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Megamerger Masters: AOL/Time Warner Merger

January 12, 2000 at 12:00 AM EDT

JIM LEHRER: The largest corporate merger in history, the most significant coming together of the mass media and the Internet. It happened on Monday with the announcement of the AOL/Time Warner deal. The men who made that deal are with us now: Steve Case, chairman and chief executive officer of America Online; he’ll be chairman of the new company, AOL/Time Warner – Gerald Levin, now Time Warner’s chairman and chief executive officer; he will serve as AOL/Time Warner’s CEO.

Gentlemen, do you feel as good about your deal tonight as you did on Monday?

STEVE CASE: Oh, even better. We’ve had a chance now for a couple of days to meet each other’s management teams. Gerry was visiting the old team today in Virginia; I was in New York meetings, a number of people, in the last couple of days, and we’re very excited because ultimately this is about the people coming together from both companies to make these things possible. We’ve always known it was a powerful idea bringing these companies together. We always knew it could have a profound impact on consumers’ lives in terms of improving the way they get information, how they communicate, how they buy products, how they’re entertained, and after spending a couple of days, taking it beyond the deal stage into the reality, how we can make this work. I think we’re more excited than ever.

JIM LEHRER: Amen to that?

GERALD LEVIN: Oh, absolutely. You know, when you’re working hard over a weekend to make something happen, and retain the element of surprise, your mindset isn’t, you know, that you’re fully embracing the new family. But once you get past the euphoria of an announcement on Monday, and you’ve crossed a major line, and we spent a lot of time together the last several days, I’m even more reinforced about the correctness of the decisions we’ve made.

JIM LEHRER: Speaking of euphoria, let me read you the lead in today’s Financial Times. It says, ” Wall Street” – it’s from a story about this – “Wall Street knocked $30 billion from the combined stock market value of America Online and Time Warner yesterday as Monday’s euphoria over news of the world’s biggest merger departed, leaving behind a notable hangover.” No hangover with you?

GERALD LEVIN: Absolutely not. This is a question of understanding the way the markets operate. And you normally have some dislocation with a deal of this size, so that there is a shuffling of shareholders; there’s what’s called arbitrage activities; and there’s a lot of trading activity. And I’ll use the word “trading” because it’s not fundamental. It’s not fundamental. As a matter of fact, if you look at some of the – or listen to some of the analysis, you’re basically hearing this is a good deal, it makes a lot of sense, and then you go through what I’ll call financial pyrotechnics, and that’s what’s going to happen.

JIM LEHRER: But $30 billion is a lot of money, Mr. Case.

STEVE CASE: Well, sure it is, and we do believe we’re on the path of building what may be the most valuable company and most respected company in the world someday, and we’re going to continue to focus on making that happen. But we can’t focus on what happens in the stock market one day or one week or one month, or even one year. We’ve really got to take a long-term view of this, and we certainly watched our valuation as an Internet company bounce all over the place. We’ve seen our valuation go up $100 billion in six months and then drop $100 billion. So you can’t really focus on the stock market, which can get a little bit of a roller coaster. The thing you have to focus on is trying to do a better job than anybody else and meeting the needs of consumers. We’re at the cusp of what we think will be a new era as the television and the PC and the telephone start blurring together and the promise of the Internet – the promise of interactive personalized services really move out to the world at large. And that’s really what’s exciting about this company. We think we have a unique opportunity to really improve people’s lives, and that also will be in the interest of our shareholders.

JIM LEHRER: Let’s talk about that. The blurring together into what? What is it that the two of you want to create, when you talked about, let’s get together, let’s create something new and different and bigger. What was it?

GERALD LEVIN: Well, what’s really happening now is we’ve seen two strands, one through the PC, and one through the television set. And both have different histories, and they’re at a certain state in their development. And this overused word of convergence is, in fact, about to happen. As a matter of fact, I guess you could say that this transaction, I hate the word transaction because it’s so cold — this is a form coming together – that this really signifies that the kinds of functions that have been applied to these two instruments are about to come together so that the television set, for example, you’ll be able to do a lot of these things that AOL has been working through the PC.

