Saturday, 11 August 2012

Strategic Analysis on AOL Times Warner

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AOL Times Warner Inc.

I. Introduction

AOL Time Warner is the world’s leader in internet technologies, e-commerce services, interactive services, and web brands. AOL started up in 185 and initially offered limited online services for then a relatively small market for personal computer users. Today, it serves more than 7 million members of its flagship AOL service, along with more than .8 million CompuServe members, 80 million registered users of ICQ, and more than 4 million registered users of Netscape.com service. AOL also operates some of the most popular services on the World Wide Web, including Map Quest, AOL Instant Messenger, AOL Moviefone, Spinner.com and Null Soft’s Winamp, and Digital City, Inc. With its major focus on providing convenient easy-to-use services for mass-market consumers, AOL has played a major role in creating the consumer online experience worldwide, and is leading the development of the next generation Internet. Through its strategic alliance with Sun MicroSystems, the company develops and offers easy-to-deploy, end-to-end e-commerce and enterprise solutions for companies operating in the net economy. AOL has always been known for providing the most convenient and easiest-to-use interactive service available. The Company pioneered technologies like Keywords for simple navigation, and the Buddy List to enable instant messaging by showing which of the member’s contacts are online. The flagship service offers members a complete package of online features, including the popular My Calendar to organize busy schedules, You’ve Got Pictures to view and share family photographs online, a built-in multimedia player to enjoy the Web’s growing audio and video content. The service can be accessed using any high-speed connection, or by dial-up connections from virtually anywhere in the world. AOL also has leaded the way in protecting members’ online privacy and security. The service’s built-in Parental Controls offers the best available tools for parents to protect their children from inappropriate online content, choose whom they may or may not receive e-mail from, and even limit the amount of time they spend online. The privacy protections give online shoppers the highest degree of protection for their credit card and other personal information. AOL is the only global interactive services provider, offering AOL services in 16 countries in 8 languages. At the same time, AOL offers leading local services on the World Wide Web. The Company’s Digital Cities, MapQuest, and MovieFone brands help consumers keep convenient track of what’s happening in their own hometowns.


AOL is the world’s leader in interactive services, as well as, the largest media company in the U.S., making it the fourth largest company in any industry in the U.S. This is the largest merger in U.S. corporate history. America Online’s merger with media giant Time Warner has created a multimedia behemoth. The two corporate giants join through stock worth $50 billion. The new company is now known as AOL Time Warner Inc.

II. Strategy

AOL Time Warner’s mission is to build a global medium as central to people’s lives as the telephone or television…and even more valuable. With the focus on consumers, this company is a global company delivering branded information, entertainment, and communications across rapidly converging media platforms and changing technology. The merger combined Time Warner’s vast array of world-class media, entertainment, and news brands and its technologically advanced broadband delivery systems with America Online’s extensive Internet franchises, technology, and infrastructure, including the world’s premier consumer online brands, and unmatched e-commerce capabilities. AOL Time Warner’s unparalleled resources of creative and journalistic talent, technology assets, and expertise and management experience, will enable the new company to dramatically enhance consumers’ access to the broadest selection of high-quality content and interactive services. By merging the world’s largest Internet and media companies, AOL Time Warner will be uniquely positioned to speed the development of the interactive medium and the growth of all its businesses. The new company will provide an important new broadband distribution platform for America Online’s interactive services and drive subscriber growth through cross marketing with Time Warner’s finest brands.

AOL Time Warner’s brands will include AOL, Time, CNN, CompuServe, Warner Bros., Netscape, Sports Illustrated, People, HBO, ICQ, AOL Instant Messenger, AOL MovieFone, TBS, TNT, Cartoon Network, Digital City, Warner Music Group, Spinner, Winamp, Fortune, AOL.COM, Entertainment Weekly, and Looney Tunes. In addition, to fully integrating its brands into a digital environment and bringing them closer to consumers, AOL Time Warner will have a wealth of creative resources to develop products specifically suited to interactive media.

Principal Competitive Strategy

AOL Time Warner’s principal competitive strategy is a growth strategy. They seek out opportunities to acquire other company’s within the same scope of business as theirs and that uses the same or similar types of technology and tools.


AOL has sub-strategies that also define the organizations capabilities. This includes to continuously throughout the years make technology simple for its consumers and the offer of simple e-business solutions to the market. These core competencies have proven to be a strength that can be strategically applied to a wide array of products and markets.

