AOL-Time Warner deal may spark more merger mania
LOS ANGELES – The premier fusion of new media and old – America Online and Time Warner – may herald other alliances between the keepers of content and companies with the means to deliver it.
Disney, Sony, News Corp. and other media giants may look to strike similar deals with online companies to catch up after Monday’s announcement that AOL would acquire Time Warner Inc. for $162 billion.
”Temporarily, maybe it leaves them in the dust,” said Dan O’Brien, an Internet analyst with Forrester Research.
The stock deal aligns a company with 22 million online subscribers and a conglomerate whose news and entertainment fixtures include CNN, Time magazine, TBS, TNT, Cartoon Network, HBO, Warner Music Group, Fortune, Sports Illustrated, Entertainment Weekly and Looney Tunes.
The deal marks a major turning point in the media industry, highlighting the power and value that Internet companies like AOL have built up in a relatively short time.
AOL needed access not only to Time Warner’s media content machine – which produces films, music, TV shows and magazines – but also to Time Warner’s large network of cable TV lines, which is second only to AT&T’s and reaches 20 percent of U.S. households.
The deal would be the biggest corporate merger ever and put the new company, AOL Time Warner Inc., at the forefront of integration between Internet providers and entertainment monoliths.
To keep up, analysts said, other Internet and media companies likely will have to follow suit.
”There’s a trend toward Internet companies partnering with traditional media companies,” said Mark Mooradian, an analyst with Jupiter Communications. Time Warner and AOL ”is the pinnacle of that kind of partnership in the making, but I definitely think we’re going to see more of this.”
On the technology side, companies such as Yahoo, Lycos, AT&T and Microsoft may be on the lookout for deals with entertainment providers. On the studio side, there’s Disney, Sony, News Corp., which owns 20th Century Fox, and Viacom, which owns Paramount and has a merger deal with CBS television.
Other prospects for acquisition include General Electric’s NBC television and MGM, a studio that is a mere shell of its glory days but which has a top film library.
Like other media conglomerates, Time Warner had been working to reinvent its Internet strategy internally, setting aside $500 million last year to invest in new online efforts.
At Disney, which acquired the Internet portal Infoseek, a spokeswoman said there was no immediate comment on whether the AOL-Time Warner deal would affect its Internet plans.
Disney, its stock slumping as earnings plunged 28 percent last year, could become an attractive takeover target for technology companies, O’Brien said. The company has been slow to recognize the value of pushing its entertainment content over the Internet, he said.
”Traditional media companies have had a hard time understanding the dynamics of the Web,” O’Brien said. ”It’s not just a matter of digitizing your content, setting up a site and expecting people to beat a path to you door. It doesn’t work that way.”
Time Warner was formed 10 years ago, combining the entertainment company that grew out of Warner Bros. movie studio with Time Inc., whose flagship magazine Time was founded in 1923 by Henry Luce. Time Warner bought Ted Turner’s cable company TBS in 1996, which included the all-news channel, CNN, to add to Time Warner’s cable lineup of HBO and Cinemax.
AOL has been no stranger to deals itself since being formed in 1985. Last year it acquired Netscape Communications and MovieFone, and it also bought online competitor CompuServe and a stake in Hughes Electronics, a maker of electronic equipment.
Steve Case, chairman and chief executive of America Online, will be chairman of the new company and Time Warner chairman Gerald Levin will be chief executive. America Online shareholders will own 55 percent of the company, and Time Warner shareholders the rest.
Turner, Time Warner’s vice chairman who owns 9 percent of the stock, will retain that title in the new company.