mark242 at 11:12 AM on January 11, 2010

Let's got back to Time's first big mistake: merging with Warner.
posted by Faze at 3:52 PM on January 11, 2010 [1 favorite]

From what I read Levin did apologize (for whatever its worth):

Mr Levin said. “I was the C.E.O.; I was in charge; I’m really very sorry about the pain and suffering and loss this has caused. I take responsibility. It wasn’t the board; it wasn’t my colleagues. It wasn’t the bankers and lawyers.”
posted by Pasa la bola chetu at 8:24 PM on January 11, 2010 [1 favorite]

Interesting that TW was considering a full merger with Yahoo! initially. That, to my mind, would have been a much better fit in terms of outreach, culture and media properties. Yeah, Time's internal resources would have been instantly antiquated, but Yahoo!, unlike AOL, was still held in high esteem. I'm reasonably certain that if Jerry Yang could do it all over again, he would strongly reconsider.

From what I could tell, the main problem was TW's old-school way of thinking that it could just buy an internet company, any "internet company," and that'd be it. Anyone who knew anything about internet culture could have told him that AOL was the exact wrong company for a number of reasons, but most of all because its demographics were shite and there was absolutely no growth potential there. There were just too many people -- within the companies, in the media reporting on it -- who knew nothing of what was going on and just saw "SUPER ONLINE INTERNET MERGER BUSINESS WOW!" and blew this up.

Lessons learned, I suppose.
posted by solistrato at 10:58 AM on January 12, 2010