TOPICS > Economy

AOL-Time Warner Merger

January 10, 2000 at 12:00 AM EDT

RAY SUAREZ: Analysis of the deal now, from Jim Ledbetter, New York bureau chief for the Industry Standard, a weekly newsmagazine covering the Internet economy; Bruce Leichtman, director of media and entertainment strategies at the Yankee group, a technology research and consulting firm; David Bennahum is a partner in an Internet venture capital firm, a contributing editor of Wired magazine, and the author of Extra Life: Coming of Age in Cyberspace; and Norman Solomon, syndicated columnist and author of the recent mass media critique, The Habits of Highly Deceptive Media. Jim Ledbetter, why this merger? Why now? What did each want from the other?

JIM LEDBETTER: Well, I think, as you point out with your question, this is really a merger that allows each of the companies to get a piece of the Internet future that they could not themselves provide. In Time Warner’s case, AOL really helps them move onto the Internet, you know, in a coherent and mass fashion. They were one of the early old media companies to embrace the Internet and have had some successes there, but not all of their attempts to organize the vast content that they have, have been real hits with consumers.

For AOL, I think this is largely a deal about technology; that is to say, America Online has been the dominant leader in what might be termed the sort of first stage of Internet usage, that is people going on-line for e-mail and Web surfing. But they have not had much of a strategy to go to the next level, so-called broadband access, where access to the Internet would be much faster and will allow for a much more complicated tasks. For example, one of the things the two companies talked today about is streaming video through your computer, whether that would be you just call up a video that you want to see, or to watch live news through the Internet in a way that one would through television, downloading music, these kinds of applications that right now are very difficult to do at the access speeds that most consumers have to the Internet. Time Warner, with its Road Runner service, potentially has the ability to deliver that, and AOL wants to be the content on what’s going into those homes. So it makes sense from a strategic perspective, and of course, it also creates a globally powerful company that combines both old media power and content with new media speed.

RAY SUAREZ: Bruce Leichtman, AOL has been making strategic alliances with various content providers for years. I’ve been watching various network news spots using AOL as a platform for a long time. Why buy a great big company like Time Warner?

BRUCE LEICHTMAN: Well, I think to see this purely as a technology play is in the seeing the full range of media content that this company brings. Time Warner is the number one media and entertainment company in the world, creating 30 billion dollars of revenue every year. And you take with it all the assets that Time Warner has, that runs from Bugs Bunny and Superman to CNN, Sports Illustrated, Time magazine, these are some of the best brand names in the world. So, yes, Time Warner’s technology, which actually only reaches 30 percent of Americans, there’s a lot more deals that have to be done for them the truly get into that broadband play, but we can’t look past this rich content asset that Time Warner possesses.

RAY SUAREZ: So what’s in it for Time Warner?

BRUCE LEICHTMAN: What’s in it for Time Warner is if you look at the company as a whole, $30 billion of revenue, which is tremendous, growing at about 10 to 15 percent a year, but where were they going to go from there? A great business, but what is the opportunity there? The opportunity is in the Internet. And as I look at it, I see that the torch has been passed to a new generation, and the new generation is the Internet. And that’s where the opportunity lies in increased revenue beyond the 10 to 15% that Time Warner is currently making.

RAY SUAREZ: So David Bennahum, the last stamp, if anybody needed it, that the Internet is a mature business now that it’s able to take on a giant like Time Warner?

DAVID BENNAHUM: Yeah, I have to agree a bit with Bruce there. What we’re seeing here essentially is the maturation of the Internet as the platform for what will be the 21st century entertainment media universe. And what we’ve seen in this deal is not merely the conglomeration of some technology with some media, but essentially first shot across the bow of the 21st century media landscape.

And what that will be predicated on is the idea that we can all get our entertainment and our news through this global Internet network. And this has ramifications for television networks, for cable networks, for radio networks. This is the beginning of a profound transformation, and so what Time Warner gets out of this is, first, advantage, moving enter the Internet. What AOL gets out of this is the incredible access of that content. And now what they both have to do, one of the many challenges they face, is to say, well, how do we then begin to create this next generation of media and content? How do we leverage all these connections in terms of marketing, in terms of relating to your audience?

