Editor’s Comment: Mega-merger stresses power of ’old’ media

The clash of tectonic plates that is the merger of AOL and Time Warner has been interpreted in many quarters as proof that access has become more important than content; yet in many ways it shows the reverse.

The clash of tectonic plates that is the merger of AOL and Time

Warner has been interpreted in many quarters as proof that access has

become more important than content; yet in many ways it shows the

reverse.



Those who claim that new media has vanquished ’old’ media, point out

that there’ll be an AOL man at the top of this management-heavy media

monolith. They can also wave pieces of paper with numbers all over them

- the figures state that AOL’s shareholders will own 55 per cent of the

new corporation.



But before the markets go potty buying net stocks and inflating that

balloon any further, it is worth considering what this deal says about

content.



AOL’s shareholders might be taking a bigger chunk of the new company

than Time Warner, but their company was valued at 1.5 times the market

capitalisation of the traditional media group. The division of shares

does not reflect that. In some ways, therefore, the deal suggests AOL

was overvalued.



Time Warner chiefs have insisted that merging with an internet service

provider is infinitely preferable to setting up their own online

operation.



This may well be true in the US, where household penetration of the

internet is already around 40 per cent and AOL is the number-one access

provider.



But in Europe and most of the rest of the world - you know, those large

swathes of land that go largely unnoticed in the US - take-up is much

slower and there is still time for content providers to create a

significant presence on the web without a mega-merger. Rupert Murdoch

certainly thinks so.



Top content brands such as Time take decades to establish, whereas the

internet is developing so fast that a traditional media company with

little online presence could be a major player by the end of the

year.



In this context, AOL can thank some very bullish investors that it was

able to take the lead in a merger with such a fantastic old-media

company.



The top dogs at AOL recognised their company had some serious

limitations without compelling content, and they will be overjoyed that

they have found such an ideal partner - one which earns considerably

more than their own organisation.



If investors take a careful look at this deal - beyond the phenomenon of

a new-media giant buying an old-media giant - they may consider that

they should be a little more circumspect about internet stocks and a

little more committed to quality traditional media shares.



Traditional media companies could benefit enormously from investment -

too many companies have been too scared to innovate for too long - so

let’s hope this deal sparks a new respect for the old-media companies as

well as for their flashy new counterparts.



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