AOL TIME WARNER

Presented By
ASRA A
TALHA A REHMAN B
MEHMOOD HUSSAIN E
SOHAIB AHMED C
M. UMER D
 Executive Summary

The term "Internet industry" encompasses a broad spectrum of economic activity. A relatively
simple action like downloading a web page might involve, among other parties, one or more
backbone providers, one or more ISPs, various web hosting companies, application service
providers, content delivery networks, content providers, and advertising agencies. Assessing the
relationships among the various providers without a guide can be tricky.The merger between
AOL and Time Warner announced in January made history as one of the biggest mergers ever.
Worth around $340 billion, the combined ‘clicks and mortar’ giant also signifies massive change
in the media business. It is the strongest indicator ever that entertainment and the media – like
every other business sector – is about to be revolutionised by the Internet. Pressures on the global
media industry are set to grow more quickly in the next decade than ever before. As content,
infrastructure and communications companies jostle to find their place in the new media world,
the importance of implementing reliable technology that supports digital content production,
management and delivery cannot be overstated.
Internet Service Providers will expand and diversify the products offered to consumers to include
a more complete range of telecommunications products and services. For some, this will mean
reselling broadband services offered by the transport companies as well as network management
and servicing, VOIP telephony, Instant Messaging, cellular telephone services, satellite services
and other communications products in addition to the contemporary blend of web hosting and
email. In particular, ISPs will continue to explore the myriad of alternatives to traditional
wireline Internet services.
In the late 1990s, America Online, Inc. was the darling of American business. With the Internet
soaring and the stock market booming, AOL led the charge in bringing online communications
and services to businesses and consumers alike. In doing so, the company also created new
advertising and subscription-based business models for Internet service providers and other
organizations seeking to profit from what seemed like an e-business tsunami. Early in 2000,
AOL shocked Wall Street by announcing it would acquire media giant Time Warner for $182
billion, causing analysts to proclaim that the deal validated the Internet’s role in the “new world
economy. Then reality struck. Irrational exuberance hit a wall, and the boom became bust. Along
with the rest of the American economy, AOL struggled financially. Ad revenues dropped and
membership subscriptions lagged. “[We were] a business that had been a beacon of innovation,”
Jonathan F. Miller, chairman and CEO of AOL, said recently. “But then [AOL] failed to invest
in and differentiate its product and keep its eye on member satisfaction. [AOL was] a brand that
literally stood for the Internet – but that had lost much of its cache and likeability.” Unlike many
Internet companies that simply went bankrupt in the aftermath, AOL soldiered on. Still highly
profitable, the company quietly began searching for ways to recover and drive new success –
maximizing potential by expanding on business practices that supported growth while trimming
areas that do not, and addressing the issues that created problems. “We moved into a build
phase,” explained Miller, “with a growth strategy based on running AOL as a real business.”
 External Analysis
Economic
The US economy experienced recession during 2001, recording three consecutive quarters of
negative growth. In 2002, the recovery has been sparked by consumers who took advantage of
the 40-year low in the Federal Reserve's key interest rate, major tax cuts and a sharp increase in
housing values to purchase new homes, luxury items and autos. Unemployment rate leaped
from 5.7 to 6 percent in April 2002, according to the Bureau of Labor Statistics (BLS). It's
the highest unemployment rate since August 1994 when it was also at 6 percent, but
trending downward.

Real GDP Growth (%)

(1998-2002)

1998 1999 2000 2001* 2002**

USA 4.3 4.1 4.1 1.3 2.2
GDP— agriculture: 2%
composition by industry: 18%
sector: services: 80% (2002)

Breakdown of GDP highlights the fact that increase in services has enormous share comparing
with agriculture and industry.
INCOME 2000 2001 2002
Disposable personal income per person $25,472 $26,236 $27,159
Inflation rate (consumer prices) United States 1.6%

A higher cost of living along with little increase in the living wage could force many consumers
to skip the family vacation all together, along with other "luxury" items, in an effort to maintain
their current lifestyle.

