Gerald Levin of Time Warner was posing tieless at yesterday's news conference, trying his best to look like an Internet guy, while America Online's Steve Case was sporting a tidy corporate cravat. But it's still far from clear who will be wearing the pants in this corporate family, and whether they'll be blue jeans or pinstripes.

At first blush the AOL merger with Time Warner certainly looks like the triumph of "new media" over "old media." A company that just five years ago had no earnings and was best known for delivering busy signals to its infuriated customers has acquired perhaps the biggest and best "old media" company in America. The company whose founder coined the term "the American Century" seems to have thrown in the towel, two weeks into the 21st century.

Unlike many of the recent giant mergers, it's hard to overhype the significance of yesterday's announcement. The nation's leading Internet company has combined forces with a "content" powerhouse that produces films, television programs and magazines and owns the biggest cable system in the country. At the instant the merger was announced, other big media and Internet companies began searching for partners, too--and it's certain that the AOL-Time Warner combination will trigger similar deals.

But it's possible, too, that this deal really signals "the end of the beginning" of the Internet era. The days when stock valuations could soar like dirigibles above actual earnings may be waning. That's because AOL has decided, in effect, to trade the blue horizon of imagined future earnings that's typical of the Internet world for the real assets and income stream of its new partner.

Careful market watchers will be looking, over the next days and weeks, to see where the valuation of the new AOL will settle. Last Friday, before the merger, AOL was trading at more than 50 times its earnings before interest, taxes, depreciation and amortization, while Time Warner was trading at about 15 times EBITDA, as it's known.

How will the combined company be judged: At the anything-goes level of the Internet, or the less-stratospheric level of other communications companies? Case said in an interview yesterday that "it will be somewhere in the middle." He explained that "we anticipate some multiple-compression," and that on a pro-forma basis, the combined company would probably trade at 27 or 28 times EBITDA. But he said he hoped investors would "see the revenue upside" and that valuation would be closer to AOL's level than Time Warner's.

The market's initial response was that AOL's decision to embrace an old media company had made it less valuable--its stock fell about 2.7 percent and it lost roughly $4.5 billion in market capitalization. Time Warner, in contrast, experienced a halo effect from its association with the Internet's most famous name: Its stock climbed about 39 percent and it added about $32 billion to its total market capitalization. When you net out the two swings, that means the market valued the combined companies at more than $25 billion above what they were worth separately yesterday morning.

I'm not sure that premium will hold up over the coming months--especially if the market begins to judge the combined company in terms of its actual sources of revenues and earnings. As Case himself notes, Time Warner is contributing about 80 percent of the combined company's cash flow. An instructive lesson may be the fate of the Lycos USA Networks deal last year. That was a similar attempt to combine a new-media company with an old-media one. The stocks collapsed when investors concluded that they were paying too much for sizzle and getting too little steak.

The person who really had to make a cold-hearted calculation about the valuation issue was Ted Turner, who was Time Warner's largest shareholder with about 10 percent of the company and will now be the largest holder of the merged company, with about 4.5 percent.

Despite Turner's wacko public comment yesterday that the merger news was as exciting to him as the first time he had sex, sources say his initial response was warier. This was a man, after all, who was trading billions of dollars worth of stock in a company he spent his life building for what many would regard as overvalued stock. By one account, Turner was at first opposed to the deal, asking: "Why should I give up stock in a $25 billion company for shares of this little p----ant company?" Turner's financial advisers persuaded him to back the deal, arguing that the AOL helium balloon would increase the value of Turner's holdings. And that's what happened--at least on the first day.

The other fun show to watch, other than valuation, will be who's actually running this two-headed beast. AOL's Steve Case will be chairman, but his role will be visionary-in-chief, while the real power of chief executive will be vested in Time's Levin.

And what of Robert Pittman, AOL's hard-charging president, who cut his teeth at Time Warner? The knives may be out (including his own) as he battles to integrate AOL's operations with those of his former colleagues at Time Warner.

However these battles play out, it's clear that yesterday was the day AOL grew up, perhaps bringing the rest of the Internet economy with it. A company that a decade ago was little more than a gleam in Case's eye has now seized the commanding heights of American business. What a ride!