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NAIC: 514191 On-Line Information Services; 541519 Other Computer Related Services; 512110 Motion Picture and Video Production; 512120 Motion Picture and Video Distribution (pt); 511120 Periodical Publishers (pt); 511130 Book Publishers; 513210 Cable Networks; 513120 Television Broadcasting; 334612 Prerecorded Compact Disc (Except Software), Tape, and Record Reproducing (pt); 711211 Sports Teams and Clubs
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1903: The Warner brothers open their own movie theater in Newcastle, Pennsylvania.
1911: The Warners produce their first film, Perils of the Plains.
1915: Sam and Jack Warner move to Los Angeles, setting up film production studios, while Harry and Albert Warner set up distribution company in New York.
1923: Briton Hadden and Henry Robinson Luce publish the first issue of Time magazine.
1924: Hadden and Luce launch their second publication, the Saturday Review of Literature.
1925: Warner Bros. acquires Vitagraph Studios in New York, launches Vitaphone joint venture.
1927: Warner Bros. release The Jazz Singer and revolutionizes film history by introducing the "talkie."
1929: Warner Bros. acquires Stanley-Crandall movie theater network
1930: Time Inc. publishes the first issue of Fortune.
1936: Company publishes the first issue of Life.
1949: Warner Bros. is forced to sell off its movie theater network.
1954: Company launches Sports Illustrated.
1961: Company forms Time-Life Books, a book publishing subsidiary.
1966: Jack Warner sells Warner Bros. to Seven Arts.
1969: Kinney National Services acquires Warner Bros. (and renames itself Warner Communications in 1971).
1970: Ted Turner acquires first television station in Atlanta, forming future Turner Broadcasting System.
1972: Time ceases publication of Life; launches Home Box Office (HBO) cable TV network and Money magazine.
1974: Company publishes first issue of People.
1976: Turner renames his television station as Superstation TBS and begins supplying programming to cable television operators.
1980: Time launches Cinemax cable TV network; TBS launches CNN.
1985: Steve Case forms Quantum Computer Services, Inc. to provide online service for Commodore computer users.
1988: Quantum introduces an online service for owners of IBM computers.
1989: Quantum begins offering an online service for Apple computer users; introduces "America Online," a new nationwide network for computer owners.
1990: Time Inc. acquires Warner Communications, forming Time Warner Inc.
1991: Quantum Computer Services changes its name to America Online.
1992: Time Warner forms Time Warner Entertainment subsidiary to house its cable companies; America Online (AOL) makes an initial public offering, announces an alliance with Apple Computer.
1993: AOL introduces an online service designed specifically for Windows users.
1996: Time Warner acquires Turner Broadcasting System.
1998: America Online acquires Internet service provider Compuserve.
1999: AOL acquires Netscape, as well as MovieFone, Spinner, and NullSoft.
2001: AOL acquires Time Warner in a $106 billion megamerger.
2003: Company proposes dropping "AOL" from its name.
Global media powerhouse AOL Time Warner Inc. represents one of the most ambitious corporate mergers in U.S. history, combining the vast entertainment, network, and publishing interests of the Time Warner group with the world's largest online service, AOL. Yet the merger, which when completed in 2001 promised a new era of media content and delivery, quickly ran into snags--not the least of which was the sagging and possibly outmoded fortunes of AOL itself. Affected by downturns in the high-technology industry and in advertising spending, AOL Time Warner (AOL TW) has seen its value plummet from nearly $285 billion at the time of the merger to as low as $61 billion just two years later. The company's revenues, which rose to nearly $41 billion, nonetheless produced losses of almost $98 billion in 2002--the largest loss in U.S. corporate history. Much of that can be blamed on the perennial money-loser America Online, which in 2002 saw its subscriber base shrink for the first time due to AOL's late entry into the high-speed Internet market. Yet AOL TW remains the industry heavyweight, with operations grouped under two main business units: Media & Communications Group; and Entertainment & Networks. The former gathers such AOL TW companies as America Online, the AOL TW Book Group; AOL TW Interactive Video; the magazine publishing group Time Inc.; and Time Warner Cable, the number two cable network in the United States. Under Entertainment & Networks, AOL TW groups its Home Box Office and Turner Broadcasting System cable and satellite networks, including CNN, TNT, the Cartoon Network and other television holdings; cinema, including Warner Bros., New Line Cinema and Castle Rock Entertainment; and music, centered on Warner Bros. Music and including Atlantic and Elektra companies. Films, including such 2000s blockbusters as the Harry Potter series and the Lord of the Rings, produce 23 percent of sales. AOL is the next largest unit, at 20 percent of sales, followed by Networks (18 percent), Cable Television (16 percent), Publishing (13 percent) and Music (10 percent). Nearly 80 percent of the company's revenues are produced in the United States. Richard Parsons took over as company chairman in 2002 and has been leading the company on a streamlining effort designed to pay down debt and restore investor confidence in the company. The company was forced to abandon plans to sell off the AOL TW Book Group in 2003 when it could not find a suitable purchase offer. Meanwhile, AOL TW pressed ahead with plans to spin off its TW Cable holdings as a public company, possibly for late 2003.
The merger of AOL and Time Warner in 2001 brought together four of the United States' most important media pioneers of the 20th century, grouping Warner Bros. (cinema), Time (publishing), TBS (cable television), and AOL (online services). Each of the these companies had been instrumental in establishing and defining the industries in which they came to become dominant players.
The Warner brothers--Harry, the oldest, born in 1881, Albert, Jack, and Sam--were the sons of Polish-Jewish immigrants who settled in Youngstown, Ohio. The Warners tried their hand at a variety of occupations, until Sam Warner discovered the Edison Kinetoscope and began working as a projectionist. The Warners soon pooled their savings, some $1,000, to buy their own projector and launched their own traveling picture show--their first showing, in a mortuary, generated $300 in a single week.