JIM LEHRER: You mean, like what, that you could, that AOL has been doing through the PC that you can do…

GERALD LEVIN: Right now consumers are watching your news show, a distinguished news show.

JIM LEHRER: That’s right.

GERALD LEVIN: If at the same time you start talking about a Supreme Court decision or what’s happening abroad or in China, at that point, if I want to go and do a little background checking and go into the Net to get some information –

JIM LEHRER: While we’re still on the air?

GERALD LEVIN: — while you’re still on the air, excuse me, I don’t mean to offend…

STEVE CASE: Your face would still be on the screen. We’ll just add a few little things in the corner. Don’t you worry.

GERALD LEVIN: Better yet for you, Jim. I want to send a little note to a buddy or relative to tune into your show.

JIM LEHRER: Now you’re talking.

GERALD LEVIN: I can send that e-mail in effect while you’re watching through the television on the screen. I don’t have to go to my PC — just a small example. But it’s, again, to make a very useful communications interactive function with something that hasn’t served that role before.

JIM LEHRER: But why is that a good thing, Mr. Case?

STEVE CASE: Oh, it’s a great thing. What’s happened in the last 20 years are two big trends — one actually led by Time Warner, Jerry in particular, and more recently the Internet. The first was capable television. 20, 30 years ago you typically had three TV networks that you had to go to.

JIM LEHRER: Four, including PBS.

STEVE CASE: Three-and-a-half.

JIM LEHRER: Okay. Three-and-a-half.

STEVE CASE: But now you have in some markets dozens, some markets even hundreds. So there’s a diversity of choices possible on television because of cable television — Jerry’s leadership of HBO, which became the killer application that really drove a lot of the success of cable television. The last ten years have really been about the Internet, taking the PC, which ten years ago most people didn’t have one at home, and if they did, it was for word processing and maybe for recipe filing. Now it’s an interactive device, a communications device, and more and more people are connected more and more habitually. What’s happening is people have far more choice. They’re empowered to do what they want, when they want, the way they want. And, similarly, we’re starting to see real significant trends on the telephone, which is starting to have screens, particularly cell phones. Consumers love the fact they have new ways to get information, new ways to communicate, new ways to buy products, new ways to learn things, new ways to be entertained. And they want to figure out how to take what’s happening on the PC, what’s happening on the television, what’s happening on the telephone and have it a little more integrated so it’s more convenient.

JIM LEHRER: Are you sure that the consumers want to do this, or is this a decision you all have made and you want to sell it to them?

GERALD LEVIN: No. It’s so fundamental with respect to the human condition. The first, you know, the current Internet word is community. But it really goes back to something very fundamental, that there’s a shared experience by people who have a certain affinity. And community is expressed in chats and again modern words. But what it really is, we think back and there’s some nostalgia for the days of television where the whole country congregated for a particular event, an experience that that still happens, by the way. Here you have the opportunity to do two things that are fundamental – actually many more than two. First is community — to interact with like-minded people on lots of subjects. The second is to have available information. I mean, what’s happened here, the Internet is essentially like the library at Alexandria, not Alexandria, Virginia, but that Alexandria — the sum total of the world’s thinking – Gresham’s Law — some good, some not so good, but it’s all there. It’s all there for me to access. We’ve never had that condition before. So what this does is just facilitates that ability to get information, news, things that are related to my lifestyle in an easy way with no central control.

JIM LEHRER: Well, if there’s no central control, then why did you all get together to make this major company? Aren’t the two of you going to control this?