Financial Analysis

After the merge of AOL and Time Warner, the company increased its revenue and the net income rose. The revenue reflected growth in the number of subscribers and increased advertising income. The earnings reflected the growth of higher margin advertising. However, in recent months

III. Strengths and Opportunities

AOL Time Warner has many strengths, weaknesses, opportunities, and threats. Customer care seems to be one of AOL’s greatest strengths. They offer a complete package of online features, on-line privacy and security, parental controls, and magnificent customer service. Their determination in creating a loyal customer base has paid off. Some other strength which AOL possesses is the generation of revenue and the brand name. The generation of revenue is an estimate of AOL revenue breakdown suggests that it can generate over one billion dollars of sponsorship and advertising revenue, which is about .5 times that of Yahoo’s revenue. The AOL brand name is involved is so many different markets that when it comes to selling, what the customer will know is the AOL brand name.

America Online and Time Warner will have many opportunities to combine their assets to create unique new expanded services to drive increased consumer usage, and marketing and promotion capabilities to fuel rapid growth for their shareholders and employees. The combination of Time Warner’s prestigious music labels and roster of established stars and new artists with America Online’s online marketing and e-commerce capacities will create powerful music destinations. America Online’s AOL TV and Moviefone combined with Time Warner’s cable networks and Warner Bros. movies and television will provide valuable programming, cross promotional, and e-commerce opportunities. AOL Time Warner will be able to develop and leverage technology across all of the businesses, creating new opportunities to expand services and share infrastructure. AOL Time Warner’s ability to offer the finest content will expand the already growing number of consumers seeking to access the Internet at high speeds via cable modem, DSL, wireless or satellite.

IV. Weaknesses and Threats

Because of the merge, Time Warner is required to open up their cable systems to rival Internet providers. This results in more Internet companies on Time Warner’s cable, which increases competition and decreases the amount of profit that AOL was set to make from the deal. As a result of the merger, AOL issued a premium to the Time Warner stockholders, which ended in them getting one and a half shares for each Time Warner share that they currently owned. This stockholder premium has proved to be expensive in the future, as AOL has been obligated to make payments on the combined company’s debts. Also, this merger has raised issues of concern with the local government because it has created a threat to monopolize the industry.

The top of the list concerns for AOL is the introduction of broadband as a threat, a shift to free dial-up access. The emerging trend of free dial-up access offered by NetZero is threatening to devour AOL’s free access fee, which is still the bulk of and estimated to be as high as 75% of its revenue base. The market is highly competitive. Microsoft, as well as, other formidable competitors are trying to dominate the Web-browser market and discourage innovation and competition. Therefore, this affects AOL dramatically more serious in its potential consequences for a competitive new media entertainment.

V. Problem Statement

AOL Time Warner has reported a loss of $45.5 billion, due primarily to the depreciation of its flagship America Online property, bringing the company to post an annual loss of $ billion, the biggest corporate loss of U.S. history. This has caused AOL Time Warner’s board of directors to remove the “AOL” from its corporate name. Richard Parsons, AOL Time Warner CEO, stated, “We believe that our new name better reflects the portfolio of our valuable businesses and ends any confusion between our corporate name and the America Online brand name for our investors. The problem results in the new accounting rules, the overall weakness of the advertising industry, and the depreciating value of America Online, the Internet, and the cable business. With this and the increased level of competition in mind, their leadership must be solid and able to conform to the changes that occur in this industry. These changes include the way in which people use and access their communication sources.

VI. Strategic Alternatives

There are many alternatives that are open to Time Warner’s organization. The most feasible alternatives are those that allow the company to maintain its competitive advantage, reduce costs, and increase its profits. Time Warner should conduct a thorough industry analysis at least twice per year. This would help them to understand the structure of the industry and how profitable it can be. This would also allow them to see apparent opportunities for the growth in which they desire. Time Warner can increase revenue by incorporating free dial-up access, changing advertising strategies, and placing value back in the cable and Internet businesses. They should also leverage their personnel department in order to maintain a well-trained, as well as, diverse group of employees.

VII. Recommendations

We strongly suggest that Time Warner, whom is still under investigation by the government, change its profit structure because it is no longer solely dependent on its Internet services for revenue. In doing so, Time Warner can eliminate the free access fee and incorporate the free dial-up access, which will increase revenue. With the acquisition of Time Warner, the largest media monopoly, they will now have proceeds coming from Time magazine, CNN, Warner Bros., People magazine, Looney Tunes, Fortune, the Warner Music Group and HBO, which are all Time Warner names. In addition, Time Warner should change its advertising strategies. If Time Warner focuses on these alternatives their future growth and profitability would be substantial.

Now that the name “AOL” has been dropped from Time Warner and there have been management changes, the company has a lot of momentum and an exceptional chance of becoming very profitable if their growth prospect matches that of what this company is capable of. In order for this to happen, Time Warner has to be able to smooth out some of its rough edges, such as anti-trust issues, FCC regulations, and its broadband court battle.

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