By 1903, the Warners had opened their own theater in Newcastle, Pennsylvania, with the entire family chipping in, including baby Jack Warner who provided in-between show entertainment. The following year, the Warners established their own distribution company, Duquesne Amusement & Supply Co., which was driven out of business in 1909 by the Edison Trust monopoly which was intent on stamping out patent infringements. Instead, the Warners bought a new projector and once again went on the road. As part of their new business, Sam and Jack Warner produced their first film, called Peril of the Plains, in 1911.
In 1915, the brothers split up, with Sam and Jack Warner moving to California in order to make films--the weather there permitted a year-round filmmaking schedule--while Harry and Albert opened an office in New York in order to handle distribution. Warner Bros.' first hit came in 1918 with the film My Four Years in Germany, which grossed $1.5 million and permitted the company to open its own studios in Los Angeles that year. Warner Bros. quickly released a stream of slapstick comedies; its first big star, however, was a dog--Rin Tin Tin--that appeared in a string of films in the 1920s.
Warner Bros. made movie history in that decade. In 1925, Sam Warner went east (leaving Jack Warner in charge of the production studios). The company had acquired Brooklyn-based Vitagraph Studios, and Sam Warner now formed a partnership with Western Electric & Telegraph, called Vitaphone, to work on means of synchronizing sound with film. The invention was to lead to the release of The Jazz Singer in 1927, considered to be the first successful "talkie." Sam Warner died the night before the film's showing. Yet The Jazz Singer represented no mere success. Instead, it revolutionized the film industry, ushering in an a new era in entertainment.
Founding a Media Empire in the 1920s
In the meantime, another company was fast placing its imprint on the U.S. media markets. Briton Hadden and Henry Luce met as students at the Hotchkiss School in Connecticut, where Hadden served as editor-in-chief at the school newspaper, while Luce held the same position for the school's Hotchkiss Literary Monthly. Hadden and Luce became friends and enrolled in Yale University together, where they became chairman and editor, respectively, of the Yale Daily News. While serving in the officers' training school during World War I, Luce and Hadden came up with an idea for a new type of newspaper.
Luce and Hadden parted ways briefly, but by 1921 had come back together, now as reporters for the Baltimore News. The pair returned to their idea for a new style of newspaper, and in 1922 resigned their positions, founding what was to become the Time Inc. publishing empire. By 1923, Hadden and Luce had succeeded in raising some $86,000, and the first issue of Time was launched in March of that year. Hadden took the role of editor, while Luce became the magazine's business manager. Under their leadership, Time quickly established new journalistic standards, including a requirement that everything printed in the magazine be attributed to a source.
By 1924, Time already boasted a paid subscriber base of 30,000. In that year, the pair launched a second magazine title, the Saturday Review of Literature. The following year, the company moved its headquarters to Cleveland, Ohio, in a move to cut costs. In 1928, however, the company split its operations in two, with its printing handled by R.R. Donnelley in Chicago, and its editorial offices returned to New York City. Meanwhile, under Hadden's editorial direction the company launched a second title, Tide, geared toward the advertising industry, in 1927.
Hadden died in 1929 at the age of 31, leaving Luce alone to handle the company's growing success. Luce now took over sole leadership of the company, placing his imprint on the company's editorial direction. The following year, after selling off Tide, Luce proposed a new magazine, to be called Fortune, catering specifically to the country's business world. Fortune enjoyed quick success, despite--or perhaps because of--the country's plunge into the Depression Era.
Time made a tentative entry into radio, with its own "March of Time" show in 1931. Yet the company remained focused on its growing magazine empire. In 1932, Luce, whose span of interests included architecture, led the company to acquire 75 percent of Architectural Forum, taking full control of the title the following year. Over the course of the following decade, Luce transformed that magazine into an industry leader, boosting its circulation from 5,000 to more than 40,000. Nonetheless, the title remained a money-loser.
Luce's next foray came in 1936, with the launch of a new type of magazine based on photographic essays. The new weekly title, called, simply enough, Life, debuted in November of that year and became an instant success. Expensive to produce, Life lost money in its early years, despite its soaring circulation. At the same time, the new title drained off a number of existing Time readers. Nonetheless, Life turned its first profit in 1939--and, with the outbreak of World War II, began its glory years as arguably the United States' most influential magazine. By 1941, Life boasted a circulation of more than 3.3 million. Time, meanwhile, had boosted its readership to nearly one million--including some 200,000 subscribers that transferred to the title after Time Inc. acquired the Literary Digest in 1938.
By then, Time had established a new corporate structure, with its three primary titles, Time, Life, and Fortune, each becoming a separate division within the company, with their own publishers, editors, and advertising directors. Meanwhile, Luce stepped down from his position as president and CEO of Time Inc. in order to concentrate on his role as editor-in-chief of the company's growing magazine empire. Roy Larsen, who had been chairman of the company, took over the president and CEO positions as well in 1939. Toward the end of the war years, a new generation of leaders began their rise in the company, including C.D. Jackson, who organized the company's international pool of reporters; James A. Linen, who took over as publisher and the editorial force behind Time; and Edward Thompson, who became managing editor of Life in 1949. Under this new generation, Time Inc. prepared to enter its glory days as one of the United States' dominant publishers.
Coming of Age in the 1970s
By the 1950s, Warner Bros. had emerged as one of the five major players in the U.S. film industry. In 1929, using the proceeds from The Jazz Singer, the company bought up the sprawling Burbank, California studios of First National Pictures. That purchase gave the company room to expand production--and became the site of a large swatch of filmmaking history. The company was also enjoying its standing as co-owner of the Vitaphone patent, which had become required technology for the industry. At the same time, Warner Bros. shrewdly bought up the Stanley-Crandall movie theater network in 1929, giving its control of nearly 25 percent of the United States' movie theater circuit by the 1930s.
