A Marriage Made in Cyberspace   

Will AOL Time Warner be the prototype 21st-century new-media company?

Ten years to the day after Time and Warner merged and shocked corporate America, Steve Case, head of AOL, and Gerald Levin, head of Time Warner, announced a blockbuster plan to join forces.

Their new corporate title--AOL Time Warner--truly reflects the ascendancy of the Internet and the beginning of a new economic era for the TV industry.

Less than two weeks into the new millennium, AOL bet its considerable corporate wealth on something we might call Internet-TV by buying Time Warner, the largest mass media company in the world. Case convinced Levin that AOL Time Warner would redefine mass media and create the prototype 21st-century new-media company.

Case had many options, and indeed could have kept taking over smaller rivals such as Netscape, steadily increasing the size of his Internet colossus. Instead he went outside the Internet and made a purely synergistic play. At the press conference announcing the deal, his financial officer estimated that $1 billion in profits would be created during the first year after the merger.

Synergy as a business strategy argues that companies merge to lower costs and add new business through more efficient joint production. AOL and Time Warner listed possible combinations in all forms of mass entertainment and information, including news (vaguely some greater enterprise than CNN online).

Surely, on the face of it, access to AOL's 21 million subscribers offers Time Warner's varied media businesses an enviable Internet customer base. Likewise, Time Warner's 13 million cable subscribers offer AOL the means to instantly sell its services on a broadband network that can carry far more data, far faster, than the telephone lines we struggle with today.

Yet AOL's and Time Warner's past records of synergy must be judged mixed at best. Levin's effort to move Time Warner into a new-media era cost the company millions when an interactive cable experiment in Orlando, Florida, during the mid-1990s reverted to cable business as usual.

Case, meanwhile, has long tried to make mass entertainment a centerpiece of AOL's service, not very successfully.

There will be a great deal of hand wringing before all the final documents are signed. The boards of both companies must sign off on the plan, and the Federal Communications Commission must also bless it.

In addition, congressional hearings seem likely. On the day the proposed deal was announced, Sen. Mike DeWine (R-Ohio), chairman of the Senate Judiciary Subcommittee on Antitrust, Business Rights and Competition, said he would hold hearings on the merger's impact. I bet nothing will come of this. There used to be a consensus on the need for government limits on media ownership, but the passage of the 1996 Telecommunications Act signaled that deregulatory proponents had carried the day, and that important law lifted nearly all ownership limits.

One positive outcome of the deal would be that Internet users beyond AOL's would have access to high-speed Internet connections through cable wires. Indeed, the biggest news of the press conference came when Case and Levin declared that Time Warner cable systems would allow other Internet service providers to use their fast lines. All other cable systems will surely follow suit, and if one is willing to pay more, the worldwide wait will become a thing of the past.

All of us need to pay close attention as the AOL Time Warner experiment evolves. Though Levin, Time Warner's 60-year-old CEO, is slated to become the chief executive of the new company, I predict the future lies with the younger AOL gang. They surely have the edge: It is projected that AOL shareholders will own 55 percent of the new company.

Case, at 41, seems satisfied to play corporate statesman as chairman of the board, but Robert Pittman, AOL's 46-year-old president, is far more ambitious. Pittman helped invent modern cable television (he's the father of MTV), and so straddles both sides of the company. I bet Pittman will replace Levin within a few years and initiate experiments we have yet to imagine.

Whatever happens, this deal is truly historic. It will come to represent one of those infrequent dividing lines in TV history as when, a generation ago, Time Inc.'s HBO taught us all how to pay for television, and Ted Turner's CNN lured us to cable TV for news 24 hours a day.