Economic growth in the USA underwent a substantial change in 2000. During the first half of
the year, the rate of GDP growth exceeded the most optimistic forecasts and reached 5.25%
on a year on-year basis. This period had already seen the first signals of deceleration in the
rate of growth in domestic demand, especially in the area of consumption. During the second
half of the year, the rate of year-on-year growth slowed, to 1% in the 4th quarter, due to a
steep increase in energy prices, the tightening of financial conditions, fall in the price of
shares in high-tech companies, and to the appreciation of the dollar. The annual growth in
GDP again reached a high level (5%), but business and consumer confidence had fallen
significantly by the end of the year. In 2000, the annual rate of consumer-price inflation
(CPI) rose to 3.4% (from 2.2% in 1999), due mainly to a higher than expected increase in oil
prices. On the other hand, favorable development was recorded in labor costs, which
increased by only 0.7% (compared with 1.8% in 1999). The positive trend of development on
the labor market continued, with the rate of unemployment falling to 4.0% (from 4.2% in
1999). The high rate of growth in domestic demand, which has exceeded the growth in
output over the last three years, led to a marked increase in the current account deficit of the
USA, reaching a record level of 4.4% of GDP in 2000 (compared with 3.7% in 1999). As the
position of the financial sector showed a tendency to improve on a year-on year basis, the
increase in the current account deficit was due to a growing deficit in net savings of the
private sector caused by high level of investment activity and a sharp fall in household
savings, which reached an all time low in 2000. On the other hand, the large volume of
capital inflows into the US economy, attracted mainly by the growth in labor productivity
and the generally favorable conditions in the so-called ‘new economy’, added to the
appreciation of the dollar, and thus contributed to an increase in the size of the current
account deficit.
Unemployment 4%
rate:
Industries: leading industrial power in the world, highly diversified and technologically
advanced; petroleum, steel, motor vehicles, aerospace, telecommunications,
chemicals, electronics, food processing, consumer goods, lumber, mining

Many pundits have identified the U.S. consumer as the key dynamic in keeping the world
economy afloat since the downturn in the U.S. economy 3 years ago. While this assertion
may be open for debate, it is certainly true that personal consumption has been the impetus
behind the U.S. economy in recent years.

U.S. Household Consumption Growth Has Bucked Historical Trend

Personal (household) consumption ($7.7 trillion) currently makes up 71% of U.S. GDP and
about 23% of the world economy. Between 1960 and 1980 household consumption held steady
at 63% of GDP. In the 1980s this rose to 66% and was 66.5% in 1997 (it was 65% in 1950).
What is unusual, and not the historical norm, is that personal consumption growth has grown
considerably in comparison to GDP growth since the late 1990s and over the last 3 years in particular.
Since 1950, there has been virtually no period in which personal consumption growth has been larger
than GDP growth in actual monetary terms (except 1953-54, however, GDP fell in real terms) either from
a real standpoint or gross (current dollar) standpoint. From 1950 to 1990 personal consumption growth
averaged about 64% of GDP growth.

Global Economy
The global economy began a recovery in late 2001; however, the breadth, pace and sustainability
of that recovery varied among the major industrialized nations. The slowdown in 2001 was
moderate by most historical standards and largely centered in the industrialized world. The
combination of aggressive policy action by central bankers (especially following September 11th)
made possible by the public sector fiscal progress in the 1990s, the absence of inflationary
pressures, stability in financial markets and declines in world oil prices limited the downturn.
According to the International Monetary Fund (IMF), global economic growth slowed from
4.7% in 2000 to 2.2% in 2001, and will post a modest rebound to 2.8% this year.

Expansion in the G71 economies declined from 3.4% in 2000 to 0.6% in 2001 as the impact of
the US recession was felt worldwide, and is expected to increase by only 1.4% in 2002. Canada
and the US are the only G7 countries anticipated to report stronger growth than in the previous
year. Japan's economy is expected to contract for the second consecutive year in 2002, with
meaningful reform of its domestic financial markets seemingly not imminent. In continental
Europe, a weak German domestic performance has stalled recovery in other countries.

SOCIO CULTURAL FORCES

The significance of population growth goes beyond the increasing number of people in the
world. Within the mass audience for information and entertainment, there are new and
economically important consumer segments defined by factors such as ethnicity and age. The
demand for quality products that appeal to the interests and imaginations of these demographic
groups is explosive. in print and programming alike, time warner has taken the lead in serving
these consumers.
BABY BOOMERS

The nation’s 80 million Baby Boomers (ages 35-54) spend on average 26% more per year for
information and entertainment than other age groups. Consumers between the ages of 35 and 54,
basically the baby boomers, make up more than half of all consumption expenditures, but less
than 40% of all U.S. households, so it might be said that the baby boomers are currently driving
the U.S. economy

Now in their peak earning and spending years, Baby Boomers form the largest population of
online users in the U.S.

TEENS

Larger than ever and growing twice as fast as the U.S. population, the U.S. teen segment is
expected to grow 13% to 34 million by 2010. Marketers increasingly recognize the power of this
demographic.