Warner Bros. turned a profit of $14 million in 1929. By 1933, however, its losses, the product of slouching audiences, had topped more than $100 million. Yet Warner Bros. was already entering a new era, with the arrival of the legendary Darryl Zanuck, originally hired as a writer for the Rin Tin Tin series, as the studio's head of production. Under Zanuck, Warner Bros. turned to producing so-called urban melodramas, including Little Caesar, which singlehandedly launched the gangster film genre and the career of acting great Edward G. Robinson. Warner Bros. quickly discovered a number of other stars in the 1930s, including James Cagney, who starred in 1931's Public Enemy. Another hit commodity for the studio was Errol Flynn, who brought The Adventures of Robin Hood to life. At the same time, Warner Bros. became known for its cartoon shorts featuring such characters as Bugs Bunny, and for lighter musicals, including the Busby Berkeley series.
While Warner Bros. adopted the "factory" approach to filmmaking of its competitors, it nonetheless carved a reputation for itself as a maker of "films that mattered." By the 1940s, the studio had been responsible for the careers of such stars as Humphrey Bogart, Bette Davis, Lauren Bacall, Doris Day, and directing greats Frank Capra, John Huston, and Ernst Lubitsch. By 1942, Warner Bros. appeared at its peak, with the release of the unequaled Casablanca.
That film was also to represent the company's heyday, however. The company's support for the U.S. war effort had resulted in a wash of mediocre, if highly patriotic films. In 1946, the government, seeking to strike at the monopoly on the film industry held by the top film companies, passed legislation requiring the studios to exit at least one of the three areas of operations in the industry, production, distribution, and exhibition. In 1949, Warner Bros. chose to sell off its theater network--in the process shedding its guaranteed movie venues.
The next hit to Warner Bros. was the arrival of television. Still led by production head Jack Warner and distribution head Harry Warner, the company turned its back on the new medium, except to sell off broadcasting rights to the company's film catalog at cut-rate prices. Very quickly, the company found itself in nightly face-to-face competition with its own and greatest films.
With the end of the factory production system in the 1950s, Warner Bros. appeared to be settling in for a slow fadeout. Despite a few notable successes--such as the discovery of Marlon Brando and James Dean in the 1950s, and the 1960s successes of Who's Afraid of Virginia Woolf?, the Jack Warner-produced Oscar Winner My Fair Lady, and the Arthur Penn masterpiece Bonnie and Clyde--the Warner Bros. era seemed at an end. Harry Warner had died in 1958, and Albert Warner, in 1967. By then, Jack Warner had sold the company to Seven Arts Production Ltd. for $32 million. He died in 1978.
Renamed Warner Brothers-Seven Arts, the company under its new owners became more interested in the money to be made by selling broadcasting rights to the Warner Bros.' film library, rather than in making new movies. Instead, Warner Brothers branched out in 1969, paying $17 million for Atlantic Records, which had been founded by Ahmet Ertegun in the 1950s, pioneering the rhythm and blues market, and which had become one of the industry's seminal record companies. Atlantic soon began building its own stable of labels, adding another industry pioneer, Elektra Records, in 1970.
By then, Warner Brothers was being brought back to life. In 1969, the company was acquired by Kinney National Services, a diversified conglomerate built up by Steven Ross in the 1950s and 1960s. Ross quickly divested most of Kinney's operations, retaining its media holdings, which were renamed Warner Communications in 1971.
Warner claimed new success over the next decade. Its movie production studios quickly began turning out hits, including Woodstock, All the President's Men, and The Exorcist. By the end of the decade the company string of successes included Superman and the Clint Eastwood vehicle Every Which Way But Loose. The company's music businesses were also growing strongly, especially with the rise in prominence of FM radio. Warner Communications also diversified into the wider media market, acquiring holdings in the nascent cable television market, publishing operations, a magazine distribution business, and, in 1976, video game producer Atari, for which it paid just $26 million. By 1980, Warner Communications had seen its revenues soar to $2 billion.
Throughout this period, Time Inc. itself was emerging into a media powerhouse. In 1954, the company had a new success when it launched Sports Illustrated, a pioneer in the relatively young professional sports market. Although that title remained unprofitable for some time, it continued to grow, later becoming one of the company's most important magazine franchises.
Time had also begun to diversify by the 1950s, adding book publishing to its successful magazine publishing holdings. In 1952, it established subsidiary Time-Life Broadcast, which acquired a 50 percent stake in the KOB radio and television stations in Albuquerque, New Mexico. The company bought majority control of Intermountain Broadcasting Television Corporation in Utah, then, in 1954, bought full control of Colorado's KLZ radio and television stations. Time's broadcast stable grew to include the acquisition of a group of stations held by Bitner, for $16 million, giving it a presence in Michigan, Indiana, and Minnesota. By the end of the decade, the company sold off its stakes in Utah and Minneapolis, and instead bought up stations in San Diego and Bakersfield, California.
A new generation took over at Time at the beginning of the 1960s, which oversaw the creation of a new and successful unit, Time-Life Books, in 1961, and extended the company into textbook publishing with the purchase of Silver Burdett Co., for $6 million in 1962. The company's book publishing operation took a step forward in 1968, when it paid $17 million in stock to acquire Little, Brown and Company, based in Boston.
Time's magazine empire, and especially Life, faced new competition in the 1960s from titles including Look and The Saturday Evening Post. Although these titles quickly faded, Time, which had seen its production costs soar, while both circulation and advertising revenues dwindled, was forced to pull the plug on Life, which had once again slipped into losses. After losing more than $30 million, Life ceased publication in 1972. Instead, that year, Time launched a new title, Money, to capture the growing consumer interest in personal finance. Two years later, the company produced a new success, the extremely popular People magazine.
