Time Warner Cable

Aug 8, 2023

August 8, 2023 Warren Buffett, one of the most successful investors of our time, was also known for his reduced sympathy for securities that would be valued above the fair value of his economics. On the contrary, his strategy has always been to find shares of companies whose business vitality and results should project quotes higher than the current ones and hold them until they correct upwards. Seems simple and obvious, this made him not buy Apple, Google and Microsoft for many years, something he came to regret and publicly acknowledged. He is now a strong investor in Apple, but resists Tesla’s charms. Not always getting it right, one of the lessons he insists on transmitting is that we should doubt what we don’t understand. Investing means that we understand the business and have reason to believe it will prosper, and that picking stocks just because they appreciate in value is just speculation and requires luck. When we look at any path of success or failure, everything seems logical and evident a posteriori. The difficulty is to be consistent in a criterion, even losing opportunities along the way, but choosing the right variables to pursue and decisions that are not always aligned with those of the majority. The history of the media and audiovisual industry since the beginning of the century illustrates these moments for us several times, but one of the greatest occurred on January 10, 2000. The enormous Time Warner, which owned the brands Warners, HBO, CNN, TBS , Time Warner Cable and Time Magazine, was acquired for a record $182 billion by AOL, in stock and bank credit. Time Warner was five times bigger in revenue and nearly six times the number of employees, but it was taken over by Wall Street’s conviction that AOL’s future lay. With 30 million dial-up Internet access subscribers, AOL was the biggest “internet provider” and, adding Time Warner’s enormous content production capacity, the combination seemed to have everything to go well. But it did not. In 2002, the new company posted losses of $98.7 billion dollars, the largest recorded in US corporate history. The takeover collapse is now easily explained. The company was too big to be agile and broadband overtook dial-up in a short time, portals did not assert themselves as the gateway to information on the web, and the combination of businesses burned more money than it provided, in addition to of many other aspects that merited legal action. But why were so many people so intelligent and so well advised so far wrong? Because in times of rapid change, taking no chances is not an option. If everyone identifies that the business is going to change, whoever approaches it following the new paradigms easily appears to be a sure winner. And AOL did. But this is where we must remember Warren Buffett. If we don’t understand the business, we must resist the charm of novelty. It would not be easy, as it is not today to resist the charms of the blockchain, the metaverse and, above all, AI. For anyone in the media and audiovisual business, this means that we should expect that our revenue will continue to require a combination of advertising and subscription, direct or through aggregators, and that what we do is inform and entertain. If we continue to do it well, we will continue to be relevant, even if social networks and search engines don’t value us. If we fail to achieve this, even the AI ​​will not be able to help us. In 2009, Time Warner spun off from AOL, which was sold to Verizon for $4.4 billion, and in 2018 AT&T acquired Time Warner for $85 billion. History may go well in this repetition, or not at all, but Time Warner will continue its path if it continues to do well what it understands best. Opinion article signed by João Paulo Luz, director of digital business and publishing at Impresa