Challenges at Time Warner

1633 Words Apr 10th, 2007 7 Pages

Challenges at Time Warner

An Assessment Study on the Impacts of Acquiring Fox News


The purpose of this case study was to examine the impact of acquiring Fox News on Time Warner, Inc. The multi-faceted Time Warner merged with AOL in 2001, created a loss in value to both companies. Time Warner has sought after ways to either increase overall revenue through divesting portions of its corporation or acquire new companies to bolster earnings. This paper explores the impact created by the acquisition of Fox News by Time Warner to its news network line-up. The impact of complementaries, creations of anti-trusts, and the actually of a synergy taking place between CNN and Fox News.
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TW would be adding a news network to its cable line up that it had not previously provided its customers. TW cable customers that were CNN viewers may switch to viewing Fox News, causing CNN to lose revenue.
Although TW would gain the revenue back earned from a loss in CNN viewers to those gained through Fox News viewers, overall the net gain and loss would cancel out. Instead, TW would gain the production costs and sales, general and administrative costs associated with producing Fox News. TW would have to have suitable reason that by acquiring Fox News that it would increase its overall cable subscribers. By acquiring Fox News, TW would be directly creating a complementary for CNN to compete with which is not an overall beneficial move for TW to make.

Merger Issues When examine the prospect of acquiring Fox News, TW must first examine the concentration ratio of the market and the pre and post merger Herfindahl-Hirschman indexes (HHI) of TW to ensure that the merger would not violate current anti-trust laws (Baye, 2005). The concentration ratio measures the output produced by the largest firms within an industry to the output of the overall industry (Baye, 2005). Using the data provided in the Managerial Economics and Business Strategy textbook, it is determined that the

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