AOL / Time Warner Merger


January 13, 2001


BOB GARFIELD: We're back with On the Media. I'm Bob Garfield.

BROOKE GLADSTONE: And I'm Brooke Gladstone. The Leviathan called AOL/Time Warner is finally among us, passing through regulatory bodies in the United States and Europe along the way. A lot of ink has been spilled over this deal; a lot of worries voiced about what the creation of the world's biggest media giant will mean to the consumer. Aaron Pressman has been following this story for the Industry Standard and he joins us now. Aaron, the last stop on the road to the creation of AOL/Time Warner, a year and a day in the making by the way, was the approval it got this week from the FCC. Now the Democrats on the commission imposed a few conditions. Actually it was just one condition on instant messaging. Why was that so important?

AARON PRESSMAN: The concern there is that instant messaging which is sending these immediate little text messages to friends or colleagues in business is becoming an increasingly common phenomenon. People are relying on it as a means of communication just like the telephone or e-mail, and it's also a gateway into new services that all these companies like AOL/Time Warner hope to offer us like Internet on our wireless phones and interactive TV services and things like that so it's become an increasing focus.

BROOKE GLADSTONE: What were the other conditions?

AARON PRESSMAN:The other conditions largely backed up things that the Federal Trade Commission had done last month. They required that AOL/Time Warner share its high speed Internet service with competing Internet service providers; allow those competitors to directly bill customers; and also that AT&T which is the largest cable company in the country and Time Warner not collude to keep out other Internet service providers.

BROOKE GLADSTONE:Okay, so now the merged company is free to move forward, so what does it plan to do first to exploit all of this much-vaunted synergy?

AARON PRESSMAN: Right. The much-vaunted synergy. Some of it they've already been doing. If you get any of Time Warner's magazines like Sports Illustrated or People you'll see they're selling - they're putting little AOL disks in there and conversely AOL has been promoting magazine subscriptions, apparently selling hundreds of thousands of them. Digital music is a big part of this merger. Time Warner owns many record labels, and they hope that as people start connecting to the Internet more quickly they'll be able to sell some of that music to America on Line subscribers.

BROOKE GLADSTONE:Has the fact that AOL has lost a certain amount of its value during this market downturn had any impact on any of this or on the forecasts of any this?

AARON PRESSMAN: Well Wall Street analysts are now starting to worry that the company is not going to be able to meet the forecast for growth that it had made originally a year ago. The company says it's going to have revenue over 40 billion dollars a year and grow at 12 or 15 percent a year which means, you know, 4, 5 billion dollars in new revenue a year. With the economy slowing down, with the Internet slowing down and advertising being cut back, it looks like that might be a pretty tough-- condition to meet.

BROOKE GLADSTONE:Now all the observers of this - the consumer advocates as well as the Wall Street types -declared that the merger was bound to have a huge impact on the converging worlds of media and entertainment and on line services. Well now it's a done deal. So what do you think that huge impact is going to be?

AARON PRESSMAN: Right. Well all these new services like interactive television and high speed Internet suffered from a little bit of a chicken and egg problem in that people, consumers, didn't want to pay for these new services until there was good stuff there to pay-- to see or listen to, and companies conversely didn't want to offer new stuff and spend a lot of money developing new stuff until there were a lot of consumers. Now there's one company that has all kinds of content and movies and music and exciting things, and a big huge on line audience. So they will hopefully have the incentive to develop these new products that have been creeping along but maybe needed a boost.

BROOKE GLADSTONE:And are there going to be room for other companies like this? There's always been consumers on line and there's always been consumers for movies. Is this company going to crowd them all into one little box?

AARON PRESSMAN: There is a danger that for these new services and all these new developments on line, that this one company will have-- a huge advantage over its competitors who provide other content like Dis--Walt Disney or a company like Viacom. Those companies don't really have anyone they can turn to who has the same on--that has the same on line reach that America on Line has.

BROOKE GLADSTONE: So they don't have this reach now, so what position does this deal put them in?

AARON PRESSMAN:Well it's a tough position! I think they're going to get together with some of the smaller on line players - maybe like Earthlink or Microsoft - maybe like a company like Yahoo which only exists on the Internet - and try and cobble together an on line strategy. The regulators have told AOL/Time Warner that they cannot block other companies' content on line and that they can't discriminate. So those companies are in a position of weakness, but they don't have - they have some options.

BROOKE GLADSTONE: So what you're saying though is they - it takes a mega company to beat a mega company.

AARON PRESSMAN: It looks like it, yeah.

BROOKE GLADSTONE: Thanks very much!

BOB GARFIELD: It was great to be here. Thank you.

BROOKE GLADSTONE: Aaron Pressman is the senior correspondent for the Industry Standard.