In the meantime, Time's diversification had taken it beyond publishing and media, into paper production, through the East Texas Pulp and Paper Company joint venture with Houston Oil Company, and the $128 million merger-acquisition of Temple Industries, a maker of lumber and other wood products, in 1973. By 1978, the company had even entered the packaging industry, paying $272 million for Inland Container Corporation. Yet media remained the company's major focus, and by 1983, Inland and Temple were merged together and spun off to Time Inc.'s shareholders.
Instead, Time turned its focus on a young and hot property--HBO. At the beginning of the 1970s, Time had sold off its broadcasting operations with the intention of concentrating its interests in the newly developing cable television industry. The company formed its own pay-TV service, Home Box Office, through a subsidiary, under the direction of J. Richard Munro--who later became company chairman and CEO. HBO began broadcasting in 1972, in Wilkes-Barre, Pennsylvania, with an initial subscriber base of just 365. By the beginning of the 1980s, HBO had established itself as one of the largest and most successful pay-TV stations. In 1980, Time had a new cable television hit with the launch of Cinemax. By then, too, Time had gained a majority stake in American Television and Communications Corporation, one of the country's largest cable television systems.
Time continued growing strongly through the 1980s, boosting its publishing wing with the purchase of Scott Foresman in 1985, and adding a number of new magazine titles, including Progressive Farmer, with the 1985 purchase of Southern Progress Corp. By 1988, the company published 24 magazines. The following year, it reached an agreement to merge with Warner Communications, creating the world's largest media company.
Media Mega-Mergers in the 1990s
Warner had hit a bump in the early 1980s. As the owner of Atari, Warner had become vulnerable to the sudden collapse of the video game industry, which sent Warner's stock price plummeting. Warner, still led by Steven Ross, was forced to fend off a hostile takeover attempt from Rupert Murdoch, by bringing in "white knight" Herbert Siegel as a major shareholder and director. Ross and Siegel eventually began what became a public feud.
The company sold off Atari in 1984, as its losses mounted to more than $1 billion. The company began a restructuring program, and by 1986, its revenues were once again building strongly, topping $2.8 billion. Warner had booked a number of cinema successes, including such hits as The Color Purple and Pale Rider. Meanwhile, Warner Records had risen to become the United States' top record label, with such stars as Madonna, Prince, Genesis, Van Halen, and others ensuring brisk CD sales.
Warner was finding success in the cable television market as well. In 1985, the company reached a five-year licensing agreement with HBO, giving it exclusive rights to new Warner films. In 1986, Warner, which had formed its own cable television service with American Expression, bought out its partner, paying $393 million for full control of Warner Amex Cable. Two years later, the deregulation of the cable industry unleashed Warner Cable's value--which soared in some estimates to as high as $3 billion.
Deregulation also marked the beginning of a new era of media consolidation. Warner joined in, buying up Lorimar Telepictures in a stock swap deal worth $600 million. The purchase gave Warner control of the companies behind such hit television series as Dallas and The Waltons. Yet just two months later, Warner approached Time with the proposition that the two companies merge.
Originally designed as a stock-swap agreement, the companies' plans were nearly derailed by a sudden hostile takeover offer for Time from Paramount Communications, which bid nearly $11 million. Rejecting the offer, Time instead launched a $14 billion acquisition of Warner Communications. Paramount's attempt to block that deal was ultimately struck down in court, and a new media giant appeared on the global scene.
Time Warner started out with leadership positions in most of its markets, including the second largest cable television operation in the United States, the leading pay-television service, and top-performing magazine, book publishing, music, and film businesses as well. The company worked quickly to integrate its businesses, selling of Scott Foresman for $455 million at the end of 1989, combining its publishing operations into a new Time Warner Publishing unit. The pairing also seemed to produce immediate synergies, such as the launch of the new Entertainment Weekly, combining Time's publishing competence with Warner's media interests.
The company also began making acquisitions, including that of Sunset magazine publisher Lane Publishing Company, for $225 million, in 1989. Yet the company's growth--and share price--was burdened by its $11.2 billion in debt. In 1991, the company took a first step toward reducing its debt by launching a controversial rights offering which hinged share prices on the number of participants; after objections from the SEC, the company went ahead with a more standard offering, which raised $2.6 billion. In October of that same year, Time Warner brought in two new investors, Toshiba and C. Itoh & Co. (later ITOCHU), which each paid $500 million in exchange for a 6.5 percent stake in the company. As part of that deal, Time Warner spun off a number of its assets, including its publishing, journalism, and music operations, including Home Box Office, Warner Bros. Pictures, and Time Warner Cable, into a new, separately listed company, Time Warner Entertainment, which began business with a market value of $20 billion.
Time Warner sought new growth areas into the 1990s, launching Time Warner Communications in 1991 in an attempt to gain a spot in the coming new market for telephony applications. In that year, the company debuted its own interactive television service, Quantum, which, like other interactive TV efforts of the time failed to attract enthusiasm from customers. Instead, in 1993, TWC set its sights on the local telephone market, beginning a $1 billion investment program to install its own fiber optic networks and switching equipment in a number of markets where it already had a cable television presence. In order to provide funding for the effort, Time Warner sold a stake of 25 percent of its Time Warner Cable unit to US West (later called MediaOne Group) for $2.5 billion--heralded as the latest "mega-deal" in an era of rapid media industry consolidation. Yet, TWC's effort to impose itself on the local telephone market ultimately failed.
