Time Warner To Be Split Into Four Parts?

Shakrai writes "CNN Money is running a story titled Icahn eyes Time Warner break-up. Carl Icahn is a fairly well known investor who is pushing to break the Time Warner empire into at least four different business units. While his motivation seems to stem from business interests -- he thinks it will work out better for Time Warner in the long run -- I thought it raised an interesting point of discussion. Will the vertically integrated media empires that control content creation, content distribution, internet access and the news media become the Ma Bells of the 21st century? What can be done to protect consumers without stifling the technological innovation that we all know is so important?"

Comments

Weird

[FST]

Does anyone else find it weird that just a few years ago, big mergers were all the rage and "synergy" was the magic buzzword in corporate America and on Wall Street. So why are so many companies now rushing to get unhitched? Also, is this outbreak of corporate divorces good for shareholders, or should I sell my stocks now?

Re:Weird

[faqmaster]

Seems to be a natural cycle - intergrate, disintegrate. At an abstract level (the level that the board members or uber-investors look at) the four areas mentioned in the writeup look like they have a lot in common and would benefit from integration. So someone puts them all together by talking up this thing called synergy. Only then do they see that the specific methods that each of those entities use to implement their functions are very different and in some cases incompatible.

I mean, if you didn't know anything about how each of those areas worked, it would seem logical to think there's a natural flow from production to distribution to access (and news reporting is just a specialized version of that whole process). But, there's a reason Wal-Mart doesn't manufacture anything, and there's a reason that factories in China don't have retail stores here in the US.

Re:Weird

[dattaway]

Its called "moving and shaking." Its how you get the senior employees nervous and take pay cuts and severances.

Re:Weird

[N3Bruce]

Spinoffs are a way of forcing the now independent business units to survive on their own merits. Often money losing divisions are spun off and allowed to lapse into bankruptcy or liquidation, rather than continuing to be a drain on the parent company's profits. The first time I remember this, I was a vendor for the former Wal-Mart wannabee Woolco, which was a 300 store chain that was part of F.W. Woolworth into the early '80s. I remember the old timers seeing this as a bad omen when they were spun off from their parent. Sure enough, 2 months later they held their going out of business sale. In this case everybody loses their job.

On the other hand, spinning off a troubled division can free it from the meddling, interference and bad decisions of a parent company that is out of touch with the soul of the division being spun off. One of the most famous examples of this was Harley-Davidson. Harley-Davidson became part of AMF Corporation during the diversification frenzy of the 1960s and 1970s. AMF ran everything from machine tools to bowling alley equipment to sporting goods. Harley-Davidson motorcycles were just another product to be manufactured, and their desirability and quality hit an all-time low during this era. They had been pretty much run into the ground by the time they were spun off, but the new company (with a little help from tarriffs on large Japanese motorcycles) was able to turn things around, and their bikes now sell at large premiums compared to comparable Japanese models, and they own nearly half of the domestic market for motorcycles.

Finally, the economies of reduced overhead for administrative functions by a small business being absorbed by a larger one are often disappointing, due to the cost of integrating information systems, manufacturing and distribution facilities, and the culture clash between organizations that takes place during mergers. In recent years I have stood by as the banking business has undergone wave after wave of consolidations and mergers. On the operational level, it takes years to sort out everything from management structure to what equipment they should retain, move, buy, or sell. Many of my customers have seen the name on their buildings change several times, but they are pretty much the same bunch of people doing the same type of work they have always done. In the meantime, an organizational paralysis often sets in as employees and managers worry more about how they will fit into the new organization instead of building the business.

  Going the other way and spinning off a division gives the new company the freedom to select the types of services, equipment, people, and structure that are appropriate for the size and type of business they are in. There might still be some duplication of a few things, but the smaller organization does not need for instance, the large and complex systems that large organizations do.

What will happen to the Netscape Divison ?

[axonis]

I guess if AOL is going to be set free, and probably aquired, Netscape will also suffer its final fait too... i can imagine that it will evntually get killed off , marking the end of a once great Internet company.

Re:What will happen to the Netscape Divison ?

[SpinJaunt]

Netscape still has an after-life in the form of Mozilla, which if above does become true, maybe Mozilla could take a name change and become Netscape once again.

Still, I am just thinking aloud.

Re:What will happen to the Netscape Divison ?

[g0dsp33d]

I'm more concerned about winamp. I hope someone trustworthy buys the name. I'm still running the last pre AOL version.

