The proposed marriage of America Online Inc. to Time Warner Inc. signals, more forcefully than anything to date, that "new media" and "old media" no longer exist in mutually exclusive spheres.
Time Inc. was founded in 1923 as America's first weekly newsmagazine. AOL was born in 1985 as a proprietary online service catering to a small, geeky fringe of computer users. In the past decade, the companies have undergone rapid growth and systematic reinvention. Time Warner became a signature player in movies, television and cable services; AOL became the prevailing entry point to this thing called the Internet, and began calling itself a "media company."
At century's end, it was an open question whether old-line media giants would be rendered dinosaurs by sleek online beasts such as AOL, or whether these newcomers would be quashed when the Time Warners of the world decided to flex their corporate muscles.
Yesterday it became clear: Neither the old nor the new is going anywhere. These animals clearly need each other. And the manic evolution of the information economy seems destined to roll forward as a multimedia hodgepodge made up of alliances that are as unpredictable as technological change itself.
At first glance, AOL Time Warner could be an information superfamily taking up residence in the stimulus-laden households of the media age. The combined entity would have its big fingers in nearly every method of delivering news, information, entertainment and advertising to the home--be it through television, cable wires, phone lines, magazines, books or music CDs.
"The magic of both of these companies is how familiar they have become to the fabric of daily lives," said Peter Kreisky, head of the media practice at Mercer Management Consulting. The companies have achieved this ubiquity in vastly disparate entertainment landscapes, he said, and depending on what fast-changing course technology takes, it would seem that both companies have entered into a combination of convenience.
Time Warner has covered its large and vulnerable backside by aligning itself with the signature brand name on the Internet, a medium it has struggled mightily to enter without clear success. AOL, meanwhile, buys access to Time Warner's extensive "content portfolio," which includes CNN, TNT, WTBS, HBO, a major movie studio, and popular magazines such as Time, Sports Illustrated and People.
Perhaps most important, the combined company would be uniquely suited for the advent of "broadband"--high-speed Internet access through cable TV or telephone lines that brings new services such as video on demand and rapid downloads of music. Through Time-Warner's cable system, AOL would be able to reach about 20 percent of the nation's cable subscribers.
Few can doubt the full scope of AOL's aspirations after yesterday's announcement. The company has long eschewed the less heady mantle of "Internet service provider," or "online service," and its hard-driving corporate culture is defined by the goal of "AOL Anywhere," a brand that seeks to transcend the computer desktop.
"AOL is finally getting their wish of being called a media company," said Robbin Zeff, an Internet analyst for the Zeff Group, an online consultancy in Arlington. "The obvious caveat here is 'Be careful what you wish for.' "
Indeed, in the freewheeling world of the Internet, Zeff wonders if AOL will remain nimble enough to anticipate changing market trends and demands, perhaps its strongest suit in recent years. "Now AOL will inherit all of the baggage of a major media company," Zeff said. "So many Internet companies have been built on their ability to turn on a dime. It's very unclear if AOL will still be able to do that."
If nothing else, Time Warner's eagerness to merge with AOL represents a formal recognition of what has become an obvious notion: that the Internet is the hot medium of the age, and probably will be the wave of the future, too.
"You just have to keep stepping back here to realize how unbelievable this all is," said A. Michael Noll, a professor at the Annenberg School of Communications at the University of Southern California. "Ten years ago, AOL was this tiny company that was barely on anybody's map. Now, they're big enough to buy something as dominant as Time Warner."
In the resulting combination, it's easy to imagine a household's evening menu of entertainment: At any given time, the mother could be watching TV hooked up to Time Warner cable, tuned to CNN news, an Atlanta Braves game on TBS, an "ER" rerun on TNT or a first-run movie on HBO. The teenage son could be going on the Internet via AOL, wandering cyberspace on a Netscape browser and chatting with pals using AOL's ICQ instant messaging service.
On another computer, his sister could be studying MapQuest to locate the cinema she found by calling AOL's Moviefone, where she will see a Warner Bros. film such as "You've Got Mail."
And the father, who can't get anyone in the family's attention, retreats to Time, Sports Illustrated and People magazines.
This is the Norman Rockwell picture of the turn-of-the-century media consumer as envisioned by AOL chief Steve Case and his Time Warner counterpart, Gerald Levin, as they announced their $183 billion engagement yesterday in New York. "Shaping people's lives," was the recurring buzz-phrase used yesterday by the company's executives at a New York news conference. "AOL Time Warner will offer an incomparable portfolio of global brands," Case gushed.
Even so, previous unions of media business and media firms have been shaky at best. Disney bought the Internet search engine Infoseek Corp., whose stock has foundered since November. Barry Diller's USA Networks Inc. agreed to merge with the popular online "portal" Lycos, only to see the deal fall apart after shareholder dissent.
AOL Time Warner would be the biggest of the unions by far, and the merger represents an unmistakable rite of maturity for the Internet. But to many online observers, it is a bittersweet benchmark. Part of the magic of the online world is its Wild West character, where the barriers to entry are tiny, and seemingly anyone can be an industrial pioneer.
Just like Steve Case.
"This is the last nail in the coffin for anyone who believed that the Internet is the last stronghold of media competition," said Robert McChesney, a professor of communications at the University of Illinois and the author of "Rich Media, Poor Democracy." Before, he said, the goal was to come online, maybe revolutionize a market. Now, he said, the goal is to build a company to a point where one of these media conglomerates will want to buy it.
In one virtual gathering place for technology buffs yesterday--the Slashdot Web site--Managing Editor Robin Miller kicked off a rollicking debate over the merger with this screed: "Now you'll be able to get all your Internet needs, from connectivity to content to shopping, delivered by a single experienced company. No more need to deal with Web sites that stray from the party line, take risks . . . or any of that other messy old-fashioned 'Internet as anarchy' stuff.
"To get online in the future, all you'll need to do is plug in your computer, turn off your brain, and enjoy!"
If nothing else, AOL Time Warner will toil in a media environment that's undergoing a whirlwind evolution. No one can say with any certainty, for example, whether in a few years most consumers will go onto the Internet from their televisions, or whether tomorrow's TV viewers will watch their favorite shows on their computer screens.
What's likely, however, is that high-speed Internet service will soon become a mass-market phenomenon. Access to the Internet via fatter cable lines is about 100 times faster than traditional phone and modem connections. And control over broadband is considered pivotal to the health of both companies, said Mark Berman, an analyst at Mediaweek.com, an online trade publication.
"It's fairly clear to me," Berman said, "that in five years, people will look back on this deal as instrumental in how all of these rapid changes shook down."
Staff writer John Schwartz contributed to this report.
AOL and Time Warner also announced marketing, commerce, content and promotional agreements that will expand various relationships already in place between the two companies. These are separate from the proposed merger and include:
* The AOL service will feature Time Warner's InStyle magazine, expanding on content Time Warner already offers AOL members from People, Teen People and Entertainment Weekly.
* CNN.com and Entertaindom.com programming will be featured prominently on various America Online services.
* AOL members will have access to promotional music clips from Time Warner recording artists.
* Time Warner and AOL Moviefone will participate in online-offline cross-promotion of Time Warner movies.
* Broadband CNN news content will be distributed on AOL Plus, the media content offering designed for AOL members connecting via broadband, when it launches this spring.
* Time Warner will dramatically expand cross-promotion of AOL in a number of its offline media properties.
* Warner Bros. retail stores will promote the AOL service, including in-store distribution of AOL disks.
* Time Warner will include AOL disks in promotional mailings and product shipments.
* America Online will make available on Road Runner various America Online brands and products, including AOL Instant Messenger, Digital City, AOL Search and AOL Moviefone.
Source: The companies
CAPTION: AOL'S Steve Case, left, and Time Warner's Gerald Levin stand arm in arm yesterday after a news conference in New York where the mammoth merger plan was announced.