More successful moves by the company included its acquisition of CPP/Belwin in 1994, making the company the world's largest publisher of printed music. The company also acquired a 50 percent stake in Columbia House, the music and video distributor. In 1994, Time Warner flirted with the idea of acquiring small but fast-growing online service America Online. Instead, the company decided to go directly to the Internet, launching its own pay-for-content "portal," called Pathfinder. That service remained a perennial money-loser, however, and was at last shut down in 1999. These moves were expanded with the launch of such titles as Time for Kids in 1995, People en Español in 1996, and Teen People in 1998.
Time Warner launched its own television network in 1995, called WB TV. In that year, also, the company stepped up its cable television holdings with the purchase of Houston Industries' cable television network for $2.3 billion. The company was later one of the first to offer high-speed Internet access--Roadrunner based on the popular cartoon character from the Warner Bros. portfolio--through its cable network. By then, Time Warner had a new chairman, Gerald Levin, appointed after Steven Ross died of cancer in 1993. Levin had started out with Time Inc., helping to found HBO in 1972, before rising to become the man behind the Time Warner merger.
At the mid-1990s, however, Levin and Time Warner remained dogged by criticism from the investment community for its ballooning debt load, four straight years of losses, and a slumping share price. The company also faced skepticism about its ability to bring "synergy"--the buzzword for such media megamergers--to its operations; indeed, the various pieces of the Time Warner empire were rarely required to cooperate, and often seemed to work against one another. For example, the company's WB network often had to turn to competing cable operators for space on the dial after being rebuffed by Time Warner Cable operators, a move that thwarted Time Warner's ambition to expand its range of television channels.
The company began a new round of restructuring in the mid-1990s, including renegotiating parts of its debt. Levin also brought in Richard Parsons, who had recently rescued Dime Savings Bank from bankruptcy, as president of Time Warner in 1995. By then, Time Warner's debt had ballooned to $16 billion. Nonetheless, the company, which had made no secret of its interest in building or buying its own network (and had been a contender for the NBC network in the early 1990s), chose to go deeper in debt, announcing its acquisition of Turner Broadcasting System.
Like Time and Warner, TBS had itself been a pioneer in the U.S. media market. TBS had been built up by flamboyant Robert Edward "Ted" Turner, who, at the end of the 1960s, transformed a small Atlanta-based billboard advertising company founded by his father into a television broadcaster by merging into the Rice Broadcasting Company in 1970. A public company, Rice owned its own UHF television station broadcasting to the Atlanta region--Turner renamed the company Turner Communications Corporation.
Through the 1970s, Turner began acquiring rights to broadcast Atlanta-based sports events--and then began buying the teams themselves. Meanwhile, Turner had recognized the potential represented in the new cable television services being set up around the company, and particularly their need for stations. In 1976, Turner transformed his station into Superstation WTBS and began signing up cable operators around the country to carry the station. Showing primarily reruns and the company-owned teams, which included the Atlanta Hawks basketball and Atlanta Braves baseball teams, TBS slowly but surely gained a market, and the confidence of advertisers.
TBS extended its television offering in 1980 with the creation of the Cable News Network, or CNN, the first live, 24-hour, all-news broadcast. That station was followed in 1981 by an affiliated station, Headline News, which soon became ubiquitous in hotel rooms around the world. In 1982, TBS extended the CNN format to the radio, with the launch of CNN Radio. The company also began to make tentative moves into production, notably through its creation of the Goodwill Games, which debuted in 1985.
Turner showed even greater ambitions in the mid-1980s, when TBS launched a takeover attempt of national television network CBS in 1985. CBS fought back however, and Turner was forced to withdraw the bid. Instead, TBS began acquisition talks with MGM/UA Entertainment and its main shareholder, Kirk Kerkorian. In 1986, the two sides agreed to allow TBS to pay $1.4 billion to acquire MGM/UA, as well as take on $700 million in MGM-related debt, then sell back the UA portion to Kerkorian for $480 million. Following the heavily criticized deal, Turner was forced to sell off most of MGM's assets--keeping only its film library--to pay off short-term notes. Many of those assets went to Kerkorian and UA. Another provision of the deal, which set required dividend limits, also threatened Turner's control of the newly enlarged company.
In 1987, Turner responded to that threat by selling off a 37 percent stake of TBS to a consortium of 31 cable operators, headed by Telecommunications Inc., in a deal that secured Turner's control of the company's voting rights. The following year, TBS debuted a new television channel, Turner Network Television, based on the company's control of the vast MGM film library. By 1990, Turner's investment in CNN had paid off, when, with the outbreak of the Persian Gulf War, that new station became the primary source of information for news watchers worldwide.
In the 1990s, Turner moved into film production, acquiring New Line Cinema and Castle Rock Studios, and continued to build up its array of television stations. In 1991, TBS paid $320 million to acquire Hanna-Barbera Productions, giving the company access to some 3,000 hours of television programs, and, especially cartoons such as Yogi Bear, The Flintstones, and The Jetsons. The following year, TBS launched a new television station, The Cartoon Network. That station soon began broadcasting to more than 100 countries. Backed by an investment from Time Warner, which acquired 18 percent of TBS, Turner now turned his attention to acquiring a network. Turner set his sights on NBC--coming head-to-head with his major shareholder, which blocked Turner's effort.
Yet Turner and Time Warner quickly found new common ground in the face of the fast-rising success of the Fox Network, backed by Rupert Murdoch. By 1995 Time Warner and Turner had begun negotiations to merge their two companies. Talks dragged on for more than a year, but in the end resulted in a merger worth $7.6 billion. Gerald Levin remained chairman of the enlarged company, while Ted Turner, the group's largest individual shareholder, was named vice-chairman, leading Time Warner on a broad cost-cutting and restructuring effort. At the same time, Turner used Time Warner's clout to boost the stature of TBS and the other Turner stations, particularly by pursuing first-run broadcasting rights to a number of hit films.