Teens earned about $120 billion in 1998,up 8% over 1997, but exert far morepower on overall
spending decisions. Teens’ combined direct spending and spending influence is greater than
$400 billion annually.

HISPANICS

The Hispanic population is projected to grow 24% to 36 million in 2005, making it the largest
ethnic minority group in the U.S.3

The median age of Hispanics is 10 years younger than that of non-Hispanics.3 Hispanics
maintain strong ties to their heritage. About two-thirds of all Latinos living in the U.S. speak
more Spanish in the home than English.

Latin American also represents a growth opportunity and since majority of the products are
currently sold in America, Canada and Japan and Europe, therefore sales potential is excellent
around the world.
 Consumer Buying Power

MARKET No. OF PEOPLE BUYING POWER

AFRICAN AMERICAN 36 MILLION $688 BILLION

HISPANIC AMERICAN 37 MILLION $653 BILLION
ASIAN AMERICAN 12 MILLION $344 BILLION

TECHNOLOGY

The world has entered the digital age. The internet is already changing the way people work,
spend and communicate. New channel capacity, cable telephony, video on demand and the DVD
are all made possible by the spread of fiber-optic cable an digital technology.

These technological advances are expanding consumers’ choices in dramatic ways. With a
combination of the country’s most technologically advanced cable systems and immense
programming output.

The U.S. cable industry’s multi-billion dollar upgrade will bring an array of new and enhanced
video, data and voice offerings to consumers. Approximately
40% of U.S. cable subscribers are served by systems with 750 MHz capacity, up from 28% in
1996 and expected to grow to more than 60% by 2002.

Consumer spending on U.S. cable services is expected to grow 55% over

1997 to $40.3 billion in 2002.1 Spending on cable modem services is expected to soar from $96
million in 1997 to $5 billion in 2002.2

Following Moore’s Law (costs halving every 18 months), the economics of digital technology
are becoming compelling. As cable operators are able to store and deliver a vast inventory of
movies at reasonable costs; video on demand will become a reality.
With more than 1.5 million DVD players shipped by manufacturers, the launch of DVD is
significantly

 More successful than that of the CD or VCR at a comparable stage.

The Internet is the fastest-growing segment of the media industry, with revenues projected to
increase from $9 billion in1997 to $56 billion in 2002.3 The number of online users in the U.S. is
expected to grow 84%, from 63 million in 1998 to 116 million by 2002.

E-commerce revenues are expected to rise from $7 billion in 1998 to more than $41 billion in
2002.
Government, Legal and Political Forces
The legal and regulatory policies adopted now may have profound implications for the speed and
direction of the IT industry and U.S. competitiveness in the future. On the one hand, there is the
temptation to regulate – to impose laws affecting those who either profit from IT or those who
rely on it – in an effort to achieve a variety of social and economic objectives. On the other
hand, there is the tendency to permit the IT industry to regulate itself with modest government
intervention to assure fair competition. The US government has contributed to a free market
climate that has allowed the Internet to flourish. Deregulation of telecommunications and other
sectors has provided an enabling climate.

Individual Privacy: Privacy is potentially threatened by common practices within the cyber
domain. For instance, the insertion of “cookies” by businesses wishing to provide better service
to Internet users is one way that information about people’s viewing and purchasing habits is
obtained without their knowledge. These tactics create distrust in an American citizenry that is
fiercely protective of its right to privacy. The U.S. Supreme Court has ruled that the Fourth
Amendment of the Constitution (freedom from search and seizure absent warrant) affords
Americans the right to privacy when there is a reasonable expectation of privacy. Without a
reasonable expectation of privacy, however, there is no privacy right to protect. Data files stored
in the home are, in principle, protected, but the rule becomes less clear when applied to files
stored on an Internet Service Provider's server. Currently, there is no standard practice. Several
businesses clearly advertise how they handle personal information; others do not. The
effectiveness of advertising privacy policies remains unclear.
Internet Taxation: Commerce on the Internet lacks clear and fixed geographic lines of transit
that historically have characterized physical trade of goods, making sales tax assessments by
jurisdiction exceedingly difficult to implement and enforce. The Internet Service Provider would
pass the burden of the tax on to consumers, thereby making Internet usage more expensive,
counter to the 1996 Telecommunications

Intellectual Property (IP): The growth of the Internet has created an increase in the number of
IP legal issues. The software industry has been struggling with the piracy of its products from
the onset of the computer age. The recent “Napster” litigation shows how serious the issue of
piracy is to individual artists or businesses seeking rewards for their creative energy. Current
legislation, such as the Digital Millennium Copyright Act and the Secure Digital Music Initiative
can help address the problem. While these laws are only enforceable in the United States, the
Internet knows no borders. Clearly, piracy is a global issue requiring a global response.

In the United States and most countries in which the Company conducts its major operations,
the Company is generally not regulated other than pursuant to laws applicable to businesses in
general or to value-added telecommunications services specifically. In some countries, the
Company is subject to specific laws regulating the availability of certain material related tok,
or to the obtaining of, personal information. Adverse developments in the legal or
regulatory environment relating to the interactive online services and Internet industry in the
United States, Europe, Asia, Latin America or elsewhere could have a material adverse effect
on the Company's business, financial condition and operating results. A number of legislative
and regulatory proposals from various international bodies and foreign and domestic
governments in the areas of telecommunications regulation, particularly related to the
infrastructures on which the Internet rests, access charges, encryption standards and related
export controls, content regulation, consumer protection, advertising, intellectual property,
privacy, electronic commerce, and taxation, tariff and other trade barriers, among
others,have been adopted or are now under consideration. The Company is unable at this
time to predict which, if any, of the proposals under consideration may be adopted and, with
respect to proposals that have been or will be adopted, whether they will have a beneficial or
an adverse effect on the Company's business, financial condition and operating results. The
Company has supported certain proposals designed to enhance market access and service
competition in the offering of mobile, narrowband and broadband Internet services in the
United States and in foreign markets and is itself taking steps to bring about such access and
competition across all Internet distribution systems; the Company believes that, where
marketplace forces are not producing such results, the adoption of such proposals would have a
beneficial effect on the development of the Internet medium and of the Company's
prospects. The Company is unable, at this time, to predict whether any such proposals will be
adopted.

Moreover, the manner in which existing domestic and foreign laws (including Directive
95/46/EC of the European Parliament and of the European Council on the protection of
individuals with regard to the processing of personal data and on the free movement of such
data) will or may be applied to online service and Internet access providers is uncertain, as is
the effect on the Company's business given different possible applications. Similarly, the
Company is unable to predict the effect on the Company from the potential future application of
various domestic and foreign laws governing content, export restrictions, privacy, consumer
protection, export controls on encryption technology, tariffs and other trade barriers,
intellectual property and taxes.

Government spending on education

In 2001, the 29 countries covered in this report spent approximately $1.1 trillion dollars on
education or roughly 4.1 percent of their collective gross domestic product. The United States
spent the most on education in 2001 at roughly $500 billion, followed by Japan, Germany and
France at $139 billion, $89 billion and $82 billion respectively. While the U.S. spent the most in
absolute dollars, it ranked tenth in education spending as a percent of GDP at 4.8 percent. Saudi
Arabia ranked first investing 9.5 percent of GDP in education. The top five include Norway,
Malaysia, France and South Africa. All five countries spent in excess of 5 percent of GDP on
education. The United Arab Emirates came in 29th at 1.9 percent of GDP.
INDUSTRY ANALYSIS
TELECOMMUNICATIONS

a. Local Service
The American telecommunications industry was characterized for a century by AT&T's near-
monopoly. AT&T held onto its monopoly until the 1960s when regulatory and technological
forces combined to promote competitive entry. Even after the breakups, the various local
exchange carriers, most of them still without much competition, accounted for 97% of access
revenues in 1993. Competitive access providers (CAPs) accounted for less than 1%, but their
share has been increasing, especially among business customers, in those states that permitted
competition . The Telecommunications Act of 1996 permits local competition in all states,
accelerates interconnection requirements, unbundling, and portability. The local exchange
market will likely be subject to further competition by long distance carriers, wireless providers,
and resellers.

b. Long Distance Telephony

In the 1950s technological developments in microwave transmission created opportunities for
entry into the long distance market. Beginning in the late 1960s, regulation liberalized the entry
of competitive carriers. At the same time, the incumbent AT&T was subjected to fairly strict
regulation to accomplish entry. For example, interconnection arrangements were mandated.
Eventually, the government brought an antitrust suit against AT&T, leading to the break-up of
the world's largest company.

AT&T's market share fell considerably from 90.1% in 1984 to 55.2% in 1994. MCI and Sprint
have about a quarter of the market. 500 other companies, mostly small resellers, account for
17%.