STEVE CASE: No, no, nobody’s going to control anything. There’s really a major revolution in terms of the diversity of content. As I said, with now hundreds of cable channels, millions of Web sites out there, anybody can now become a publisher. But what we can do together is quite profound in terms of how to improve the integration of these different devices. What people are starting to say is I really love the Internet, I love AOL; I’m using it more and more; my family members are using it more and more; but I really want to have access to it all the time — not just when I happen to be at home. So when I’m in the car or at the office or traveling in a hotel or if I’m in the living room, I want to have access to these services; I want to be able to check my e-mail; I want to be able to check my stock quotes. So they need us to integrate this, and one of the big ideas we’ll be pursuing over the next decade is what we call AOL TV, making the TV experience more interactive, more personalized, more customized, learning some of the lessons or applying some of the lessons from the Internet.

JIM LEHRER: Let me just try to be specific here. Warner Brothers makes movies.

GERALD LEVIN: Good movies.

JIM LEHRER: Good movies.

GERALD LEVIN: Great movies.

JIM LEHRER: Okay. Great movies. You’re watching a Warner Brothers movie. How are you going to inter-react or interact with that? Why would you want to do that?

GERALD LEVIN: What we’ve found, and I’m a product of my own experience, where we actually built a fully interactive system some years ago before the availability of all this technology. Even in the case of a movie, people love to consume it — what we call VCR functionality, the ability to stop a scene, not just because the phone rang or I want to go to the fridge, but I want to ingest it. I want to embrace it. I want to go through it. I want to… actually, if there’s a director’s cut so I can understand what the director was doing or in the case of even my own family, to show them trailers for the film that we used to have 30 or 40 years ago, a rich experience — and to kind of consume it at various pieces and not just in a linear fashion. You know, there’s this old saw that people really don’t want interactivity. They want to sit back in a chair and just relax and let it wash over them.

JIM LEHRER: You don’t buy that?

GERALD LEVIN: No, because the kind of interactivity, it’s already been demonstrated. The development of the VCR told us that people want to control themselves what they want to see and now do it when they want it.

STEVE CASE: That’s the success of AOL. We’ve added ten million customers in the last two years because people want to take control of their information and their communications and their entertainment. But it’s not about movies. There are also things like CNN –

JIM LEHRER: I was using that as an —

STEVE CASE: — that could be more personalized. You could have a news clipping service that actually has video clips or a music jukebox, so you don’t have to necessarily get the CD’s. You have an electronic jukebox in your car or in your home, and you have access to all kinds of songs on a pay-per-play or a one-time license fee basis. It would be a much more convenient way to listen to music than figuring out which CD do I have in which car.

GERALD LEVIN: I’m recalling when I was a young person and joined Time Inc. and I went to dinner with some of my elders who actually worked with Henry Luce and Roy Larson. What we were kind of saying around the lunch table one day is wouldn’t it be great if the sum total of human experience in terms of information, creativity, storytelling, music was available somewhere – and I could have access to it in a convenient form – and as a matter of fact we made it available to as many people as possible? Well, that’s really the period. That’s what this digital revolution is coming close to being able to provide. So there’s no one who kind of edited all this stuff out here. It’s the individual who becomes the editor.

STEVE CASE: It’s very empowering.

JIM LEHRER: Let me ask you a simple-minded question, but a lot of people… simple-minded friends of mine who have asked this and been talking about it since you announced this thing on Monday, and it goes like this. Hey, wait a minute. I have got this big-screen television, and I have got this little-screen computer — why in the world would I want to watch movies on a little screen, when I can go home?

STEVE CASE: You won’t. That’s not what we’re talking about. We’re not dumb. We don’t think people are going to be watching the new Time Warner film on a little palm pilot. That’s ridiculous. What we’re saying is people are using the television now; they have been for decades. They’re watching lots of things on it. But as there are more and more channels, it starts getting a little harder to find the things you want. So, you need a program guide. Maybe it would be helpful to have some way to get the programs you want when you want them as opposed to having to be there at the right time. And it certainly would be nice to add some elements of community on particular shows so you can talk about shows or sports teams or things like that or take a poll or order a product, and on the PC side, broadband is coming, higher speed access to the Internet.

JIM LEHRER: Broadband means cable, right?

STEVE CASE: Means cable or telephone or wireless.

GERALD LEVIN: High capacity.