By the late 1990s, Time Warner appeared to have turned the corner. Sales were rising, and by the end of 1998, the company was once again profitable. These gains helped provide a boost to the company's stock price, which tripled by the middle of 1999. Yet by then, Time Warner appeared old-fashioned as a new spate of high-technology companies captured the imagination of the business world--and the stock market. Among the top-rated new companies was America Online, or AOL as it came to be called.
Pioneering the Online Market in the 1980s
AOL's origins lay in the nascent online community of the early 1980s. Although Compuserve had launched an online service targeting business customers in the late 1960s, the first consumer-oriented system, called The Source, began in 1978. An early user was Steve Case, who signed on in 1982. Case went to work for another company, Control Video Corporation (CVC), which began work on a system to connect Atari and Commodore users online and deliver video game content. That system failed to attract interest, however.
Instead, Case, and partners Marc Seriff and Jim Kimsey, convinced Commodore to launch its own online service. CVC changed its name to Quantum Computers Services and in 1985 debuted Q-link, which enabled users to download software, access information, play games, and, importantly, chat online. By 1986, Q-link had attracted some 10,000 users. Quantum quickly sought to extend its technology to other computer platforms, forming a similar service, Applelink, in partnership with Apple Computers, in 1987, and, in 1988, entering the PC market with PC-link. Apple's displeasure at this latest development led the companies to part ways--Apple paid Quantum $2.5 million to give up their license to the Apple logo. Faced with the need to find a new name for their service, Case and partners decided on America Online.
The new America Online debuted in 1989--featuring a number of voice messages (such as "You've Got Mail" and "Welcome") that were to play an important part in the service's success. At first dedicated to the Apple computer community (which featured sound; the majority of PCs remained mute at the end of the 1980s), Quantum began work on a PC version of their service. Yet the company nearly sold itself to Compuserve, which had offered $50 million for Quantum in 1991. Instead, AOL launched the first DOS version of America Online in February of that year. By the end of the year, the company had changed its name to America Online Inc.
Early on, Virginia-based AOL recognized the need for partnerships in order to extend its reach across the United States. One of the first of these was a deal with the Tribune Company, publisher of the Chicago Tribune, to create a local version of AOL based on news and information from the newspaper, in exchange for a $5 million contribution from Tribune (which gave it a 9.5 percent stake in AOL). The service was a quick success, attracting a large number of users. The company also entered an agreement with SeniorNet, an organization which encouraged senior citizens to adopt computer technology, to encourage SeniorNet members to join AOL. The company began providing specialized content for the senior citizen market, and paid SeniorNet for each new membership. These moves became part of an overall strategy of targeting niche markets and special interest groups, rather than the general public, as the company expanded its network.
AOL went public in 1992, listing on the NASDAQ exchange. That year, the company met with Microsoft's Bill Gates (fellow Microsoft executive Paul Allen had already announced his own plans to buy AOL), to discuss the possibility of AOL designing an online service for Microsoft. Instead, Microsoft decided to launch its own service, which became known as MSN. AOL decided to go it alone, and in January 1993 released the latest version of AOL, now capable of running on the Windows operating system.
AOL began to grow quickly, topping 300,000 subscribers by mid-1993, generating revenues of more than $40 million. In July of that year, the company stepped up its marketing campaign, beginning a strategy of sending out computer diskettes offering membership kits, AOL software, and free connection time. The diskettes quickly became ubiquitous, found in magazines, mailboxes, and pre-installed on a growing number of new computers. New users flooded in, and by 1994 the company had swelled to 400,000 users. In return, AOL stepped up its content offerings, bringing online content from a wide variety of sources, including National Public Radio, Matra Hachette, the San Jose Mercury News, and many others.
America Online was not the only online service--Compuserve and Prodigy, backed by Sears and IBM, had both grown strongly--but it was the fastest growing. Until 1994, these services represented the quickest way for the average consumer to get online, yet confined the user to the service's own proprietary network. By then, however, the Internet was coming of age for consumer use, backed by new graphics technology enabling what became known as the World Wide Web. A new breed of Internet Service Providers came into being, offering unlimited access to the Internet at fixed rates. In response, AOL was forced to change its own pricing policy. The company also began offering access to the Internet through its own network.
Many observers considered AOL's days numbered as the Internet caught on in the mid-1990s. Yet AOL quickly proved its critics wrong. Indeed, the company garnered a reputation among consumers as the easiest means of gaining access to the Internet. For many other consumers, AOL represented a "safe" alternative to the unruly and often unnavigable World Wide Web. By the end of 1994, AOL's membership had topped one million subscribers. The company also moved to increase its technology capacity, buying multimedia developer Redgate Communications; Navisoft, a designer of web-publishing tools; and Booklink Technologies, which had been developing Internet browser software. The following year, AOL added WAIS and Medior, and began offering web-page publishing services to its customers. In another acquisition, AOL bought Global Network Navigator, gaining control of the then popular web search tool WebCrawler. AOL also bought its own Internet service provider, ANS, that year.
By the end of 1995, AOL had signed on more than 4.5 million users. Yet the rapid advances of the Internet and the increasing ease by which consumers were able to set up their own Internet connections had begun to lure away increasing numbers of AOL subscribers. To counter the outflow--and rival MSN's recently announced unlimited access offer--AOL launched its own single monthly fee offering unlimited access. Yet the surge in online use that resulted nearly snapped AOL's already struggling infrastructure. After a series of system overloads, crashes, and increasing difficulties of customers simply connecting to the network, AOL agreed to provide refunds to its customers. AOL also stepped up its infrastructure spending, earmarking some $700 million to enhance its capacity.
