AT THE END OF ’99, New York magazine essayist Michael Wolff predicted “old media” companies would buy dot-com companies with the cash these E-commercers have been paying to these established media giants for expensive TV commercials.
Didn’t take long for his prophecy to come true, sort of.
Yesterday, Time Warner (Warner Bros., The WB, CNN, Cartoon Network, TNT, Atlanta Braves, World Championship Wrestling, Warner Music Group, Rhino Records, Castle Rock Entertainment, New Line Cinema, CD Now, DC Comics, People, InStyle, Fortune, MAD, et al.) said it would combine with America Online (which had previously digested Netscape, CompuServe, and MovieFone).
The twist: Instead of TW simply engulfing and devouring AOL, the deal’s being touted as a merger (history’s biggest, by stock value) that would leave AOL in front of the new company’s name, and would assume AOL’s stock-ticker symbol. AOL shareholders would own 55 percent of the new company, to be called “AOL Time Warner.” AOL bossman Steve Case will be chairman of the combo, which should emerge from the various regulatory and bureaucratic processes by the end of this year.
The Associated Press even referred to the deal as AOL acquiring TW.
If anything, TW shareholders are getting the sweet end of the deal in pure financial terms. Thanks to the stock market’s dot-com speculation mania (something we’ll probably discuss at greater length next week), AOL’s stock was worth twice as much on Monday as TW’s–even though TW has much larger and vaster operations.
Variety, ever praising the old-media values, insists the deal’s details show that AOL needed TW more than the other way around. The online biz, the showbiz trade paper insists, is becoming more and more dependent upon “content.” That, and the old buzzword “synergy” (the excuse given 10 years ago for the original Time Inc./Warner Communications merger).
You remember synergy, don’t you? That was the magic word under which, say, Sports Illustrated and CNN were supposed to mesh seamlessly into a greater co-prosperity sphere. As the aforementioned Michael Wolff previously noted, it hasn’t quite turned out that way; leaving TW an overall financial underperformer trapped under several layers of Hollywood bloat. The big priorities at TW in recent years haven’t been the “content” operations but the distribution mechanisms; resulting in projects like SpaceJam, conceived as merchandising and cross-promotion tools first and as movies second.
But AOL could still have needed TW precisely because of its distribution properties–specifically, TW’s collection of local cable-TV systems (one of America’s top five).
AT&T, which bought TCI’s even bigger batch of local cable monopolies, has been aggressively moving into cable modem service It’s been positioning its own ISP, @Home, as its cable customers’ only home-broadband choice–a move which, if unchecked, could lead to the company having heavy influence over what individual Net users got to access. Regulators in Portland and other localities have tried to force AT&T to allow other ISPs on its cable; challenges which are still crawling through the courts.
Time Warner has its own cable-modem enterprise (entitled, synergistically enough, “Road Runner”). If AOL was going to stay strong in the emerging high-speed Net era, it had to have a deal with a big cable-modem operator. Now it has one.
When AT&T devoured TCI, it spat out a majority interest in TCI’s content operations (its stakes in Fox Sports Net, Discovery Networks, and assorted other cable channels). It’s not hard to imagine a similar future scenario in which AOL absorbs TW’s cable systems, then decides to spin off or sell off the assorted magazine, movie, TV, cable-channel, and other media properties; either as a whole or as individual dismemberments.
What would the synergy advocates (let alone the content advocates) say then?
TOMORROW: Why ‘Attitude’ is such a bore.
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