In the past decade, consumer prices declined rapidly in the 1980s, and stabilized in the mid-
1990s, with AT&T the price leader. The 1996 Telecommunications Act permits RBOCs to enter
long distance, subject to opening of the local market. This, together with arbitrage by resale and
new technological approaches such as "Internet phone service," is likely to drive prices further
down and prevent oligopoly.

c. Mobile Service
The past regulatory system created a duopoly in mobile communications under which customers
in each major U.S. service area have a choice of two licensed cellular providers, one operating as
a unit of the local telephone company, and the other as an independent provider. Most of the
second providers have been bought out by the major telephone companies, leading to a fairly
concentrated industry. Since mobile telephony is categorized as a non-essential service, it is
lightly regulated, which allows for oligopolistic pricing when only two companies exist.
However, imminent entry by several PCS (personal communications services) providers in each
market will soon introduce considerable additional competitive forces.

Internet

The Internet industry encompasses all companies engaged in creating, developing or processing
electronic information through a computer network system. Many of these companies are a direct
outgrowth of the computer software industry. Though the Internet is not new, growth of this
industry has taken off in the past four years due to the commercialization of the World Wide
Web part of the Internet. The World Wide Web allows publishers to create electronic
publications with text graphics, pictures, data, and in some cases, voice over the Internet. Users
with a special program called a browser allow them to access these highly specialized
publications through their personal computer. Since the Internet involves no real barriers to
creating publications, virtually anybody can create information and distribute it over a computer
server. Internet commerce is expected to reach more than $400 billion in sales by the year 2002,
according to IDC. Consumers will use this new commerce medium because it offers some
comparison-shopping and convenience. Consumers can compare prices from different retailers
almost instantaneously with a personal computer hooked into the Internet. However, traditional
shopping will not go away. Consumers will still do window shopping for higher unit value goods
and considered purchases that are expensive and risky. But, straight repurchase and low unit
value goods such as CD’s, books, and certain clothing items, electronic commerce offers the
greatest timesavings. In 1998, there were 10 million consumers who purchased goods on-line. By
the year 2002, this figure is expected to quadruple to 47 million consumers.
Internet consumers Profile

Internet Users By Education

Internet Users By Gender

Internet Users By Geographic Location

Competition:

In 2001, U.S. telecommunication service providers generated revenues of approximately $293

billion, representing approximately 32 percent of global revenues. Almost 90 percent of wireline
service revenues in the United States are controlled by seven large companies - AT&T Corp.,
WorldCom, Inc., Sprint FON Group, and four Regional Bell Operating Companies (RBOCs). In
the United States, there are nearly 1,300 local telephone service companies. Approximately 150
firms offer long-distance services over network facilities that they own or partly own, and
another 350 companies resell local services using leased lines. More than 300 competitive local
exchange carriers (CLECs) provide local and, increasingly, long-distance, international, and
Internet services in urban areas. In the United States, incumbent wire line telecommunication
firms increasingly face competitive pressure both from alternative communication media, such as
e-mail and wireless technology, and from other industry players. In the long-distance voice
service market, incumbent firms have experienced a decrease in overall call volumes and a
reduction in service prices. For example, AT&T reported that its long-distance calling volumes
decreased by approximately 5 percent during 2001, compared to the previous year.
Simultaneously, Sprint, AT&T, and WorldCom reduced long-distance calling rates from 10 cents
per minute to between 5 and 7 cents per minute. Call volumes lost to market entrants and
alternative communication media, together with service price reductions, resulted in an overall
reduction in AT&T’s and WorldCom’s total 2000 revenues, which declined by approximately
5.4 percent and 10.0 percent, respectively.