AOL meanwhile remained highly unprofitable. For a time, the company had managed to show marketing costs--the company spent as much as $375 for each new customer--as capital expenses, but had ended the accounting practice in 1996. Instead, AOL went commercial, adopting a new policy of selling exclusives to its content providers. Barnes & Noble, as an example, paid $40 million to become the sole bookseller within the AOL network. In another, often bemoaned move, AOL began selling advertising space within its online space, and particularly in its extremely popular chat rooms. The company's growing community--more than eight million by the end of 1997--enabled the company to charge premium advertising rates.
The resulting rise in profitability enabled AOL's share price to skyrocket, as shares reached $80 per share in 1998--and then split two for one. Meanwhile, AOL had launched a new and ambitious round of acquisitions. In 1997, the company agreed to trade its ANS Internet service in exchange for Compuserve, then owned by WorldCom. The addition of Compuserve, which AOL pledged to maintain as a separate service, added another 2.6 million customers to AOL's ranks. That acquisition was followed by the purchase of ICQ, a highly popular service enabling users to send so-called "Instant Messages" across the Internet. Incorporated into the AOL software, the service quickly became one of the most widely used features of AOL.
In November 1998, AOL launched an even larger acquisition, paying $4.2 billion to acquire software developer Netscape Communications, in a deal that also included a strategic agreement with sworn Microsoft enemy Sun Microsystems. That company had been based on the originators of the World Wide Web concept and had long dominated the Internet browser market. Even so, Microsoft's entry into that software segment, Internet Explorer, and especially the software giant's decision to offer its browser software for free, had cut deeply into Netscape's hold on the browser market. Netscape attempted to fight back by giving away its software as well; yet the software was plagued by incompatibility issues (with Microsoft's Windows software, notably) and soon after the AOL acquisition, Netscape announced that it would end future development of Netscape Navigator.
Throughout this time, AOL's membership continued to swell, topping 15 million subscribers by decade's end. A growing part of this user base had come from the company's moves overseas, as it set up subsidiaries and joint-venture partnerships in order to enter France, the United Kingdom, and Canada in 1996; Japan in 1997; and Australia in 1998. The following year, AOL entered Brazil and Hong Kong. In the new decade, the company's worldwide expansion continued, and by 2001, AOL was by far the world's largest online service, counting some 26 million subscribers.
Steve Case's ambitions moved beyond mere online access--he now sought to transform AOL on the one hand, into a content provider, and on the other, into a cross-platform provider. To this end, the company began a new round of acquisitions at the end of the 1990s and the beginning of the next decade, acquiring the MovieFone electronic ticketing service; Spinner Networks, which provided an online music service; Nullsoft, which produced the highly popular online and desktop music software, Winamp; and Internet-based map provider MapQuest, the latter at a cost of $1.1 billion. Other acquisitions at the time included iAmaze and Quack.com.
At the same time, the company launched a number of initiatives as part of its "AOL Anywhere" program designed to place the company into a variety of new markets, including handheld devices and mobile telephones. As part of that effort the company formed alliances with the AT&T and Japan's mobile phone leader NTT DoCoMo. Then in December 2000, it acquired Tegic Communications, a maker of software for the wireless market. In the meantime, the company also attempted to crack the television market, launching the interactive television service, AOLTV. Yet AOLTV stumbled from the outset.
Merging Technologies in the 21st Century
AOL had the online service, but found it impossible to achieve the depth of content it would need in what many observers promised was to become a new era of the convergence of media and technology. Time Warner, for its part, had the content--but had given up its attempt to crack the online market. In 1999, the two sides began talks about merging the two companies. By the beginning of 2000, Case and Levin had hammered out the outlines of the deal, which involved AOL acquiring Time Warner in a stock swap worth some $166 billion. AOL was to control 55 percent of the resulting combined operation.
The deal faced the scrutiny of both the U.S. and European Community regulators, which required the companies to shed a number of its European partnerships, and open up its U.S. cable network to third-party Internet providers. The merger was finally completed in January 2001, creating a new corporation, AOL Time Warner Inc., with a share value of a staggering $364 billion. Steve Case took the position of company chairman, while Gerald Levin claimed the CEO spot. The AOL team, it became clear, intended to lead the newly enlarged company.
Yet this latest mega-merger appeared doomed from the start. Soon after the creation of AOL Time Warner, the technology market went into a nosedive, and the newly enlarged company saw its own share price go into a long downward spiral. The September 11, 2001 attacks further crippled the company, as advertising revenues dwindled. Despite continued growth in AOL customers--reaching 33 million by the end of 2001 and topping 35 million by the middle of the next year--AOL had seen its costs for attracting and retaining its members skyrocket.
Indeed, AOL found itself more and more threatened by the advent of new high-speed Internet technology--while it still relied almost entirely on its now outmoded dial-up service. Then, in 2002, AOL Time Warner faced even more troubles when the SEC placed the company under investigation for accounting irregularities committed by AOL before the merger--specifically, that AOL had overstated its advertising revenues, which in turn inflated its profits.
Struggling under a debt load of more than $26 billion, AOL Time Warner limped through 2002 to post a record loss of $98.7 billion--the largest loss in corporate history. Much of that loss came through AOL, as the company fought to retain its membership. By the beginning of 2003, the online service recorded its first net subscriber losses for the first time in its history. A bright spot for AOL Time Warner as a whole was its rising revenues, which topped $40 billion for the first time in 2002.
Meanwhile, heads began to roll at AOL Time Warner. After Steve Case attempted to oust Gerald Levin at the end of 2002, Case found himself under pressure to resign--which he did, in January 2003. Shareholder confidence was further eroded when Ted Turner, who remained the company's largest shareholder, announced that he was selling off half of his holding (Turner's stock was said to have lost as much as $7 billion in value). Levin then announced his intention to turn over the reins of the company to his longtime number two man, Richard Parsons.