STEVE CASE: But it’s not just higher speed access to Web pages, which is important, it also enables you to create a whole new kind of Internet, which has some of the multimedia components like video that are common on the television. This is a service that will really come to life.

GERALD LEVIN: Maybe the easiest way to say this, not showing movies on a PC, it’s taking control — let’s just use the television because that’s the mass instrument that’s out there – and before we talk about the PC — it’s taking control. The reason I use the VCR analogy is you take control of the television set. You decide what you want. You put it in the television set. You start it. You stop it. You go back. You go fast forward. Okay. That concept, if I can do that, let’s not get beguiled by the technology. In fact, digital does enable you to do all those things even with live television. But if I can add the ability to communicate so that this experience is not a solitary experience and the communication is with others who I want the communicate with or it’s with information that I want at that time, and I don’t want someone telling me about it on their schedule, that’s the empowerment that we’re talking about.

JIM LEHRER: Let’s talk about power here for a moment. It’s been widely reported since this deal was announced on Monday, Mr. Case, that you have said in the past you want AOL to be the king of the world. Where did that get started?

STEVE CASE: I don’t think I ever said I want AOL to be the king of the world. I have said I believe the Internet is the future and we’re moving toward a more connected society and AOL is the leading Internet company and 20 million people — 20 million families rely on AOL. So I felt like we were at the epicenter of a major revolution. But I’ve always been, I think, sort of humble about the role we play and recognize that we don’t do much. It’s really up to consumers to decide how to customize AOL for their own needs. Even though at 20 million customers, we have 20 million people doing very different things.

JIM LEHRER: But now the combining of your two companies, there’s a lot of power in your two hands, your four hands.

STEVE CASE: Oh, I think there’s power in the hands of consumers — unbelievable choices. And we’ll be able to create new kinds of offerings that they can take advantage of. They ultimately decide whether they want to subscribe the AOL, which Web site to go to, whether to subscribe to Time Magazine or watch CNN. It’s a consumer choice. We’re going to just give them more choices.

GERALD LEVIN: But, you know, here’s a case where I think it’s very important for us. We’re not Pollyannaish. But this isn’t about size. It’s certainly not about power. We happen to share the same kinds of personalities. You know, we both to a certain extent have had a charisma bypass, at least that’s the description of me.

STEVE CASE: I’ve heard the same.

GERALD LEVIN: What we’re really talking about is we want to do something different. We want people to understand that in business you can have a social commitment because of the things that we do and our own orientation. We’d like to state very clearly, which we have, that this company, put aside its financial size, is going to operate in the public interest. We’re going to try and make a better world. Now, you would ask, well, you’re in business to make money. Government is in the business of the public interest; educational institutions are — non-profit organizations. And our intention is to try and establish like-minded individuals with a committed workforce and a group that really feel we can do that. And that’s one of the messages that we’re delivering.

JIM LEHRER: But how should the American people value or judge that message tonight? In other words, people are watching you tonight, the two of you. So you’re talking about public interest. Now, both of you have been running huge companies that have made a tremendous amount of money, and you’re answerable to stockholders, both of you are; you’re answerable to investors. How should they decide tonight whether or not you’re also going to be answerable to them in this new venture?

GERALD LEVIN: As Steve answers that, he’s now aware of something that’s in our genetic history. So now we both participate in it. In Henry Luce’s will, there was a statement that Time Inc. was to be operated not only in the interest of shareholders, but in the public interest. And he said that for several reasons. First of all, because part of what we do is important journalism. Now part of what we do is also telling stories and things that in an entertainment sense are also quite impactful. But it’s because we have the skill, the resources and the intellectual capacity to play a role in the articulation of public policy, and I think given where the world is going, not just with global companies who should be feared and limited, but where we have the opportunity to disseminate, to be meaningful in this society.

