Andreas Schmidt, AOL Europe's president and chief executive, famously dubbed it a win-win situation. But today, four years after the $350 billion marriage of AOL and Time Warner, the company is still counting the losses.
First, its share price has suffered a dramatic fall. Second, its ad revenue has dropped: AOL's was down by 33 per cent in the company's third-quarter 2003 results and is expected to fall further to as much as 45 per cent when Time Warner's full-year's results are unveiled at the end of this month.
Third, the company lost face when its former chairman, Steve Case, and its chairman and chief executive, Richard Parsons, were subpoenaed by the Securities & Exchange Commission over an investigation into an ad deal with Bertelsmann. Finally, last October, Time Warner ditched AOL from its name. The symbolism of shedding the name largely responsible for its share price tumble was not lost on Time Warner watchers.
Merger malaise even appears to have infected Time Inc, the normally blooming publishing division, which recorded an ad sales decline of 2 per cent to $565 million in the third quarter of 2003, although this is blamed on the harsh ad climate, which worsened during the war in Iraq. "The fact Fortune's ad revenues had declined 6.6 per cent was due largely to a drop in spend from the business-to-business and technology advertisers it relies on following the onset of the war," Time Inc's chief financial officer, Richard Atkinson, says. "Time was also hit by the withdrawal of the same advertisers."
Time Inc expects to see a further small decline in earnings in the next batch of results. But to put the division's performance in perspective, it still delivers more than $1 billion in earnings and, financially, has probably fared better than many private publishers that don't have to declare their figures.
Time Warner also insists that its Achilles heel, AOL, is on the road to recovery, or at least taking steps to stem the haemorrhaging of subscribers and ad revenue.
The subsidiary has been forced, for example, to adopt a more flexible attitude toward its content. "AOL has changed the way it looks at advertising," Tricia Primrose, a Time Warner spokeswoman, says. "It has had to rethink what to offer advertisers and not just look at buttons and banners but allow clients to take a more interactive role with subscribers by doing marketing deals around content."
She adds: "AOL has had a tough press but it's still the world's largest internet service, with 24.7 million US subscribers and 6.3 million in the rest of the world."
It is clear that AOL, Time Inc, Turner Broadcasting and other Time Warner subsidiaries are battling with competitors in their own sectors but to what extent are they working together?
The AOL Time Warner merger was partly sold to the world as a once-in-a-lifetime opportunity to share content, distribution channels and advertising.
Subscribers to Time through to AOL would be the winners, along with advertisers presented with cut-price cross-media deals spanning the internet, print and TV empire.
Regarding advertising, there was enormous pressure on the sales directors to offer synergy between the brands. Representatives from the subsidiaries created advertising "councils" in major markets and had some successes, including a major deal with Unilever.
But, according to an insider, the global cross-media sell never took off on a grand scale because Time Warner lacked a senior figure to force brands to collaborate and to encourage editors to be more flexible about the use of their content. "Each brand had its own kingdom and didn't want to help the others," Atkinson recalls. "Then there was the fact Time Warner was home to brands so diverse that they didn't sit happily together on a schedule. What does AOL add to a schedule with CNN, Fortune and Time? AOL isn't aimed at businessmen; it's a mass-market media."
Some of the councils have since disappeared. However, Mike Kelly, the president of Time Warner Global Marketing, the New York-based division responsible for initiating and executing worldwide cross-media marketing deals, says deals are still struck (Toyota and IBM are two clients signed up) but the hard sell has softened.
"When the merger happened, there was a lot of expectation within the company about the financial impact of synergies between the businesses," Kelly says. "We still work together on innovation and collaboration but when we feel it's to a campaign's advantage and not just for the sake of doing it. We don't sell what we want to clients but create what they want." And as there are only a handful of global advertisers, most want smaller groups of media that target similar consumers. Time, Fortune and CNN struck their first deal for Cathay Pacific in 1994 and have been collaborating ever since.
The Time Warner of 2004 is a very different animal from the cocky beast during the merger. The mood now is one of cautious optimism, epitomised by a comment from Atkinson: "2003 was a solid year and we're well positioned to take advantage of the expected advertising recovery in 2004."
TIME WARNER'S GEMS
The problem with being a Time Warner brand is global performers rarely get a chance to shine amid tales of plummeting share prices, but there are some real gems within the empire.
InStyle consistently tops the list of "circulation performers" in the US, selling one million newsstand copies per issue - far exceeding the industry average by shifting 60 per cent of copies distributed. In the UK, the title's annual circulation figures leapt an astonishing 17.3 per cent, according to the latest January-June 2003 ABCs.
CNN International has the biggest audience of financial executives of any global news channel, according to the Global Capital Markets Survey, and is the most popular media among Europe's business elite, according to the 2003 European Opinion Leaders Survey.
Finally Time Inc's flagship brand, Time, deserves a mention as its worldwide circulation remained steady, hovering around the 5.4 million mark.