FYI - AOL Time Warner Investor Relations Newsletter
May 14, 2001

Focus on: Eden's Crush -- Making Beautiful Music Across AOL Time Warner

In last month's FYI, we discussed AOL Time Warner's MusicNet venture and our online music activities in general. Among them was an innovative promotion campaign for Warner Music's new teen act Eden's Crush, the all-girl group that came together from The WB's hit series "POPSTARS" and whose CD debuted at No. 6 on The Billboard 200 chart this week. It's an impressive feat for a group that's been together for just three months. But for AOL Time Warner, "POPSTARS" is more than a hit CD. It's a symbol of how company-wide resources can be used to create unique business opportunities.

Today's FYI elaborates on the success of Eden's Crush and the cross-business collaboration at the heart of AOL Time Warner, which gives us the opportunity to create things - like new ways to find and promote artists - that other companies cannot.

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Eden's Crush represents just a taste of what AOL Time Warner can accomplish. The group's initial success -- "POPSTARS" shipped Gold last week, with more than 600,000 copies hitting music stores -- reflects a truly successful collaboration by a number of AOL Time Warner businesses: TV, music, interactive services and publishing. Eden's Crush has also become a bona fide sensation among teens and young adults and the latest example of how AOL Time Warner can focus unparalleled resources on specific demographic groups that are of interest to marketers.

POPSTARS, the TV show that launched Eden's Crush, began last January as a form of "reality" programming on The WB, in which girls from around the country competed to form a new pop group. The program's appeal to viewers, especially teenage girls, was powerful, and it quickly became the top-ranked show in its time period among female teens. It also set or equaled all-time WB Friday night records in a number of demographic categories. A growing audience watched as the field narrowed from thousands of hopefuls to five finalists. With 14-time Grammy Award-winner David Foster providing guidance, the five women immediately began working together as a professional group. With tremendous speed, they recorded an album and music video and endured grueling rehearsals. On March 13th, London/Sire released "Get Over Yourself," Eden's Crush's first single and video, which can be viewed at AOL Keyword: Eden's Crush.

"Get Over Yourself" debuted as the No. 1 single in America, making Eden's Crush the first all-girl group to achieve this distinction. As POPSTARS took off, AOL's Teen Channel promoted the show with tune-in alerts and chats. AOL Music launched additional programming, including an exclusive download of the single with an AOL-only introduction from the group, a sneak peak at their music video, behind-the-scenes footage of its making, as well as photos, interviews and message boards. More than 66,000 people downloaded "Get Over Yourself" from AOL in just the four days leading up to the song's release. The Eden's Crush site has become one of the AOL Music Channel's most popular promotions, and its message board remains among the most active.

Meanwhile, cross-promotional opportunities abound throughout AOL Time Warner. Following the completion of their album and video, Eden's Crush headed to New York for appearances on WB affiliate WPIX and to shoot the season finale of WB's "Sabrina the Teenage Witch" that will air on May 18th. The WB also ran spots promoting Eden's Crush nationally, while TheWB.com promoted the single and album releases in its POPSTARS e-newsletters. KTLA, the WB affiliate in Los Angeles has covered the group, and Entertainment Weekly is featuring an online sweepstakes for backstage passes to hear Eden's Crush in concert.

The success of Eden's Crush also extends AOL Time Warner's leadership among teens and young adults, a desirable demographic whose spending totaled close to $160 billion last year and who continue to be an important influence on overall family spending. Other successes with this audience include:

-- The WB has achieved the No. 1 ranking among teen female viewers for four straight seasons and continues to grow among audiences 12-34 with innovative shows like POPSTARS, 7th Heaven, Dawson's Creek and Sabrina the Teenage Witch. The WB regularly features Warner Music Group artists on its teen-oriented series. Dawson's Creek, for example, adopted Paula Cole's Warner record "I Don't Want to Wait" as its theme.

-- Two weeks ago, AOL Time Warner's Teen People won a 2001 National Magazine Award in the category of General Excellence for magazines with circulation of over 1 million. The magazine was cited for "delivering high-quality journalism . . . that truly reflects the lives of today's teens." The win represents the first time that a teen publication has won in the General Excellence Category.

-- AOL is the communications medium of choice for teens, with after-school IMing becoming nearly as pervasive as talking on the phone. According to Media Metrix, AOL's Teen Channel had 4.2 million unique visitors in March while teen usage of AOL is up 9% from a year ago.

-- Warner Music Group, home to some of the world's most popular artists, has four albums in Billboard's top 10 this week -- Eden's Crush, Uncle Kracker, Stevie Nicks and Tim McGraw -- while CDs from Staind, Missy Elliot, REM and Depeche Mode will soon be climbing the charts.

Our leadership among teens is, of course, only one example of how AOL Time Warner can combine its resources to create lasting value. The ability to align our content businesses and to have our divisions work more closely together also enables us to build franchises out of our most successful creative efforts.

The Warner Bros. "Batman" model demonstrates just how profitable a franchise can be. The theatrical release of the first Batman movie brought in $215 million. But subsequent theatrical installments, TV rights, video releases, licensing rights and other consumer products increased the value of the franchise to the $2 billion level. And all of this came without the full promotional power of AOL Time Warner, which is now, of course, available to future franchises such as The Matrix --now in production for Matrix II and III -- and Harry Potter, scheduled for release in late November. In fact, we've already begun online promotion for Harry Potter, and you can see a trailer for this blockbuster release by visiting AOL Keyword: Harry Potter.

Cross-company cooperation doesn't just benefit us on the creative side of our business; it can also enhance the value and reach of our brands. By extensively cross-promoting the company's brands, we've generated more than 1.1 million new Time Inc. magazine subscriptions through the AOL service, made Time Inc. a major source of new AOL subscriptions, and sold Time Warner Cable subscriptions through AOL. We've also driven substantially increased traffic to the People, TIME, Sports Illustrated, Entertainment Weekly, CNN and other branded content Web sites through AOL, Netscape and the other America Online brands. Media Metrix reported that the Time Warner sites attracted 23 million unique visitors in March, up 69% over the year ago quarter and 10% higher than February's total. And we've announced CNN Money, an expanded business news initiative that will be supported with added reach, content and promotion from Time Warner Cable, AOL and Time Inc.

On the advertising and commerce side, cross-company efforts are also bearing fruit. AOL Time Warner, which has the ability to provide unique value to partners through a range of offline and online brands, has entered into a number of powerful recent agreements. For example, AOL Time Warner is creating unique and innovative programs and promotional initiatives for The Swatch Group's 18 global brands across online, print and television platforms, including the use of Time Inc. and America Online interactive properties. Since the beginning of the year, we have launched marketing alliances with major consumer brands such as Cendant, Compaq, Continental Airlines, P&O Cruises, Kinko's, CompUSA and Cisco.

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Eden's Crush will open for 'NSYNC this summer when they hit the road for nineteen shows together beginning June 19th in Toronto. The road that brought Eden's Crush from TV hit to musical success provides a powerful illustration of how AOL Time Warner is operating as one company, building products and services that go beyond the boundaries of our individual divisions. There are many other cross-divisional collaborations that we are working on today, and even more that lie ahead. The ability to align our content businesses, to build franchises out of our most successful efforts, and to pursue business opportunities across our company are vital to creating new consumer experiences, and to achieving the promise of AOL Time Warner.

Caution Concerning Forward-Looking Statements. This document includes certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are naturally subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological and/or regulatory factors and factors affecting the integration of the businesses of America Online, Inc. and Time Warner Inc. More detailed information about those factors is set forth in filings by AOL Time Warner with the Securities and Exchange Commission, including AOL Time Warner's annual report on Form 10-K for the year ended December 31, 2000. AOL Time Warner is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise.