About a year ago, in a conversation with the CEO of a major Internet media company, I asked a simple question: "How would you feel if a traditional media company bought one of your competitors?"
"I'd be thrilled," he said. "They'd screw it up and just take one of my rivals off the table." One year later, AOL has done the reverse. CEOs everywhere--off-line and online--are rethinking their perspective.
Much of the discussion around the AOL Time Warner deal has focused on the merger's strategic benefits, and they are real. AOL's Steve Case gains the opportunity to distribute his company's services on the higher-speed cable assets of Time Warner, as well as to parlay AOL's stratospheric Internet valuation into the ownership of real-world assets. Gerald Levin hurls his lower-tech company "into the digital age," as he put it, albeit by doing nothing more than hitching the failing Time Warner digital train to AOL. Together, the new company will take its venerable portfolio of brands online. All of this makes sense.
But the deal is about more than just strategic synergies. The long-lasting impact of this combination--and others that will surely follow--centers on two parties that have largely been ignored in all the hype: advertisers and consumers.
Historically, each connection between advertisers and consumers has taken place within a single media property--a newspaper, a magazine, a radio or TV station. Content is created, advertising is sold and consumers listen or read. If consumers buy the advertised products, the advertisers spend more money and the cycle continues. This approach might be called the "silo" media model.
The AOL Time Warner merger represents a different model, something called a media network. Media networks use the power and flexibility of digital technology to create a more flowing, boundary-free media experience. For the football fan, it means checking up-to-the-minute game scores on SportsLine, perusing Doug Flutie's home page on AthleteDirect.com, and then ordering a pizza from Domino's, all in a single, connected experience. Media conglomerates such as News Corp. or Disney collect media properties, but rarely connect them. That is the promise of the digital age and the vision of AOL Time Warner.
Media networks create value for advertisers because they address key concerns: the struggle to find large audiences in an ever fragmenting media universe, the challenge to reach qualified prospects, and the dilemma of measuring the effectiveness of their advertising. AOL Time Warner represents what the media company of the future will look like: a place where advertisers can go to buy, deliver and track advertising across a multitude of media properties. Consumers benefit because they see more relevant ads--and fewer of the useless messages that barrage our eyes and ears daily. Fewer ads in a networked universe may sound ludicrous to some. But do you really think advertisers want to spend money to annoy non-customers?
Such an approach makes perfect marketing sense, but has been held back by the separation between "new" and "old" media companies. The media-centric divisions of traditional advertising agencies also have hindered this cross-media perspective. Can AOL and Time Warner integrate their advertising sales departments to provide advertisers with this unified view? Clearly, that will be a tall task for two companies of such size. Still, the merger points to a future where advertisers can think about the audience first, and the medium of delivery second.
Beyond creating value for advertisers, media networks also help consumers. The truth is, humans don't think in a siloed manner. Our minds make connections all the time from one interest to another. A music fan reads a Shania Twain album review, then asks, "I wonder if she'll be doing a concert tour this summer?" Then, "I wonder if I can get tickets?" Then, "I wonder if I can buy those boots she's wearing or get a haircut like hers?" Put simply, the consumer value in connecting digital media and commerce properties far outweighs the risk to consumers of putting multiple properties under one roof.
Will the deal suffocate consumer choice, as naysayers contend? Will it bias news reporting? Not likely. The Internet is an open network--the most open medium in history--and it will stay that way. The most highly trafficked Internet sites--AOL.com, Yahoo! and Microsoft's MSN--collectively receive only 15 percent of total page views, according to a study of Internet users by Media Metrix. While these figures exclude traffic on AOL's proprietary service, they still illustrate how little leverage any one company wields in the digital world. When a consumer signs up for AOL Time Warner broadband service, the new company's sites may be featured services. But consumers will remain free to click wherever they please. If they don't like the point of view of one news source, plenty of others will be ready to serve.
Consumers must look beyond the fears of media monopoly. Deals like AOL Time Warner will accelerate the creation of digital content not only at Time Warner, but also at other traditional media companies. That will accelerate the distribution of content through non-PC devices. The possibilities are compelling.
Imagine you are driving home from work on a Friday night. The thought of a movie crosses your mind. Within your Internet-enabled dashboard, you decide to have a computer-generated voice read the People magazine movie reviews for a suggestion, then ask the computer to cross-check that review against Roger Ebert's verdict, access AOL's Digital City to find the address of the closest theater and then make reservations via MovieFone.
Such a vignette may seem outlandish. They will only happen when major companies, with major dollars at stake, bet on the future of the digital age. That's what this deal is about.
Christopher Charron is the director of the media and entertainment group at Forrester Research, Inc., in Cambridge, Mass., an Internet research company whose clients include many media corporations.