The RBOCs continued to gain increased revenues in 2000, despite the beginning of an economic
slowdown in the U.S. telecommunications market. In 2000, the four RBOCs recorded revenues
of $158.8 billion, a cumulative increase of 31 percent over 1999 levels.25 RBOCs stand to gain
incremental revenue by providing long-distance services in addition to their traditional local
services. The Telecommunication Act of 1996 (Telecom Act) enables
RBOCs to sell long-distance services provided that they open their local markets to competition.
RBOC's long-distance revenue is expected to increase to $14 billion in 2003 from $1 billion in
2000.26 To date, SBC Communications and Verizon have achieved regulatory approval to
provide long-distance services in their service markets.27 Despite potentially higher revenues
from long-distance service offerings, RBOCs overall revenue growth began to slow in 2001,
largely as a result of the U.S. economic downturn. For
example, Verizon recorded revenue growth of 3.8 percent in 2001, compared with previous
estimates of 5 to 6 percent.28 Similarly, the U.S. economic slowdown has had a large negative
impact on the CLECs, which depend, in part, on capital markets to fund network construction.29
Although CLEC revenues increased by 53 percent in the first half of 2000, many CLECs are
beginning to struggle financially as funding sources disappear. In December 2001, for example,
local telephone and data services provider McLeodUSA, an Iowa-based CLEC, announced that it
would initiate a restructuring plan to reduce debt but may eventually be forced to seek
bankruptcy protection.30 Similarly, California-based NorthPoint Communications, a national
CLEC, closed its network in April 2001, 3 months after entering bankruptcy proceedings.31
Demand for wireless telecommunication services in the United States remains strong. Total
wireless subscribers increased to approximately 101 million in 2000, representing an increase
of 29.4 percent over 1999.32 This increase was slightly higher than the 24.5-percent average
annual growth rate registered during 1995-2000. Although wireless subscriber growth is
expected to plateau as wireless penetration rates reach saturation levels, revenue growth will
likely continue as service providers upgrade their network infrastructures to utilize the next
generation of wireless technologies. Such technology reportedly uses wireless spectrum
capacity more efficiently, potentially doubling carriers’ voice capacity.33 Additionally,
increased spectrum capacity enables the provision of new service offerings, such as voice portals
and unified messaging,34 which has the potential to appeal to new customers and contribute to
revenue growth.35
Overall merger and acquisition (M&A) activity in the U.S. telecommunication market declined
markedly in 2001 after several strong years. During the first half of 2001, U.S.
telecommunication firms entered into M&A agreements worth $8.1 billion, compared to the
$23.0 billion in M&A activity announced during the first quarter of 2000.36 During 1998-2000,
several large mergers were announced or completed as telecommunication firms sought to
expand their service offerings. For example, AT&T spent $110 billion to acquire cable
companies TCI and MediaOne during 1998 and 1999,37 and Qwest Communications, previously
a long-distance voice and data service provider, completed its $48-billion merger with US West
in 2000, creating a company able to offer its customers Internet access, data, multimedia, and
voice services over a 25,000-mile broadband fiber-optic network.38 With demand for bundled
data and voice services slow to develop, however, the pace and size of mergers and acquisitions
in the U.S. telecommunications industry has decreased, as firms reevaluate their product markets
and shift resources to focus on revenue-generating services. Industry analysts expect to see
continuing consolidation in the CLEC market segment, however, as established
telecommunication firms seek to improve product offerings and increase their market share by
acquiring struggling CLECs or their assets.

Competitors:

AT&T Comcast / EchoStar-DirecTV

AT&T's deal to merge its cable-TV business with Comcast will create the nation's largest cable
company, with 22 million subscribers and cable lines in about 20 percent of U.S. homes in 41
states. Media companies are battling for supremacy of content delivery into the home, as they
move closer to realizing a vision of creating a seamless, interconnected home network. Such a
goal raises concerns that the "pipe owners" will exercise control over the content carried on their
pipes. Similarly, EchoStar's proposed deal with Hughes Electronics for control of DirecTV will
create a satellite TV behemoth with vast market power -- stirring fears that the giant company
also will rule over the content it carries. On Dec. 31, a federal judge sided with Walt Disney Co.
in a contract dispute with EchoStar by preventing the satellite TV provider from dropping
Disney's ABC Family channel as it had threatened.

AMAZON
Amazon.com, Inc. is the world's leading online retailer. We have served over 17 million
customer accounts in over 150 countries. We directly offer for sale millions of distinct items in
categories such as books, music, DVDs, videos, toys, electronics, software, video games and
home improvement products.
Through our marketplace services such as Amazon.com Auctions, zShops and
sothebys.amazon.com, we have created Web-based marketplaces where buyers and sellers can
enter into transactions with respect to a wide range of products. In addition to our US Web site,
we currently have two internationally focused Web sites located at www.amazon.co.uk and
www.amazon.de. We have also invested in and developed strategic commercial relationships
with a number of selected e-commerce companies. We offer our customers a superior shopping
experience by providing high value through selection, convenience, ease of use, low prices,
product information and an intense focus on customer service. We are a proven technology
leader, having developed electronic commerce innovations such as 1-Click technology,
personalized shopping services, easy-to-use search and browse features, secure payment
protections and wireless access to our stores.
In 1999, we significantly expanded our distribution capabilities worldwide with the addition of
eight new distribution centers comprising approximately four million square feet of warehouse
and distribution space. These new facilities increase our control over the distribution process and
facilitate our ability to deliver merchandise to customers on a reliable and timely basis.