Because beneath all this is this unrelenting fact, which is that the Internet has fragmented and created a very heterogeneous media landscape. And it’s very troubling for these big companies because we’ve shifted from this homogeneous, simple, you know, the three networks and a couple cable stations, to this great wash of stuff. Part of what this merger now has to do is figure out how to aggregate all these people, how do we in a sense capture their attention in this fragmented world? That’s why you’re going to see more and more of these very big mergers between Internet companies and well-known media companies. It’s all about trying to recreate an ability to capture the consumer, capture the public’s attention in an increasingly fragmented world.

RAY SUAREZ: But why spend billions to in effect recreate what you can already do? People don’t want to watch television on their computer. They usually have a television just a little ways away from where they’re sitting at that computer. Time Warner and CNN have spent millions making televised versions of their magazines that almost nobody watches.

DAVID BENNAHUM: That’s right, Ray. It’s not about… It would be naive to think this is about watching TV on the Internet. It’s not. It’s about creating a new kind of media eventually that uses elements of television and the Internet, media that’s both interactive. The advertising will probably all be response-based, where you can click on the ads, respond to the ads. And the news and the shows will ultimately have increased interactivity or aspects of them that are interactive. So it’s not merely let’s put TV on the Internet. No. It’s let’s use assets from television. Let’s use assets from the Internet to create something truly new. And what that is, we’re not sure. I don’t think anyone really knows yet. But this is the new phase of the Internet. It’s creating this new paradigm for media.

RAY SUAREZ: Normal Solomon, what do you make of the deal?

NORMAN SOLOMON: What I make of it is we have a continual mass media discussion, and in the last couple minutes I think have typified it, to discuss what is in it for Time Warner, what’s in it for AOL and relatively little discussion of what’s in it for the public.

I think primarily what’s in it for the public is a narrowing of choices under the illusion of having more diversity. I’m afraid that we may look back on January 2000 as the time when de facto, the World Wide Web became essentially the world narrow Web, which is counterintuitive because there’s all this talk today, all this smoke being blown about how AOL and Time Warner will create these multiplicity of choices through the new media.

The reality is, however, that these new media are being used to herd and goad and leverage the consumers, the media consumers into essentially cul-de-sacs where the links in these various new media are self-referential, not often labeled as such. People are going to be directed to and encouraged to go to various media products on the Internet and elsewhere under the guise of giving them a get deal of choice. I mean, we see that now with the corruption of more and more search engines and portals and so forth where it seems that, for instance, the 22 million people who already access the Internet through AOL in this country, it seems as though, hey, they’re free wheeling through what used to be called the information superhighway, now increasingly in the mass media is simply being looked at as avenues for e-commerce.

So, I think this is a tremendous blow for the potential for democracy in our society through genuine wide-ranging discourse. And we have not only in the newsgathering, news-dissemination business, but as Gerald Levin said a few hours ago, the cutting edge here is what is often called entertainment: And that as well has to do with what people feel their possibilities are. We’re essentially seeing the mass distribution of corporatization of consciousness, and this step today is a big stride down that very slippery and very dangerous road.

RAY SUAREZ: But weren’t these companies that were already doing essentially different things? They’re not apples merging with apples or oranges merging with oranges.

NORMAN SOLOMON: Well, there are reasons why they’ve merged — because they feel there’s a positive synergy. They can do a gardening process in different parts of the garden that will help each other to grow what they want to grow. And what they want to grow is profits. We heard one of these kingpins in the setup piece a few minutes ago talk about being trustees. Well, they are private trustees. They’re not public trustees. And let’s not forget the Internet was developed through enormous public subsidy, through taxpayer dollars. And yet now we’re in a situation where these mergers are being greeted with exclamations of, if not surprise, then at least, “Wow, this is amazing; this is humongous, $350 billion.”

