The merger of America Online and Time Warner sent media share
prices skyward this week as the industry braced itself for a revolution
in the delivery of news, information and entertainment into homes around
AOL mounted a dollars 160 billion takeover of the US media giant, Time
Warner, on Monday. The dollars 327 billion deal, the world’s largest
takeover, brings together the world’s biggest entertainment group and
the leading internet service provider in the first major alliance of old
and new media.
The merger creates a new-media titan that spans internet service
provision, subscription television, cable distribution networks, news
gathering services, magazines, film studios, some of the world’s most
popular TV programmes and some of the biggest names in music.
The new company will be chaired by Steve Case, AOL’s chairman and chief
executive, while the Time Warner chairman, Gerald Levin, becomes chief
executive. Ted Turner, who holds dollars 5.2 billion of Time Warner
shares, has added his vote to the merger and will take over as
vice-chairman of the new company.
Case said that AOL Time Warner ’will fundamentally change the way people
get information, communicate with others, buy products and are
AOL, now 15 years old, is betting on the future being all about content.
AOL gets most of its income from charging subscribers for access to its
online shopping and content services. A marriage with a content-rich old
media firm gives it access to a wealth of television, newspapers,
magazines, music and film archives to entice subscribers to stay online
with AOL. Case said that it had always been AOL’s mission to ’make the
internet as central to people’s lives as the telephone’.
This deal allows that to happen.
But it is not just about downloading more content. Ross Sleight, the
founder of the digital consultancy, zhong, believes it could open the
way for online world exclusives.
’The issue here is whether we are going to start to see new films or
records released exclusively online to AOL subscribers,’ he said. ’That
is a closed market of millions of subscribers. What happens to Blur fans
if the next single is only released on AOL? They would have to join to
Time Warner magazine readers, cable subscribers and CNN viewers can
expect to see more AOL ads. Building the subscriber base is core to
AOL’s steady revenues.
Although the deal is subject to regulatory approval, analysts believe
the size and influence of the new company will not prove to be a
stumbling block. Differences of background and style could cause
problems. Unlike old media, new media is all about making quick
In 1994, Time Warner put all of its magazine content, including Time
magazine, Entertainment Weekly and People, on its Pathfinder website. It
was a failure and Pathfinder was closed last year in favour of
individual websites. ’That’s my biggest worry,’ Sleight said. ’It is
mass-market entertainment content and Pathfinder showed that didn’t
For Time Warner, the real benefits are going to be the delivery of what
AOL does best, developing interactivity and building online communities,
and marrying those with interactive television.
For advertisers, the deal is expected to speed up the use of new media
as a viable advertising vehicle as new channels of communication are
matched by quality editorial content. Paul Longhurst, the managing
director of the new media specialist, Quantum, said that new companies
such as AOL Time Warner will alter traditional advertising thinking
radically. ’The old formula for producing effective advertising is
shot,’ he said. ’Media owners are moving the game on rapidly and
agencies will have to move very quickly to catch up.’
The deal is tipped to spark a series of defensive mergers among other
media and internet companies. After news of the merger broke, Yahoo!’s
shares rose by almost dollars 29, while Disney’s shares soared 15 per
cent. BSkyB’s share price jumped 112p, Reuters moved up 53p, Elsevier
was up 61p and Carlton jumped 33p. Tempus, which owns CIA Medianetwork,
saw shares rise 16p, Aegis, which owns Carat, was up 14.5p and WPP rose
by 43.5p. However, shares fell back later in the week.
WHO OWNS WHAT
Cable television CNN, HBO, Cartoon Network
Entertainment brands Warner Brothers, Warner Music, Looney Tunes
TV programmes ER, Friends
Magazines Time, People, Fortune, Sports Illustrated,
Online brands America Online, Compuserve, Netscape, ICQ instant
messaging, Digital City, AOL Moviefone