Transcript
Big Media Woes
May 4, 2002
BROOKE GLADSTONE: From WNYC in New York this is NPR's On the Media. I'm Brooke Gladstone.
BOB GARFIELD: And I'm Bob Garfield. Last week two of the world's most powerful multi-media giants starred in a double feature of The Incredible Shrinking Corporation. AOL/Time Warner announced a $54 billion dollar quarterly writedown -- a mandatory revaluation of once inflated, now dramatically deflated, AOL shares. They're worth roughly half of what they were when the merger was consummated. Meanwhile on the other side of the Atlantic, the French conglomerate Vivendi Universal continued its stock price collapse. Having lost half their value in the last 6 months, Vivendi's shares shrank yet another 25 percent. So much for the juggernauts. And so much for the synergies that conventional wisdom said would propel AOL/Time Warner to unprecedented domination. Joining us now is journalist Aaron Pressman who last was on the show just after the AOL/Time Warner merger talking about how the colossus would have its way with us. Aaron, welcome back to the show.
AARON PRESSMAN: Glad to be back.
BOB GARFIELD: Now when the merger occurred there was talk of a marriage made in heaven. Now that was back in January of 2001 when we were living in a wholly different world. AOL was going to gain access to the content of this gigantic media company, Time Warner, with all kinds of possibilities for cross-promotion and what they call synergy. Did, did any of those synergies actually come to fruition?
AARON PRESSMAN: Well very anecdotally the company likes to tout the fact that they promoted record stars on the AOL service to boost up record sales and things like that, but there were a few key blunders in their assumptions in putting the merger together, primarily along the lines of broad band -- this high speed internet connection that was supposed to run over the cable lines that Time Warner owned -- really hasn't panned out the way that people hoped, and that was the core of the whole convergent strategy.
BOB GARFIELD:But what about the notion that all of this content we're going to somehow serve the AOL audience and bring hitherto unimagined revenue opportunities to the joint company. Has any of that materialized?
AARON PRESSMAN: Really at - you - I don't think there's any evidence that it has. I think part of the original idea was that they would start putting really interesting, unique stuff on the internet in very big files, like actual movie files and actual music files, and this would drive a lot of people to get higher speed, bigger capacity connections to the internet - broadband that AOL was going to be selling. And that really hasn't materialized. The demand for broadband connections is - it's good, it's solid, but it's not booming, and AOL itself has not been a leader in hooking up its subscribers to faster, more expensive connections.
BOB GARFIELD: Is that the largest story here -- the failure of the broadband industry to develop as predicted?
AARON PRESSMAN:Just, you know, think about how you use the internet. There's not really a need to download massive files except maybe college students who like to download music files on the internet and they're all at college where they get free high speed internet connections. But for the average mom and pop, I'm not sure what the rationale is why they need a 50 dollar a month internet connection over the 20 to 25 dollar connection they have today, and in fact America On Line recently altered its marketing strategy, and instead of trying to push people to buy broadband, they're now trying to continue to push their dialup connection and get people to keep using the old slow way!
BOB GARFIELD:At the time of the merger, there was a lot of talk of-- gigantic consolidation having all sorts of deleterious effects on the consumer and on the society. There were and continue to be calls for regulation by the government to make sure that these juggernauts can't dominate the marketplace. Is it possible that the marketplace itself is taking care of the problem and that the failure of - so far - of AOL/Time Warner will discourage further consolidation?
AARON PRESSMAN: Well I think it's too soon to say whether the proponents or the critics had it right, because there's been a recession; the internet economy and interest in the internet and broadband has really not blossomed the way people predicted. You know AOL and Time Warner put together a lot of great content with ways to deliver the content such as cable wires and an on line service. New mergers like Direct TV and Echo Star [sp?] -- they're ignoring the content side of it and they're just putting together distribution networks. So the strategic rationale has changed, and on Wall Street people are saying well we aren't going to make the mistakes those guys made. Maybe they're going to make some new mistakes.
BOB GARFIELD: All right, Aaron. We'll have you back in a couple of years and we'll, we'll see how things have played out.
AARON PRESSMAN: Okay, great.
BOB GARFIELD: Aaron Pressman, thank you very much.
AARON PRESSMAN: Thank you.
BOB GARFIELD: Aaron Pressman is a freelance writer who contributes to Wired, Business 2.0 and the Christian Science Monitor. [MUSIC TAG]