Big merger gives AOL a chance
to advance in Asia
HONG KONG BY MARK LANDLER
New York Times
IT WAS hardly Paris, but Shanghai played a part in the brief,
intense courtship between America Online and Time Warner.
Steve Case, the chairman of America Online, attended a Fortune
magazine conference there in October, during which he met and
mingled with Time Warner's top executives, including Gerald Levin and Ted Turner. Later, the
executives traveled to Beijing for the 50th anniversary of the founding of the People's Republic of
China. A Time Warner executive who was there recalls a teasing exchange between Case and
Turner, when the two found themselves stranded in the rain outside the Great Hall of the People.
''Ted, your big, merged company isn't getting you off the steps,'' Case shouted to Turner.
''Steve,'' he replied, ''your billions ain't getting you anywhere either.''
It is not clear, even after America Online's extraordinary bid for Time Warner, that this huge merged
company will be able to get off the steps in China -- or elsewhere in Asia. As in Europe, where
America Online has built a valuable regional franchise through its partnership with Bertelsmann AG,
the Internet in Asia remains a fractured business with few large competitors and virtually none that
cross national boundaries.
''AOL and Time Warner have tremendous critical mass in the United States and, through AOL and
Compuserve, in Europe as well,'' said Michael Wolf, the partner in charge of the media practice at
Booz Allen & Hamilton in New York. ''But to a large extent, Asia is up for grabs.''
America Online operates an online service in Japan and recently started one in Hong Kong. But it has
yet to enter the Chinese mainland, where Yahoo, the Internet portal service, is one of the only major
American Internet companies to have established a foothold. Time Warner distributes movies and
music in China, as well as CNN and Time magazine, when they are not banned by the Chinese
government.
But Time Warner, like most other American media companies, has not been able to make deep
inroads into China because of barriers ranging from piracy and onerous regulations to political
pressure. The proposed merger will not eliminate those hurdles.
Some analysts said that America Online would benefit more from a merger than Time Warner
because its credibility would be burnished in the eyes of the Chinese government. Although Beijing
recently indicated, after months of equivocation, that it would allow foreign companies to invest in the
Internet, the government seems likely to pick and choose among potential entrants. Analysts said
America Online's odds of receiving favorable treatment would be higher if it tied up with a media giant
like Time Warner.
Opening doors
''CNN and Ted Turner will open doors for this company politically, allowing it to do things that other
companies may not be able to,'' Wolf said.
Brian Lippey, chief executive of Tokai Asia, a hedge fund in Hong Kong, said, ''The merger gives
AOL international credibility. Time Warner is a good, old-fashioned multinational.''
Although the merged company's prospects in Asia are uncertain, news of the huge deal reverberated
through the region, prompting talk of more mergers and strategic alliances involving Asian companies.
Lehman Brothers noted in a report that the ownership of many Asian media companies was
concentrated in the hands of one or two large investors. That would make large combinations like
AOL-Time Warner unlikely, at least in the short-term.
Cultural, linguistic and regulatory differences among Asian countries also work against the creation of
pan-Asian companies. Two decades after CNN was founded in the United States, Star TV, which is
the satellite television service, remains the only genuinely regional media service based in Asia.
Japanese companies
''If you look at Japan, there are some wonderful media companies, but very little of their material
sees the light of day outside Japan,'' said Alexander Arena, the group managing director of Pacific
Century Cyberworks, a Hong Kong company that is designing a satellite-delivered Internet service.
Still, analysts and stock pickers were quick to draw up lists of Asian companies they contended
would benefit from the changes uncorked by America Online and Time Warner. Leading the list were
obvious candidates like Sony, the Japanese electronics giant, and less obvious ones like TVB, a
Hong Kong television broadcaster that owns the world's largest library of Chinese-language
programming.
Analysts said that any company aspiring to deliver information and entertainment to subscribers via
high-capacity wires would also benefit. For all the excitement, Asia's reaction to the AOL-Time
Warner deal has had an unfocused quality. Experts said that reflected the Internet's relative lack of
the development here, which makes picking winners and predicting the future even more futile than in
the United States. ''It's a simple question of supply and demand,'' Lippey said. ''There aren't that
many quality Internet companies in Asia.''
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