News Analysis: The AOL/Time Warner merger - Merger made for the internet age/Delivery and content will be united - if all goes to plan, Alasdair Reid says

The visionaries were right: the future is about convergence. And for many observers, the exciting thing about the AOL Time Warner merger is its sheer size. This dollars 141 billion deal will generate an awesome momentum, with knock-on effects across the media market. All prophesies now become self-fulfilling - Gerald Levin, the chairman of Time Warner, and Steve Case, his AOL counterpart, can make it all happen at a pace of their own choosing.

The visionaries were right: the future is about convergence. And

for many observers, the exciting thing about the AOL Time Warner merger

is its sheer size. This dollars 141 billion deal will generate an

awesome momentum, with knock-on effects across the media market. All

prophesies now become self-fulfilling - Gerald Levin, the chairman of

Time Warner, and Steve Case, his AOL counterpart, can make it all happen

at a pace of their own choosing.

A visionary deal

The deal marries one of the world’s strongest online brands to a

future-proof delivery system - Time Warner’s broadband cable networks -

and an unrivalled portfolio of media brands: a Hollywood studio, a major

record label, a clutch of top cable channels and major properties in

magazine publishing, including Time, People and Sports Illustrated. As

Paul Woolmington, vice-chairman and chief strategic officer at the Media

Edge, says: ’This shows that the old definition of our media industry

has been blown wide open.’

In theory, both sides of the business benefit massively. AOL has always

marketed itself as a colourful cyber theme-park, offering games,

entertainment sites and bulletin boards, with access to the web at the

other side of the park. The integration of Time Warner content will,

undoubtedly, help to accelerate AOL’s growth. Which means more

subscriptions and, in marketing terms, a greater share of mind. In turn,

Time Warner will use the AOL domain as a front line marketing device for

its existing properties.

That’s only the beginning. Over the longer term, convergence visionaries

will expect AOL to become Channel One of a whole new medium. True

convergence will see a blurring of the divisions between computer and TV

technology and AOL Time Warner will now expect to be at the forefront

when it comes to delivering digital interactive services on cable.

This vision is exciting for advertisers - and the short to medium term

looks promising too. The buzzword equivalent of convergence in the

advertising world is integration. For those worried about how to make

on- and off-line campaigns work in closer harmony, there’s now a media

owner able to offer a one-stop shop. To take a simple analogy, we can

expect Warner Brothers cartoon characters - already licensed on a vast

range of campaigns - to begin appearing in a wider spectrum of

electronic formats. And advertisers will be reassured that some of the

more visionary aspects of the digital interactive future are in the

hands of such a blue-chip media owner.



As the dust began to settle this week, Wall Street issued more cautious

forecasts. Here’s why:

Some points to ponder

Mergers of this size don’t bed down easily. After all, it took the best

part of a decade to integrate the brash Warner Brothers West Coast

culture with the East Coast philosophy of Time Inc - it arguably took a

third ingredient, Ted Turner, to act as catalyst. And this, according to

some, came about more by luck than judgment. When Turner’s empire was

absorbed four years ago, many believed that Turner, who effectively

became number two in the company, would turn out to be a destabilising

influence. Instead, he got it all moving in the right direction.

This time around, it is equally difficult to forecast if the personal

chemistries will react in the right way. For this to work, it needs to

generate light and heat in the right proportions. Levin takes the top

job because of his experience in pulling together Time and Warner; Case,

the younger man, will want control of the train set when all the track

has been laid.

For a deal of this nature to work, everyone has to pull together. Will

senior Time Warner management really understand new media and its


Will they be able to work with the sort of people they’ll rub up against

at AOL?

Then there’s the issue of negotiating wide-ranging advertising packages

with such a powerful global media owner. Will advertisers have the clout

to drive fair deals with such a titan, or are we facing a media monopoly

which will dwarf even the world’s biggest advertisers?

But the biggest question mark of all concerns future business


Convergence was always going to be attractive on paper. But will it


A group of advertisers led by Procter & Gamble recently voiced its

concern that online advertising techniques were not evolving quickly

enough. The implication is that, even if traffic keeps growing, this

doesn’t currently have the potential to be a mass advertising medium. So

in the short term, more Time Warner online content may not stimulate a

quantum leap in online advertising spend. Digital interactive

advertising will almost certainly face similar hurdles.

For this to be as big a deal as the euphoria suggested, it will have to

do more than drive AOL subscription growth. Similarly, AOL will have to

be more than a marketing forum for existing Time Warner products. In

short, the merged entity will have to create new revenue streams. If it

doesn’t, it will merely be two disparate businesses bolted together.

Perspectives, p14 and p18


Adam Singer, chairman & chief executive, Flextech

’We were delighted when AOL and Time Warner announced their merger as it

was a stunning vindication of our plans to tie-up with Telewest. I like

to joke that we did this deal in the last century! Essentially, AOL/Time

Warner and Telewest/Flextech - both involving the integration of content

providers with distribution powerhouses - are driven by the same


’The logic behind them is the need to provide navigation around a

digital world awash with an ocean of content. In such a world, those

companies that can aggregate content - be it video, audio or text - and

shepherd consumers towards it will be the winners. Beyond that, of

course, is the capacity to offer consumers all manner of interactive and

e-commerce applications.’

Jean-Francois Cecillon, chief executive, Sega Europe

’I think the deal between AOL and Time Warner is interesting, logical

and attractive. It is the next step of what entertainment can provide at

its best, with all kinds of assets such as music and publishing

available to a wide variety of people on the TV or the internet.

’However, I would tell all the AOL and Time Warner companies involved

not to change their perspective to advertisers. They should keep the

content, creativity and company attitudes that they had before the

merger. The synergies should be in the backroom, not in front. If I want

to put a banner on AOL or advertise in Time magazine, it should not make

any difference to me if they are linked to Compuserve.’

Martin Sorrell, chief executive of WPP

’AOL and Time Warner is a merger of bricks and clicks and, as such,

offers salvation to traditional businesses that have not moved fast

enough into the new space, and to new-media companies who worry about

their paper being over-valued. In theory, it offers the best of both

worlds. New technology meeting old, established traditional brands. The

medium combined with content.

’But vision is one thing, making it work is another. I do not like the

word ’culture’ - it is too often an excuse for not co-operating - but

bringing together these two worlds will tax the management of both

organisations. We know the issues, opportunities and problems - albeit

on a smaller scale.’

It will take time to work but the pay-offs will be enormous.’

David Fletcher, head of planning, CIA Medianetwork

’On the face of it, this is visionary stuff. Time Warner’s media brands

will enjoy faster development from linear formats to internet


Marketers looking for integrated solutions will find these more


’But there are some questions. The AOL deal presents Time Warner with

guaranteed internet distribution for their media brands. This protects

the media brands from loss of audience as media distribution channels

continue to fragment. It may even increase the audiences for those

brands, but is unlikely to do so in a way which adds shareholder value -

no existing media owner has really cracked the model of how to charge

for content on the web, nor does an advertising-only funded model look


The Time Warner deal presents AOL with a potential step-change in

distribution (via its US cable network) and with it a consumer advantage

in terms of speed of access. Time Warner is also obviously a content

provider that can help provide competitive differentiation against the

myriad of other wannabe portals vying for homepage status.

Raoul Pinnell, global head of brands and communications, Shell


’It is exciting. It is bold. But it is also the ’mother of all bets’.

Some of the benefits seem to make sense in terms of converging

technologies, and understanding how they could work in new and exciting

ways, not constrained by what we already know. And making sense of a new

era beyond the internet age for consumers is another benefit.

’Will it make sense for shareholders? Or for which generation of

shareholders will it make sense? The solution lies in the management

skill of the organisation that is created. This is the boring bit.

’The issue is one of creating an organisation and a structure of

motivated and appropriately remunerated managers who are determined to

create value.’

Evan Rudowski, vice-president and managing director of Excite Europe

’We view the merger as positive because it further validates some of

the strategies that drove the merger of Excite and @Home last year. It

confirms the view that a new-media company is better positioned for

growth if it incorporates both connectivity and content. It confirms

that broadband will be one of the key drivers of online growth; access

to broadband distribution was a key rationale for AOL’s pursuit of Time


’We don’t believe the merger will have a direct impact in Europe since

AOL has not been able to replicate its US success here, and since more

than 80 per cent of Time Warner’s revenues are driven out of the US.

Over time it may drive more companies to seek the same combination of

connectivity and content that has been our focus.’

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus