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FEBRUARY 2000 | VOL. 4, NO. 2



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GARY BAUM is a contributing writer for Renaissance Online Magazine.


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How the Web Was Won   How the Web Was Won
The reality of the AOL, Time Warner merger

GARY BAUM

In the wake of America Online and Time Warner's January 11 merger announcement many pundits have lauded the Internet as finally coming into its own. They claim that since AOL essentially bought TW (in a funny money deal, or as they now call it, a "stock swap"), "new" media has finally conquered the aging dinosaur of "old" media.

On paper, at least, the pundits are correct. AOL used a vast amount of its market cap to buy an solid-performing conglomerate. Steve Case, AOL's wunderkind founder, explained that this purchase would help erase the differences between "new" and "old" media (his belief was that the two eventually, almost intrinsically, needed each other). But the truth is that he made the merger move -- and TW accepted it -- because both companies were in trouble.

Case knew that if AOL did not act soon his company was going to see its subscriber base plummet and its stock price take a similar dive over the next few years. This would have been due to a technology that will be the framework of the next generation of the Internet: broadband. Broadband technology connects users on average fifty times quicker than they are connecting now by employing fiber optic cables, satellites and other assorted wizardry. And broadband is currently being spearheaded by a new service called Road Runner, which is named after the quick and agile desert bird whose cartoon likeness is trademarked by -- yes, you guessed it -- Time Warner.

So now AOL is safe. It has TW's content (the company's various other old media properties, such as CNN and the Book-of-the-Month Club) as well as a stake in Road Runner, with which it can pursue a successful future. But in this particular deal it was not one, but both companies, who merged in desperation. TW is the titan of old media, with interests in everything from television and print to music and movies. And the company has tried, for the most part unsuccessfully, to recreate its media dominance on the Web over the past few years with its mediocre digital presence Pathfinder. So it also needed something. And in its case that something was a smart and nimble Internet company that could further its own, old media interests as the digital revolution churns on. And it found that partner in AOL.

But for a so-called merger of equals, AOL seems to have gotten a raw deal. Steve Case, of course, is perfectly happy with the idea of giving up his position as leader of the company so that he can pursue his main interest. That is, being the Big Thinker/Visionary (much like Bill Gates in his own new self-appointed position). TW's head, Gerald Levin, will instead be the CEO of the new company, America Online-Time Warner. Therefore he will be overseeing the day-to-day operations of the newly-minted conglomerate from his office in New York City. That's a far cry from AOL's new media enclave in Virginia.

AOL-TW's old media-biased leadership is just one reason why, in reality, the company will be nothing more than what Time Warner was before the deal, with a few more letters tacked onto its name, possibly a new logo, and a newly-acquired (and successful) Internet appendage to go along with it. Levin will no doubt change AOL into the TW-themed portal that Pathfinder never turned out to be. Indeed, as many pundits have pointed out, AOL's over twenty million subscribers are the cream of the Internet's traffic crop, and TW will definitely exploit it. For instance, in the past AOL has made various content arrangements with a variety of media outlets, including Viacom's CBS. However, it would now definitely make sense for AOL to feature its own (that being, TW's) content, such as CNN, rather than rely on external outlets to which money could be lost.

The question of how AOL-TW will use the pipelines that it now owns (AOL's current service and Road Runner, the service that will one day take its place) is an interesting one. For a sizable chunk of Web users, AOL's own blend of advertising, content and community is what they consider the Internet, for better or for worse. AOL-TW knows that. Average Joe has already entrusted the service that brings him the Internet to AOL, but will he know that an old media conglomerate will be deciding exactly what he will read, see, and, well, trust? After all, AOL-TW can now decide which news service -- its own CNN or its rival Viacom's CBS -- it wants Average Joe to consume.

Of course, TW is thinking about all of this right now, because branding its own content to a faithful (yet unaware) pool of millions of Internet consumers such as Average Joe has been TW's goal all along. It will use AOL and its large stable of users to change the service into a bigger, better and hopefully not-so-mediocre update to Pathfinder.

[ CONTINUED: a glimpse of the future ]

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IMAGES: AOL and Time Warner logo copyright © Time-Warner; Roadrunner copyright © Warner Brothers.