But the very mass media they’re increasingly corporatized are not asking the fundamental questions about these mergers. And I think people who are sitting at home contemplating what this really portends need to look at demanding and need, in fact, to demand antitrust action because in lieu of that, this is going to be looked at as a horrendous, perhaps irreversible step, towards the concentration of media control in very, very few hands.

RAY SUAREZ: Bruce Leichtman, what do you think of that?

BRUCE LEICHTMAN: Well, I think we have got to look at how AOL got to where they are today. There are scores of ISPs out there that consumers can choose from, yet 20 million consumers in America have chosen AOL amongst the scores of options they have there. Consumers do have freedom of choice, and they’ve chosen to go to AOL.

NORMAN SOLOMON: Well, freedom of choice is to choose from choices that are handed down on high through marketing — I’m afraid a nice theory, but a ludicrous claim that somehow people have all these different choices irrespective of the concentration of capital. The reality is there is enormous capital vested in these two companies, and they have the capability now to shift the entire terrain to tilt it in a certain direction so that when people go on-line, they’re pointed in certain direction in that process.

BRUCE LEICHTMAN: But Warner… Time Warner-AOL have to look at how to leverage their assets the best.

NORMAN SOLOMON: But that’s their problem, that’s not the public’s problem.

JIM LEDBETTER: Can I interject something here?


JIM LEDBETTER: I think what Norman Solomon is saying is indisputable to the following extent. The Internet has grown from a sort of cacophonous medium, preaching the doctrine of democracy and existing largely outside of the realm of organized mass media into a division of mass media in very, very rapid succession.

I don’t know that today’s announcement is necessarily quite as momentous as he’s making it out to be, but certainly that trajectory has been an extremely rapid one. But there is another component here about the definition of public service, and that is whether or not consumers are really dying to get broadband access in their homes and workplaces.

To date, there’s been very little concrete evidence that that’s what people want. I think that they may, in fact, want it and not know they yet want it. But to date, even Time Warner’s Road Runner service has only about 350,000 subscribers, which is very small in these terms. But in order to bring that technology to people’s homes, someone has to pay for it. Now, one can accept the premise that consumers have to pay for it or not, but the reality is that the history of making electronic media into mass media in this country is usually done by monopolies — or oligopolies. Certainly the telephone developed that way. Television under the guise of free networks and a great deal of government control grew up that way before layers of public television and cable television were layered on. I’m not saying one has to accept that, but that is the way that these mass media tend to grow.

RAY SUAREZ: Well, let me go to David Bennahum, because part of what was portrayed as the mystique of the Internet was that you could grow without agglomerating huge companies, large amounts of capital. It was the anti-old medium.

DAVID BENNAHUM: That’s right. The original ethos of the Internet in the early 90s when people first got aware of it was the idea of this information superhighway. And the image we had of it was of this global educational library, this network that will lead to a renaissance of discourse, democracy, this return of a kind of Jeffersonian ideal of the citizen educating himself or herself, and then we migrated in the mid-90s, around ’95, into this image of the Internet as a sleaze, dark alley with child porn and pedophilia and all these things to be afraid of. And then around 1997, 1998, we segued into the Internet as a great strip mall, and now we find ourselves in the new narrative of the Internet, which is the Internet as a great media delivery tool.

And what’s worrisome about this, as we’ve been beginning to discuss here, is the question of the public voice. This is all happening so quickly that are we losing a chance right now to step back and make some sense of this and ask ourselves, what is the real public good in this, are we going to lose this idea of a heterogeneous revitalization of democracy and civic virtue through this communications network and turn into this more consolidated environment? The Internet did not occur by accident. It was constructed by human intention. And likewise, we should be careful today to assume that the market can just go ahead and create these new structures and that will have the best interest of everyone in mind. It won’t necessarily.

RAY SUAREZ: David, I’m going to have to stop it there. Panel, thanks a lot for being with us.