Amazon.com is principally organized into three operating segments. The US Books, Music
and DVD/ video segment consists of the Company's US online stores for books, music and
DVD/video. The Early-Stage Businesses and Other segment consists of the Company's US
online stores for electronics, software, video games, toys and home improvement products, US
marketplace services, and the Amazon.com Commerce Network. The International segment
consists of all operations in Germany and the UK.
YAHOO!
Yahoo! Inc. ("Yahoo!" or the "Company") is a global Internet communications, commerce and
media company that offers a comprehensive branded network of services. As the first online
navigational guide to the World Wide Web (the "Web"), www.yahoo.com is the leading guide in
terms of traffic, advertising, and household and business user reach. The Company also provides
online business and enterprise services designed to enhance the productivity and Web presence
of Yahoo!'s clients. These services include Corporate Yahoo!™, a popular customized enterprise
portal solution; audio and video streaming; store hosting and management; and Web site tools
and services. The Company's global Web network includes 24 World properties. Yahoo! has
offices in Europe, Asia Pacific, Latin America, Canada and the United States. The Company
commenced operations in 1995, and is headquartered in Santa Clara, California.

Under the Yahoo! brand, the Company provides broadcast media, communications, business,
enterprise and commerce services. In December 2000, Yahoo!'s global audience grew to 180
million unique users who viewed an average of approximately 900 million Web pages per day on
Yahoo!-branded online properties.

In general, the Company makes its properties available without charge to users, and generates
revenue primarily through the sale of advertisements, promotions, sponsorships, merchandising
and direct marketing. The majority of advertising on Yahoo! properties is sold through the
Company's internal advertising sales force. Approximately 3,700 customers advertised on the
Yahoo! Network during the fourth quarter of 2000, including 55 of the Fortune 100.

MICROSOFT
Microsoft Corporation (the "Company" or "Microsoft") was founded as a partnership in 1975
and incorporated in 1981. Microsoft develops, manufactures, licenses, and supports a wide range
of software products for a multitude of computing devices. Microsoft software includes scalable
operating systems for servers, personal computers (PCs), and intelligent devices; server
applications for client/server environments; knowledge worker productivity applications; and
software development tools. The Company's online efforts include the MSN(TM) network of
Internet products and services and alliances with companies involved with broadband access and
various forms of digital interactivity. Microsoft also licenses consumer software programs; sells
hardware devices; provides consulting services; trains and certifies system integrators; and
researches and develops advanced technologies for future software products.

Microsoft's business strategy emphasizes the development of a broad line of software products
for information technology (IT) professionals, knowledge workers, developers, and consumers,
marketed through multiple channels of distribution. The Company is divided into three main
areas: the Business Divisions, the Sales, Marketing, and Support Group, and the Operations
Group.

The Business Divisions work in close partnership in order to create powerful software services
and solutions built around the Internet, Windows, and new devices. Each division is responsible
for the product planning, development, strategy, and in some cases, marketing strategies for their
respective customer segments. The product segments, based on these business divisions, are the
Windows(R) Platforms segment, the Business Productivity Applications and Developer segment,
and the Consumer and Other segment.

The Windows Platforms segment contains the Windows Division and the Windows Digital
Media Division. The Windows Division develops PC and server platforms required to run
applications and services and to deliver the connectivity, management services and infrastructure
for all types of users. The Windows Division builds platforms for enterprise, dotcoms, small
businesses, and consumers. The Windows Digital Media Division develops digital media
technology and services for Windows platforms available across all types of devices, networks,
and services.