JIM LEHRER: But isn’t that — didn’t you just — didn’t Mr. Levin just define power? Isn’t that —

STEVE CASE: Well, to an extent. We feel like we shoulder tremendous responsibility. And in terms of how people should judge it, I think one way to start is look at what we’ve done in the past. AOL Is the leader in trying to bridge the digital divide, make sure as we move to this connected world nobody is left behind. AOL is the leader in trying to make sure the Internet is safe for kids. We’ve built an alliance among Internet companies to do things like parental controls. We’ve been the leader in trying to build privacy protection for the industry. Time Warner has been the leader in many different initiatives, education, for example. Jerry was the first major CEO of a major company to have the board put a values committee in place a couple years ago, which shows there really is a commitment as I’ve said for several years, we believe we can, if we continue to focus on the needs of consumers and ride this wave of this connected world, build the most valuable company in the world. But it’s not enough. We also have to build the most respected company in the world.

JIM LEHRER: What about the credibility problem, Mr. Case, particularly in the journalism… there are several…many journalism organizations that are coming now under AOL-Time Warner. There’s Time Magazine and there’s CNN and on down. And neither one of you have a journalism background. How are you going to view —

GERALD LEVIN: I was the editor of a high school newspaper. So there you go.

JIM LEHRER: Okay. A professional journalism background.

STEVE CASE: I completely respect the journalistic traditions of Time Magazine, as Gerry said, of Henry Luce and many others and recognize it’s important to have a separation of church and state and recognize it’s important to really empower journalists to do their job and the whole thing unravels if there is any question about that. And that value is going to grow as the Internet takes hold, because as there are suddenly millions of choices from millions of Web sites, brands are going to become more important, and brands are basically a trusting relationship with consumers. So if you ever violate that trust, the value of that brand dissipates.

GERALD LEVIN: Let me — for the record, since I am the CEO of Time Warner and I will be the CEO of this combined company, my genetic tradition– I grew up in the past 30 years in Time Incorporated with all of the journalism that’s in our magazines and then with Ted Turner at CNN– and I believe that my DNA is related to the practice of first-rate independent journalism. And you have to look to the CEO of these companies to see who it is, where did they come from, what’s that person’s orientation? And I guarantee you, I am willing to stipulate that my respect and my participation with respect to the journalists has everything to do to secure their independence. In fact, the whole history of taking Time Inc. into its current state, and now with AOL, has been designed to protected and enhance the journalistic independence of our company.

JIM LEHRER: Let me ask you this, Mr. Case: Are you prepared as chairman of this company, to pick up a copy of Time Magazine on a Monday morning and see a story in there that just completely is negative about AOL?

STEVE CASE: Of course. I’m used to that.

JIM LEHRER: And you’re not going to call Levin?

STEVE CASE: I’ve seen more negative stories about me and AOL in the past ten years than probably anybody else. I think it goes with the territory. I’ll tell you what I think is going to happen –

JIM LEHRER: But – these –

STEVE CASE: Here’s what I think is going to happen: I think the coverage of AOL and me is going to get tougher in the Time Warner publications over the next few years because it’s like when you’re coaching your kid’s soccer team, you’re less likely to put your kid into play because you want to make sure nobody thinks there is any favoritism. I think people are going to bend over backwards and be more likely to be cynical, more likely to be negative in the Time Warner publications than in anybody else’s publication. I think that goes with the territory. This is not about trying to have some influence over all these media properties for some kind of self-serving reason. This is about trying to help consumers kind of wind through this new world as the television, the PC, their telephone, the world, the media, entertainment, Internet communications start blurring together. We want to create services that really can improve people’s lives. That’s the real driver of this whole deal.

JIM LEHRER: And make some money in the process?

GERALD LEVIN: To be sure. But Jim, in the first conversations that Steve and I had, I established as a benchmark the independence of our journalism, regardless of how we were structuring the company. And, you know, he understands that. It’s also understood that that’s my responsibility. And these issues are issues that we have faced, understood for many, many years.

JIM LEHRER: All right. Gentlemen, thank you both very much and good luck to you.

GERALD LEVIN: Thank you.

STEVE CASE: Thank you.