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Technology Stocks : America On-Line (AOL) -- Ignore unavailable to you. Want to Upgrade?

To: VBroady who wrote (37056)	1/11/2000 1:24:00 AM
From: puborectalis	Read Replies (1) \| Respond to of 41369

AOL Time Warner: One-of-a-Kind Deal Internet firm's acquisition flips the coin, but don't expect change. by Eric Brown, special to PC World January 10, 2000, 7:04 p.m. PT No sooner had the surprising news of America Online's $190 billion purchase of Time Warner hit the street than pundits started speculating of a rash of Internet companies buying media firms. Don't count on it. The likes of Yahoo might have the market capitalization ($107 billion) to afford a giant like NBC, but few Internet companies do. And many have other reasons to shun investing in "old" media. In many ways, the AOL Time Warner union is unique--and not only because by its size. Calling Cable True, Time Warner's many brands are valuable to AOL. Yet, AOL Chair and founder Steve Case would not jump to buy the unwieldy Time Warner patchwork quilt if not for the older firm's cable systems. Time Warner Entertainment is the second largest U.S. cable provider after AT&T. Also, Time Warner is part owner (with the future AT&T property MediaOne) of the number-two cable modem Internet service provider, RoadRunner. AT&T's refusal to open access to its cable modem infrastructure has led a frustrated AOL to cut deals to get its subscribers high-speed access. AOL partners with regional Bell companies for Digital Subscriber Lines--such as Bell Atlantic and SBC--and with satellite networks like Hughes/DirecTV. Now, AOL can get closer to matching the hype of its AOL Anywhere initiative with a full slate of broadband access solutions. On the other hand, cable access alone isn't enough to make AOL take the bait. A partnership with CNN and other Turner TV properties could boost its AOL TV plans. More immediately, Warner Music offers compelling synergy with its Spinner and WinAMP music sites. In the end, the confluence of broadband pipes and media brands makes Time Warner an irresistible target. Just as Time Warner is not your typical media company, AOL is not your typical Internet company. The only other firm that plays a significant role as both a portal and major ISP is Microsoft. Yet, MSN's ISP business is small potatoes compared to AOL's approximately 20 million members. Internet companies not pursuing an ISP role, such as Yahoo or Lycos, do not find ownership of cable infrastructure quite so intoxicating. Media Role Reversal Still, the AOL Time Warner announcement is historic--and not only because it's the largest corporate merger in U.S. history. For the first time, the shoe is on the other foot. This time an Internet company is calling the shots. Portents of such a turnaround occurred last May, when USA Networks withdrew its bid to acquire Lycos and combine it with its TicketMaster Online-CitySearch online service. The acquisition seemed to make a great deal of sense by matching old media with new online eyeballs. But Lycos shareholders revolted. Their charge: The Internet's potential was being undervalued by USA Networks CEO Barry Diller. "In the Lycos deal, the traditional media company played the lead, but here it's the Internet company," says Mike Goodman, an analyst at the Yankee Group. Not only can AOL afford Time Warner, but it has the reputation and cybercachet to keep its stock price high. "It's a very conscious decision that the company is named AOL Time Warner and not Time Warner AOL," Goodman adds. "It's the only way they can get those Internet valuations." New Media, Old Media Play Musical Chairs