The Productivity Applications and Developer segment has two primary divisions, the Business
Productivity Group and the Developer Group. The Business Productivity Group creates desktop
and server software applications and solutions for the knowledge workers and small businesses.
The Developer Group builds architecture and development of our tools and related platform
technologies for software developers.
The Consumer and Other segment includes the Consumer Group. The Consumer Group provides
Internet services and creates and markets productivity programs, learning and entertainment
products, and hardware peripherals for consumers. For financial reporting, revenue from
Microsoft Press, consulting, and certification of system integrators is included in this segment.
Microsoft has a research lab dedicated to creating new technology and converting problems into
tangible solutions that Microsoft developers, can incorporate into products to meet customers'
needs.
The Sales, Marketing, and Support Group is responsible for building long- term business
relationships with original equipment manufacturers (OEMs), enterprises, small- and medium-
sized businesses, application developers, educational institutions, and consumers. Enterprises are
offered tailored license programs, enterprise-wide support, consulting services, and other
specialized services. The group contains the Marketing Division, which is responsible for
domestic execution of integrated marketing campaigns and similar worldwide initiatives; and
developing expertise in public relations, advertising, customer loyalty, research, and events. The
group also manages the channels that serve customers by working with OEMs, distributors, and
resellers. In addition to the OEM channel, Microsoft has three major geographic sales
organizations: the South Pacific and Americas; Europe, Middle East, and Africa; and Asia. The
Sales, Marketing, and Support group supports the Company's products with technical support for
end users, developers, and IT departments in organizations.
The Operations Group is responsible for managing business operations and overall business
planning. This includes the process of manufacturing and delivering finished goods and licenses;
corporate functions such as finance, administration, human resources, and legal.

MEDIA INDUSTRY

2001 was the year of one of the worst-ever advertising downturns, numerous magazine and dot-
com closures, thousands of layoffs, and Sept. 11. Indeed, 2001 was a year of many challenges in
media. Here, in no particular order, is I Want Media's roundup of 2001's top media stories.

September 11
Except for the airline and travel industries, perhaps no business sector was hit harder by the Sept.
11 terrorist attacks than media. While news outlets earned praise for their coverage (and endured
anthrax attacks), their parent companies lost hundreds of millions of dollars due to 'round-the-
clock coverage costs and a loss of ad revenue from jittery advertisers. The attacks magnified the
ad pain already felt throughout the industry, as a bad year was made "unimaginably worse."
Advertising Downturn
The ad industry in 2001 had its worst year since 1938, with ad expenditures shrinking by a
reported 4.5 percent. Analysts at Merrill Lynch expect another decline in 2002, which would
mark the first time since the Great Depression that ad spending dropped in consecutive years.
Even before Sept. 11, global advertising was seen heading for its worst downturn in a decade,
prompted by a decline in profitability among major advertisers and the bursting of the dot-com
bubble. A continued slowdown could pressure media companies to make even more cost cuts.

Media Layoffs
Job cuts at media companies -- in editorial, ad sales, corporate and elsewhere -- picked up pace
in 2001, as shown by I Want Media's exclusive tally. Most cutbacks were attributed to the poor
economy and ad market, disappointing results at online units, restructurings in the aftermath of
mergers, and the shutdown of media properties ranging from Mademoiselle to Drkoop.com.
Magazine Shutdowns
More than 100 magazines ceased publication in 2001. Among the casualties: Brill's Content,
Classic American Home, George, Expedia Travels, Family Life, Individual Investor, Industry
Standard, Mademoiselle, Maximum Golf, and Working Woman. Even before Sept. 11, the
magazine industry faced many business woes, including the soft ad market, wholesaler
consolidation and a rise in postal rates. NBC's move to lift TV's ban on liquor ads is expected to
take more ad dollars from magazines. Sadly, many industry leaders are expecting magazine
closures to continue.

Dot-Com Shutdowns
More than 500 dot-coms closed down in 2001, including e-commerce properties Contentville,
MightyWords and iPublish.com, and content sites LocalBusiness.com, Work.com and
UpsideToday.com. While the surge in traffic to news sites after Sept. 11 demonstrated that the
Internet was a valid news medium, most of such Web services still don't see any signs of
profitability. Despite pleas to get users to pay, charging for Web content continues to be a tough
sell.

Media Companies Build New Headquarters

Several media conglomerates began (or completed) construction on new high-profile corporate
headquarters. AOL Time Warner is building a colossal $1.7 billion tower on Columbus Circle in
New York. Two blocks south, Hearst is erecting 36 stories atop its landmark six-story corporate
offices. A few blocks west of Hearst, Random House is building a new skyscraper home. Further
south in Times Square, the New York Times is planning a 52-story HQ that will cover an entire
city block. USA Today publisher Gannett has moved into a "shimmering" new office complex in
McLean, Va. Considering that media companies are in the midst of one of the worst-ever ad
climates and laying off thousands of employees, the timing of the construction boom may seem
odd. "Rome is definitely burning while these guys are building," Michael Wolff, New York
Magazine's media columnist, told I Want Media. "This partly has to do with the fact that these
real estate deals were begun in better times, but it also reflects the bigger-is-always-better,
consolidate-or-die, fortress mentality of the media business. Each of these companies believes
the bad is happening worse to someone else and that they will be the last man standing -- ideally
in style."