Not so weird

[canuck57]

Does anyone else find it weird that just a few years ago, big mergers were all the rage and "synergy" was the magic buzzword in corporate America and on Wall Street.

Not really so weird. Boards and execs have little to do but cook up a buy, merger or divestiture. It is self justification for their existance. But what a waste of money.

The truth is the rich at the top want to keep one part of the company and cash out another and now realize the merger was stupid. My guess is AOL has been loosing too many customers under the new management and instead of dealing with the synergy and management issues they are going to cut AOL back out on their own.

It is too bad short term greed and short sightedness were not the only traights you need on a good board of directors, if so America would be rich.

Technical innovation in media

[Anonymous Coward]

Pff, technical innovation in media being so important that vertical integration is necessary? Surely not. If you look at real, practical benefits to people large scale engineering has more tangible benefits than innovation in media, and gets a lot less exposure or funding. Media and entertainment is a time sink more than anything, and you could argue that it's effects mean that people now are less developed in the arts than they were 60 years ago. Although admittedly there will be a sliding scale ranging from those who use computers and the internet for learning and active interests, to those who only surf for pr0n.

All these big companies...

[MaestroSartori]

...seem to suffer from the same problem - although they run the full range of medial production, none of them seem to be able to effectively merge the different parts of the company to produce any great result.After all, Time Warner have a huge back catalog of music and film sitting there, but they've provided no means for customers of AOL to access any of it. Maybe they're working on that, i dunno, but all these big merged conglomerates like Sony BMG, Time Warner, none of them are visibly making any real efforts to do things involving the full spectrum of business interests they cover.

I always wonder if it's because despite being "merged" on paper, internally they still run as separate businesses with all the competing and territoriality that implies... :(

Re:Splitting the company up will only help innovat

[Anonymous Coward]

Yet equally large companies have a much greater scope for innovation :

1). They have much larger turnover, and thus a much larger budget for R&D.
2). They have a much larger consumer base that already identifies with their products as of quality, and thus the unit cost of the R&D investment is *much* smaller than that of small companies
3). They have greater incentive to get those last few percentage points of market share that make them a de factor monopoly - as it's easier for them than for a smaller company.

In addition, given the 'leap-frogging' of companies in market share that is possible within information industries (see google), there is an even greater incentive for them to innovate as, just beacuse the competition is behind you today, they could easily be kicking your ass in a few months.

Thus, the information age gives bigger companies both a greater scope *and* a greater incentive to invest in R&D.

Learn from Sony

[Hao Wu]

Why would you make 'Content creation' and 'Content distribution' two different divisions?

That's what SONY did, and they are constantly battling each other because their core interests directly conflict.

Re:Carl Icahn, "Corporate Raider"

[putko]

Dear Anonymous Coward,

The fact that Carl Icahn is a Jew (as were/are with most of the participants in the takeover business) is quite relevant. Judaism (as a religion) has nothing to do with it -- but his ethnicity, and that of his peers was critical. I'm referring to the fact that most of them had great-grandparents from that lived within a few hundred miles of each other.

Their ethnic cohesion allowed them to run their enterprise successfully, and that enterprise both helped Jews and Israel, and hurt the goyim. What a mitzvah! The takeover game is something Jews should be proud of: Jews made so much money (so quickly!) at the expense of their goyische competitors. They unseated the WASPs whole industries. Jews got the money from the Savings and Loans, receiving the savings of an entire generation of Americans -- and that allowed them to make donations to Israel and other Jewish charities. Mazel Tov! And for the most part, the gentiles didn't catch on that it was Jews benefitting at their expense.

Here's something from the Washington Report on the importance of the ethnicity of the participants, and the phenom in general:

http://www.wrmea.com/Washington-Report_org/www/bac kissues/0490/9004005.htm

a nice excerpt:

"... A careful examination showed, however, that his public support for Israel, rather than being Jewish, was the key to how a figure of Boesky's prominence could, over a long period, corrupt so many Wall Street insiders without in turn being subjected to extortion or exposure.

He had selected as potential collaborators fellow Jews identified with pro-Israel charities. A recipient of his illegal overtures who might turn out to be too honest to accept Boesky's offers of money or stocks for insider information very likely would also be reluctant to report such an illegal proposition by an ardent, generous, and prominent supporter of Israeli causes. To do so might turn the informer into a pariah in what the Jewish press calls "the pro-Israel community."