Deal turns advertising on its head

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 the world.

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

the world.

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

get it.’

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.



Cable television CNN, HBO, Cartoon Network

Entertainment brands Warner Brothers, Warner Music, Looney Tunes

TV programmes ER, Friends

Magazines Time, People, Fortune, Sports Illustrated,

Entertainment Weekly


Online brands America Online, Compuserve, Netscape, ICQ instant

messaging, Digital City, AOL Moviefone

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