Parsons immediately set to work reassuring investors--as AOL Time Warner's share price dropped below $10, valuing the company at just $61 billion. Parsons was committed to streamlining the company and to driving down its huge debt burden. As part of that effort, Parsons planned to shed a number of assets, including the company's CD production unit, its Atlanta-area sports teams, as well as its book publishing arm, AOL Time Warner Book Group. Yet by June 2003, the company was forced to retreat from the book group sale, after it proved unable to find a buyer willing to offer a suitable price. Another streamlining project, that of the spinoff Time Warner Cable as a separate, publicly listed company, was postponed. That move was expected to occur by the end of the year, however.
AOL attempted to strike back at its own sagging fortunes by launching a new service, dubbed AOL for Broadband, which gave access to AOL's service through its own or third-parties' high-speed Internet networks. The service, priced at $14.95 per month, was already being criticized as too little, too late, as observers began to question AOL's continued viability, and even suggest that AOL Time Warner sell off AOL altogether. Fueling the speculation was the announcement which came in late summer 2003 that the business was planning to drop "AOL" from its name. Yet Parsons announced that the company, now under control of the Time Warner faction, remained committed to its online segment and expected its fortunes to turn around by 2004.
AOL Time Warner hoped to meet the challenges of merging its operations and achieving the potential synergies offered by its diversified holdings. With its array of world-beating content spanning the publishing, music, television, and film industries, and delivery platforms touching into nearly every consumer segment, AOL Time Warner remained one of the most ambitious milestones in U.S. corporate history.
Principal Subsidiaries: America Online, Inc.; American Television and Communications Corporation; AOLTV, Inc.; AOL Asia Limited; AOL GP Holdings LLC (Australia); AOL Europe SA; AOL Technologies Ireland Limited; Asiaweek Limited; Atlanta Hockey Club, Inc.; Atlanta National League Baseball Club, Inc.; Atlantic Recording Corporation; Book-of-the-Month Club, Inc.; Cable News International, Inc.; Cable News Network LP, LLLP; The Cartoon Network LP, LLLP; Castle Rock Entertainment, Inc.; Century Venture Corporation (50%); The Columbia House Company (50%); Comedy Partners, L.P. (50%); CompuServe Interactive Services, Inc.; Courtroom Television Network LLC (50%); CNN America, Inc.; CNN Investment Company, Inc.; CNN Newsource Sales, Inc.; DC Comics (50%); Digital City, Inc.; Digital Marketing Services, Inc.; DoCoMo AOL Inc. (40%); E.C. Publications, Inc.; Elektra Entertainment Group Inc.; Embleton Ltd.; Entertainment Weekly, Inc.; Erie Telecommunications Inc. (54%); Goodwill Games, Inc.; Hanna-Barbera Entertainment Co., Inc.; Hawks Basketball, Inc.; HB Holding Co.; ICQ Limited; Ivy Hill Corporation; Kansas City Cable Partners (50%); Little, Brown and Company Inc.; London Records 90 Limited; London-Sire Records Inc.; MapQuest.com, Inc.; MovieFone, Inc.; Netscape Communications Corporation; New Chappell Inc.; New Line Cinema Corporation; The Parenting Group Inc.; Quack.com, Inc.; Rhino Entertainment Company; Southern Progress Corporation; Spinner Networks, Inc.; Summit Communications Group, Inc.; Sunset Publishing Corporation; Superstation, Inc.; Tegic Communications Corporation; TEN Investment Company, Inc.; Texas Cable Partners L.P. (50%); Time Distribution Services, Inc.; Time Inc.; Time Inc. Ventures; Time International Inc.; Time Life Inc.; Time Publishing Ventures, Inc.; Time Warner Companies, Inc.; Time Warner Entertainment-Advance/Newhouse Partnership (64%); Time Warner Inc.; Time Warner Trade Publishing Inc.; Times Mirror Magazines, Inc.; Turner Broadcasting Sales, Inc.; Turner Broadcasting System, Inc.; Turner Broadcasting System Asia Pacific, Inc.; Turner Broadcasting System (Holdings) Europe Ltd.; Turner Classic Movies LP, LLLP; Turner Entertainment Group, Inc.; Turner Entertainment Networks, Inc.; Turner Entertainment Networks Asia, Inc.; Turner Home Entertainment, Inc.; Turner Home Satellite, Inc.; Turner International, Inc.; Turner Network Television LP, LLLP; Turner Pictures Group, Inc.; Turner Sports, Inc.; TWI Cable Inc.; Warner Books, Inc.; Warner Bros. Music International Inc.; Warner Bros. Publications U.S. Inc.; Warner Bros. Records Inc.; Warner Communications Inc.; Warner Music Canada Ltd.; Warner Music Group Inc.; Warner Music Newco Limited; Warner Publisher Services Inc.; Warner Special Products Inc.; Warner/Chappell Music, Inc.; Warner-Elektra-Atlantic Corporation; Warner-Tamerlane Publishing Corp.; WB Music Corp.; WCI Record Club Inc.; WEA International Inc.; WEA Manufacturing Inc.
Principal Competitors: AT&T Broadband; Comcast Corporation; DIRECTV, Inc.; Dow Jones & Company, Inc.; Earthlink, Inc.; Lagardère SCA; McGraw-Hill Companies, Inc.; Microsoft Corporation; National Broadcasting Company, Inc.; Pearson plc; Prodigy Communications Corporation; The Walt Disney Company; Tribune Company; Viacom Inc.; Virgin Group Ltd.; Yahoo! Inc.
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Source: International Directory of Company Histories, Vol. 57. St. James Press, 2004.