Although I'm posting this editorial from the NY Times of a few days ago
primarily for Denys' benefit, given his high regard for the paper, the
general take-home-lessons in the piece are worth noting.

The promise of the AOL/Time Warner merger was its natural synergy. AOL would
provide a "new economy" distributional infrastructure into millions of homes
while Time Warner would naturally provide the content. In fact, such a
strategy actually has some small ring of plausibility to it, at least in
comparison to merging two computer companies. The AOL and Time Warner had
almost no overlapping products and thus they could truly possibily have
merged into something greater than either one alone.

Nevertheless, AOL Time Warner has taken such a beating, both in revenues and
on Wall Street, that a contest was created recently for current Ivy League
business school graduate students to come up with a better strategy than that
AOL is currently exhibiting. The winning proposal would get more than merely
just an "A" for their efforts. They would also get $20,000, which is unlike
any homework assignment I ever had in school.

=======================================

April 29, 2002

Reviving AOL Time Warner

When Richard Parsons, AOL Time Warner's incoming C.E.O., spoke to a roomful
of Harvard, Yale, and Dartmouth business school students last week, he made a
joking plea. "I'm desperately in need of a strategy," he told his youthful
audience. One group that is not laughing at Mr. Parsons's wry remark is AOL
shareholders, who have been forced to look on glumly as management reported a
$54.2 billion quarterly loss last week, the largest in United States history,
and as the stock has plummeted nearly 40 percent since January.

Mr. Parsons, who officially moves up to his new post next month, is taking
the helm of a company built around a big bet that has not yet paid off. In
January 2000, when the merger of America Online and Time Warner was first
announced, the two companies declared that they were building a new kind of
media company for a new age. The fast-growing AOL was going to be the growth
engine of the new entity, carrying Time Warner's stodgy old media divisions
along with it. The biggest upside from the deal would be the synergy that
would result as AOL's Internet service and Time Warner's cable, movie, music
and print businesses cross-promoted each other, making the sum of the two
companies far greater than their parts.

That is not how things have worked out. America Online is sputtering. New
subscriptions have slowed, and advertising and e-commerce revenue, which
soared 103 percent in the boom year of 1999, declined in the fourth quarter
of 2001. That's not surprising, given the tough economy, but it complicates a
business model predicated on AOL's moving ever upward. High-speed Internet
access, widely touted as key to the company's future, has had a low-speed
rollout. For all the talk about the power of the new economy, what has kept
the company growing is the performance of old-economy units like Time Inc.
magazines and Warner Brothers movies.

Synergy appears, similarly, to have been oversold. AOL Time Warner can boast
of some success, including selling magazine subscriptions and promoting
movies on AOL. But the bolder vision of cross-promotion by all the company's
divisions has not been realized. As a matter of free-market competition and
journalistic ethics, that's a good thing. Time Warner Cable insists that it
is not favoring AOL Time Warner content, and the company's magazine editors
take offense if anyone suggests that they are giving preferential coverage to
AOL Time Warner movies and books.

Righting AOL Time Warner is a daunting task, particularly in these hard
economic times, which have taken a toll on large media companies. A lawyer
and onetime banker, the personable Mr. Parsons is in his element lobbying
regulators and charming potential corporate partners. But now he needs to
show that he has the skills, and the vision, to build a media company for the
21st century. Mr. Parsons will have help from the company's chairman, Stephen
Case, founder of AOL, and Robert Pittman, the AOL Time Warner chief operating
officer, who has long experience in traditional media. But it will fall to
Mr. Parsons to inspire Wall Street, which recently drove the stock below $20,
AOL's worst showing since 1998.

The Ivy League business school students Mr. Parsons spoke to last week were
participants in a contest, sponsored by Goldman, Sachs & Company, to come up
with the best strategy for AOL Time Warner. The four-woman team from Harvard,
which took home the tidy $20,000 prize, recommended that the company stop
emphasizing synergy and instead focus on making each of its individual
business units as profitable as possible, by making them the best in their
areas.

That would mean abandoning one of the key articles of faith behind the
merger. Whether it is that idea or something better, if Mr. Parsons and his
colleagues want to win over the skeptics on Wall Street and across the
country, they will have to articulate a clear vision for how they intend to
revive this struggling behemoth -- and then make it happen.

======================================

If the same winning strategy were applied to yet-to-be-demonstrated-synergy
of the new HP-Compaq, the emphasis would be to make the very unique
divisions, such as CSY, the very best that they could be.

Wirt Atmar

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