Time Warner surrendered its role as the world's biggest media group during 2009, spinning off two of what it had come to consider as non-core properties in order to refocus as a content business. The first to go was Time Warner Cable, demerged as an independent business that year although it continued to carry the company name until 2016. Far more significant in many ways was the year-end demerger of AOL. That company had joined the group in 2000, in a deal which came to symbolize the madness of the dotcom era. Back then, friends and enemies alike promised that the deal would have a far-reaching effect on the way consumers accessed news, music and filmed entertainment. Yet within two years, the real question was whether the deal was even worth doing in the first place. The combined giant failed spectacularly to live up to all the rhetoric, and in early 2003 AOL Time Warner recorded the biggest loss in US history, almost $100bn, when it wrote off the value of its over-inflated assets, primarily America Online itself. AOL's contribution to the group continued to steadily decline, and Time Warner finally spun off the business in 2009 as a separate company. Magazine publisher Time Inc also left the group in 2014. Instead, the slimmed-down former giant now focuses its attention solely on the the Turner and HBO cable networks and movie studio Warner Bros. In Oct 2016, Time Warner accepted an offer to be acquired for $85bn by AT&T. The deal is subject to what is likely to be considerable regulatory scrutiny.
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Adbrands Weekly Update 23rd November 2017: War is declared. The US Justice Department filed a lawsuit to block AT&T's acquisition of Time Warner on antitrust grounds. "This merger would greatly harm American consumers," said assistant attorney general Makan Delrahim. "It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy." AT&T CEO Randall Stephenson said the suit is absurd - "It defies logic" - and vowed to fight it in court on the basis that vertical integration such as this can have no impact on consumer choice and pricing. Most right-minded commentators agreed. Even many supporters of a tough antitrust stance in general believe that a legal challenge to this deal is unwise. Better to have offered approval with conditions, as with Comcast's acquisition of NBC Universal. US regulators have not tried to block any merger of companies that are not direct competitors for almost 40 years. That sets up a major conflict between big business and the Trump administration. Indeed, many observers believe this lawsuit is itself largely motivated by Trump's antipathy towards Time Warner's CNN. President Trump renewed his attacks on CNN only last week in a tweet. This week, in a typically ill-advised off the cuff comment, he reiterated his personal belief that the merger should be blocked, even as he admitted he shouldn't comment on the matter. Delrahim denies any political influence on his decision to file the suit. A wider concern for big business is that this sort of stance on the part of government will restrict future merger and acquisition activity. Bizarrely, the DOJ's lawsuit coincided with separate moves by the government to repeal net neutrality. Such an action is clearly not in consumers' best interests since it would remove the barriers that currently prevent companies such as AT&T and Verizon from throttling broadband access to selected services and charging extra fees for high quality streaming.
Adbrands Weekly Update 9th Nov 2017: After a year of investigation, the US Justice Department was reported to have begun building a legal case against AT&T's proposed acquisition of Time Warner in expectation that the two sides will not find common ground on an agreed settlement. AT&T initially voiced confidence that the merger would be allowed. "When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios," said a spokesman. "For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market." A day later, however, it was revealed that AT&T has been told that it will have to sell either Time Warner's Turner TV division - which houses the CNN news channel as well as other cable stands - or its existing DirecTV operation in order to win clearance. Rival broadcasters have already expressed their concerns over the enormous and wide-ranging power that the proposed deal would give the combined company. Perhaps more significantly, President Trump has also suggested that he is opposed to the deal, largely because of his ongoing feud with Time Warner's CNN channel. The DOJ denies any Presidential pressure to block the deal, but the whiff of political motivation might give AT&T ammunition with which to fight any potential lawsuit. Negotiations are continuing for now, but are becoming increasingly fractious. AT&T warned this week that its earlier timetable for a Q4 completion is now uncertain.
Adbrands Weekly Update 21st Sep 2017: As the New York Times pointed out, "It was inevitable that a streaming service would win an Emmy for best drama at some point. But no one expected Hulu to get there first." Despite a huge marketing campaign, Netflix was pipped to the post in almost all of the major categories in the US Emmy Awards. The most prestigious drama awards were mostly scooped by Hulu's The Handmaid's Tale, while NBC's Saturday Night Live cleaned up in comedy, winning the prize for best variety sketch series for the first time in two decades. As usual, though, HBO took home the most awards overall, its 16th such sweep. Including creative arts categories not covered in the telecast, HBO took home 29 trophies, including for Veep, Big Little Lies and The Night Of. Netflix was by no means empty-handed at 20, including important nods for Black Mirror and The Crown. The big losers were once again the broadcast networks. Only NBC collected awards in the main awards show; there were none for telecast host CBS, ABC or Fox. That gradual shift of the Emmys (like the Oscars before them) away from mass-market entertainment towards niche or "arthouse" content has also prompted a significant decline in viewers of the awards show. This year's telecast attracted a record low of 3.22m adults in the 18-49 demo, down 10% on last year.
Adbrands Weekly Update 9th February 2017: Time Warner posted solid results for 2016, which could be its last year as a standalone business if the proposed sale to AT&T goes through. Strong box office for its DC Comics movie franchise and Fantastic Beasts lifted revenues from the filmed entertainment division to a record high of $13.0bn. Total revenues grew 4% to $29.3bn, but the group's biggest profit driver remains the Turner cable division, which accounted for well over half the group's operating income, more than the movie and HBO divisions combined. Net earnings rose 2% to $3.93bn.
Adbrands Weekly Update 27th Oct 2016: In a bold and breathtaking move that would unite two giants in communications and media, US telecoms titan AT&T has agreed to acquire Time Warner for $85.4bn. If completed, the deal would totally reshape the US media landscape, combining AT&T's market-leading pay-TV platform DirecTV - acquired last year - and its extensive broadband network with prestigious media assets including Warner Bros, CNN, Turner Cable and HBO. It will also underpin AT&T's newly announced streaming video service DirecTV Now, confirmed for launch next month, offering 100 channels for $35 per month. The profile of the merged group would be similar to the equally vast Comcast entity, which straddles content creation (NBCUniversal) and delivery systems (Xfinity cable). The agreement is being regarded as a triumph for Time Warner CEO Jeff Bewkes, who had previously turned down a less valuable merger offer from rival 21st Century Fox. Under the AT&T arrangement, Time Warner executives would retain oversight of the group's content units, whereas with Fox they would almost certainly have ceded control to a Murdoch-led team. However, completion of the deal is by no means certain. A succession of politicians, industry groups, and media and telecoms rivals have stepped up to voice their concerns with the merger. Regulatory approval - if it is forthcoming - is sure to be accompanied by multiple enforceable conditions. Nor was the initial reaction from investors positive, with the would-be partners suffering some erosion of their share price. Both AT&T and Verizon have been pushing aggressively into media to offset the sudden slowdown in the saturated mobile market. While Verizon has focused its attention on online news and entertainment through acquisitions like AOL and Yahoo, AT&T has set its sights on traditional media channels.
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Free for all users | see full profile for current activities: [See Warner Bros profile for the history of Time and Warner separately] The creation of AOL Time Warner was first made public in January 2000, when AOL announced it would acquire media giant Time Warner for what was then $190bn in stock. The deal created a business with a market value, also in 2000 prices, of over $350bn. (By early 2003, the group's value had plummeted to around one-sixth of that sum). Much coverage was given to the apparent implications of such a mammoth deal, combining the world's biggest online service with its biggest media company and America's leading cable operator. The deal, said commentators, would have a far-reaching effect on the way in which consumers accessed news, music and filmed entertainment. Equally undoubted was the fact that it would probably take longer than both sides would like to get these new delivery systems into play. However the scale of those problems only became apparent very much later.
In the meantime, the announcement of the deal raised a storm of protest from other internet service providers and media groups, who claimed the merger would create a virtual monopoly. Despite the best efforts of several companies, not least Disney, to derail the merger, the business was cleared to proceed in December 2000. AOL's founder Steve Case became chairman of the merged AOL Time Warner. Time Warner boss Gerry Levin became CEO, with Richard Parsons and Robert Pittman respectively taking the roles of COO for the Time Warner and AOL businesses. AOL Time Warner officially began trading in January 2001.
