Originally created 12/16/00

AOL Time Warner merger compels changes



NEW YORK - Ground was broken in New York's Columbus Circle area a month ago for a much-anticipated addition to the Manhattan skyline. But at the time it wasn't clear whether the new building's occupant would be called Time Warner Inc. or AOL Time Warner Inc.

Now, after 11 months of regulatory wrangling, the uncertainty is gone. With Thursday's approval by the Federal Trade Commission of America Online Inc.'s $111 billion acquisition of Time Warner, the largest media deal of all time is all but sure to be consummated.

What's less certain is how the rest of the media industry is going to respond to this new giant in its midst. With 26 million online subscribers and an array of assets that includes CNN and HBO, Time, Fortune and People magazines, and Warner Bros. movie studio, AOL Time Warner will be not only the largest media company on the planet but also the best equipped for the digital age.

Scary for its competitors? You bet. Ever since the landmark deal was announced, several other deals have either been announced or completed that are based on the same premise: It is no longer sufficient for a media company to produce good entertainment. It must also have a significant distribution system, preferably one that can be upgraded to handle next-generation media services.

Viacom Inc., owner of the Paramount movie studio, MTV and Simon & Schuster, completed its acquisition of CBS Corp. this year, which included not only the television network but also a huge outdoor advertising company and a major radio station group, Infinity Broadcasting.

Universal Studios owner Seagram Co. was acquired this summer by Vivendi, a French pay-TV and online media conglomerate; special-interest magazine publisher Primedia Inc. purchased About.com, a similarly oriented Web site; and Bertelsmann, the hulking German media empire, took a major step into the unknown this fall by teaming up with Napster, the renegade online music distributor.

Now that AOL Time Warner is sure to take its place at the top of the media heap, there is even more pressure on other companies to get serious about broadening out into new distribution channels.

That said, finding another combination like AOL and Time Warner, each of which dominated its respective field, is not going to happen soon. No other media company has the breadth of Time Warner, and no other online company has the size or clout of AOL.

The next distribution company that many are looking to see in a merger is DirecTV, a satellite broadcasting service under Hughes Electronics, a unit of General Motors Corp. News Corp., which owns the Fox TV network and the 20th Century Fox Hollywood studio, is seen as the most interested party because DirecTV's U.S. satellite footprint would fill a gaping hole in Rupert Murdoch's extensive global satellite network.

Tom Rogers, the Primedia chairman who engineered the About.com deal, said he welcomes the shakeout in new media stocks this year as an opportunity for print and broadcast companies to broaden their horizons, especially with acquisitions.

"I think it's just the time for the traditional media world to be more aggressive, as the Internet-only model is proving itself to be unviable," he said.