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Challenges at Time Warner1
In January 2003, AOL Time Warner, Inc., announced that it would be posting a loss of $98.7 billion for the year ended December 31, 2002, the largest corporate loss in U.S. history. While company exec- utives described the loss as a result of accounting changes rather than problems with ongoing opera- tions, the media conglomerate clearly faced significant challenges. The stock price closed the month of January at $11.66, down from $71 in January 2000, when it announced its merger with America Online (AOL).
The gravity of the events of the past few years hit TJ like a hammer. TJ was coming down from the high she felt when the CEO called last week to promote her to a new position within Time …show more content…

In 2003, the Securities and Exchange Commission announced an investigation into allegations that AOL used aggressive and illegal methods for recognizing revenue leading up to the merger. By early 2003, the prospect of splitting AOL and Time Warner and undoing the largest merger in U.S. history was a real possibility.
However, Parsons declined to shed AOL and instead focused on reducing the company’s debt and integrating the businesses. The company announced agree- ments to sell its music recording and publishing operations, Warner Music Group, for $2.6 billion and its CD and DVD manufacturing and distribution business, Warner Manufacturing, for $1.05 billion. It also reached agreements to sell Time Life operations, a direct-marketing business with 2003 net operating losses of $82 million, and its Turner winter sports teams (the NHL’s Atlanta Thrashers and NBA’s Atlanta Hawks), which posted operating losses of $37 million. In September 2003,

548 Managerial Economics and Business Strategy the company dropped AOL from its corporate name and resumed operations as Time Warner, Inc.
While 2003 saw improvement in operations and a return to profitability (see Exhibits 1a and 1b in the Appendix), Time Warner executives still face numerous challenges in managing the largest media company in the world. America Online is facing declining revenues, Time Warner Cable is seeing saturated markets and increased competition, and the publishing industry is soft due

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