Almost immediately, problems began to emerge. The group had set itself an ambitious target of increasing combined revenues in its first year from $36bn to $40bn. However this was hampered by an economic downturn in the internet and media sectors. In the end the group's revenues fell short at $38bn. Meanwhile, it appears that the relationship between Case and Levin began to fray as the duo argued over the level of spending on convergence between online and offline media. At the same time, AOL's reputation was severely dented by a series of horrendous financial developments. First, in accordance with a deal struck at the height of the internet boom, the group was obliged to pay more than three times market value to buy back the shares in AOL Europe controlled by former partner Bertelsmann. AOL Time Warner's shareholders were even more dismayed by the $600m loss reported by AOL Europe for the year. Meanwhile internet advertising revenues were plummeting and subscriber growth was slowing at an alarming speed. Writing off value related to the online business caused AOL Time Warner to report a staggering $54bn loss for just the first quarter of 2002, then the biggest ever corporate deficit.
With problems at AOL growing, the group's share price plummeted. By July 2002, the stock was down almost 80% from where it stood when the merger was announced. Amid increasing resentment from former Time Warner managers at the apparent damage done to their businesses, Gerry Levin stepped down as CEO in favour of Richard Parsons, who announced a complete management reshuffle later that year. This led to Time Warner executives taking all the group's senior positions except that of chairman Steve Case. Despite negative comment from analysts, Parsons continued to argue that the merger could be made to work, and denied the benefits of a demerger. Later that year, however, the group was forced to declare that it had discovered accounting regularities at AOL. After further investigation it was revealed that AOL had overstated both its revenues and profits by $200m and $100m respectively in the period since late 2000. More problems emerged when the group was sued by one of America's largest pension funds. The lawsuit alleged that AOL employees had contributed to a $193m accounting fraud by online real estate company Homestore.com by participating in bogus advertising scams designed to inflate the dot.com's revenues. In a bid finally to draw a line under the financial bad news, Richard Parsons, pushed through a further mammoth charge for goodwill write-offs, and announced a through-the-line review of the America Online unit. In the meantime the SEC mounted a full investigation into the group's accounting policies.
A series of huge write-offs of goodwill relating to acquisitions during the course of 2002 were capped by a final charge of $45bn. As a result AOL Time Warner reported a full-year loss of $99bn, an almost inconceivable sum in eroded value. Yet this staggering loss, largely an accounting adjustment, masked what had otherwise been a generally satisfactory year for the group's main media divisions.
With virtually all of the group's senior management positions now occupied by former Time Warner staffers, Steve Case was the last remaining AOL team member in a position of power. He avoided an initial call to oust him at a shareholders' meeting in September 2002, but finally succumbed to pressure in May 2003, although he remained a director of the group until November 2005. Ted Turner, formerly the group's vice chairman and its single largest shareholder, as well as an outspoken critic of the AOL business unit, also resigned in early 2003.
Following Steve Case's departure, AOL Time Warner called a truce in the long-running legal skirmish between AOL and Microsoft. This related to the so-called browser wars of the 1990s, in which the Netscape browser later acquired by AOL was steadily crushed by Microsoft's Internet Explorer. Just a year earlier, the group had reheated its complaint by seeking damages from Microsoft. In June 2003, the software company conceded a payment of $750m and the two sides agreed to abandon their differences and instead work together to broaden access to digital content online. In September 2003, seeking to deflect some of the negative media attention focused on the group as a result of AOL, the board approved a suggestion to drop the AOL tag from the group name, once again becoming Time Warner.
Soon afterwards the group agreed a deal to sell its Warner Music division to a consortium of investors headed by former Seagram boss Edgar Bronfman Jr. It finally closed the various SEC investigations into accounting procedures at AOL in December 2004 by agreeing to make a total settlement payment of $510m. In August 2005, it also settled shareholder lawsuits over the AOL-Time Warner merger, and the subsequent erosion of the group's share price, with a massive $2.4bn payout. This wasn't enough for corporate raider Carl Icahn, who has built a long and profitable career out of carving up unwieldy conglomerates. He subsequently launched a campaign to push the group towards a full break-up. Icahn launched an bitter attack via the media on Richard Parsons' management record and argued that Time Warner should be split into four separate businesses of Time Warner Cable, Time Warner Entertainment, Time and AOL. Former AOL boss, Steve Case, arguably the main architect of the merger which has inspired Time Warner's troubles, also emerged from the shadows to add his voice to the mix. He claimed to have proposed a break-up of the group in summer 2005, but the plan was turned down by the board. After several months of bitter opposition to Time Warner's management, Icahn abruptly dropped his suit in February 2006 when he found he was unable to raise enough support to depose the current board. See full profile for current activities
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