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CNN Today

AOL-Time Warner Merger: Unification of Two Giants Raises Issues of Control; Analyst Sees 'Marriage of Old Media and New Media'

Aired January 10, 2000 - 2:00 p.m. ET


NATALIE ALLEN, CNN ANCHOR: Two of the largest companies in the world, America Online and Time Warner, the parent company of CNN, announced today they will merge. The news sent Time Warner's stock price soaring nearly $30 a share and sparked a rally on Wall Street. AOL Time Warner, as the new company will be called, is the unification of the world's largest communications conglomerate with the world's biggest Internet service provider. The range of brand names and services covered by the new company is staggering and touches consumers across the globe.

For more about what all of this means, here's Steve Young of CNN Financial News in New York -- Steve.

STEVE YOUNG, CNN CORRESPONDENT: As you indicated, this is a merger of two giants. It raises very much the question of who's going to be in control. The control issue came up at a news conference at the Equitable Building in New York. And, you know, you had on the stage people ranging from Steve Case of AOL to Gerald Levin of Time Warner and Ted Turner, along with others. Asked about who would be in charge, the comment from Mr. Case was that there are many cooks on the stage, but there's a very big pie to cook.

But he did go on to describe how he and Gerry Levin will divvy up the duties.


STEVE CASE, CEO AND CHAIRMAN, AOL: Gerry will be running Time Warner day to day, all the businesses we're pouring into him. The role I'm going to play is I think the role I can play best, certainly the one I enjoy the most, is really being a strategist, thinking about maybe what might be looming around the corners without having to be burdened by what's happening today or this week or this month or this quarter.


YOUNG: Earlier today from London, there were indications that both stocks would appreciate greatly on this news, but the lift to AOL stock has gone out now completely. In fact, AOL is now trading off about a half a dollar from where it was on Friday.

Time Warner is still valuated very highly now, up, though, about 90 -- trading at 92, which means it's gained about $28 from its Friday close, but that, too, is back down from about 31.

The two CEOs were asked at their news conference if there would be any regulatory issues. They both said no. But Ralph Nader, the consumer advocate's man on technology, Jamie Love, has dashed out a note to many reporters who cover the media saying that they think the deal should not close, among other reasons, because AOL is the single most important force today in advocating for open access to the cable broadband platform. If this merger is approved, says Mr. Nader through his cohort, AOL's interest will be fundamentally changed.

But at the news conference, Gerald Levin and Steve Case made it clear -- they said that they are committed to the principle of open access for their competitors; indeed, said that they don't seek any exclusive deals or preferential treatment. In fact, Mr. Levin said that that would be contradictory to the best business interests of Time Warner's content which, he said, wants to get out as broadly as possible.

The two leaders say they expect the a deal to close within a year, but that is subject -- within this year, I should say. But that is subject to the approval of all the cable systems through which Time Warner's 13 million subscribers hook up, and that's because of the change of control.

So we'll just have to stay tuned to see whether Washington regulators want to get into the mix as well.

Back to you.

ALLEN: All right, Steve Young on this historical merger.

The merger of AOL and Time Warner signals the marriage of old- line entertainment with on-line technology. Just to give you an idea of how all-encompassing the new company will be, AOL currently provides Internet service to millions of subscribers through America Online and Compuserve. The company also owns numerous other Web services, including ICQ, AOL Instant Messenger, AOL Movie Fone, Digital City, Inc., and the popular Web browser Netscape.

Time Warner brings to AOL cable networks such as CNN, HBO, TBS, TNT, Cartoon Network, and others. It controls a publishing empire of books and magazines which includes "Time," "People" and "Sports Illustrated." Its Warner Music Group's universe of popular artists include Tori Amos, AC/DC and Eric Clapton. Warner Bros. Studios and New Line Cinema are responsible for such recent films as "The Matrix" and "Any Given Sunday." And the Time Warner cable system now covers much of North America and one day soon may pipe AOL into your home.

Got all that?

LOU WATERS, CNN ANCHOR: So five or 10 years from now, you flip on your high-definition television. Perhaps it doubles as your PC. How will this integration of old and new media have an impact on your life?

Let's ask Aram Steinreich -- Sinnreich -- I'm sorry -- he's a media expert for Jupiter Communications, a firm that analyzes e- business.

The question we're asking today is: What does it all mean?

ARAM SINNREICH, JUPITER COMMUNICATIONS: Well, that's an excellent question. As I think a number of your previous guests have said, it's really about the marriage of old media and new media. In the short-term, what it's really about is combining the off-line media powerhouse of Time Warner with the on-line markets savvy of AOL.

WATERS: So this is -- this will not have any immediate impact on those of us who read newspapers and send e-mail and watch television?

SINNREICH: No, not really. It's really a long-term, strategic move. I mean, AOL has done a great job of building their on-line subscriber base. They've got 20 million people on the service. But at a certain point, that's just got to max out. They've got to start looking to other channels to expand.

And, likewise, Time Warner has done a great job of building their media empire, but their on-line media strategy has so far fallen kind of short of the mark.

WATERS: So how does this help them?

SINNREICH: Well, like I said, what it really does is -- you know, Time Warner has a magnificent stable of media brands between, you know, the Warner music labels. Between the movies and the print, they've got some of the best brands in the media space. And what AOL has is the marketing savvy and the consumer base to turn it into a compelling cross-media property.

WATERS: So, how does the industry -- does the industry as a whole benefit from this, or is there a downside to this merger?

SINNREICH: Well, there are both. As a whole, what it does is it pushes the industry forward. It really raises the bar for both other on-line companies and other traditional media companies. Clearly, for consumers, it paves the road for, you know, interactive television and other forms of programming that people haven't even dreamed of yet.

The downside is really that it squeezes out some of the smaller players in the space; it makes it a lot harder for them to compete. You know, also, there are those who believe that the consolidation of media is inherently, you know, a dangerous thing for consumers.

WATERS: What does this mean for the stock market now? When we -- you've alluded to it, the shakeout of some of the companies, some of whom -- many of whom will drop by the wayside now. Are we going to see the Nasdaq increasing in value or is there a period of uncertainty here?

SINNREICH: Well, I think, you know, the value of new media technology is certainly yet to reach its peek. But what you're going to be seeing is, I think, people beginning to put less stock in every little startup that decides to try to go IPO and people putting more stock in, you know, tried-and-true methods of marketing and media, and in the marriage of old media companies that really know how to do it and new media companies that have all the interesting ideas.

WATERS: So is this basically about faster and better use of old media by incorporating with the new media the digital?

SINNREICH: Well, it's about two things. The really interesting thing about this story is that both AOL and Time Warner are both media companies and access companies. Time Warner operates one of the largest broadband access providers, currently called Road Runner. It'll be interesting to see how it's branded post-merger. And AOL is, of course, the largest consumer dial-up ISP in the country. So it's really both about delivering faster, more reliable, more cross-device access to the Internet, and about pioneering some programming strategies which take advantage of the combined media.

WATERS: Is it too early to tell consumers how they can plan for this digital age?

SINNREICH: Well, I think, you know, consumers can look forward to having no dearth of content streaming into their houses via various appliances. I think what you will see is the day of consumer-started Internet phenomenon such as, you know, Harry Knowles' aint-it-cool-, kind of cooling down because, as I said, the bar to entry to compete with these companies is really raising very rapidly.

WATERS: How about if you're buying a computer? We all know the gag, if you buy a computer today, it's out of date tomorrow. What direction are we going in there?

SINNREICH: Well, that's really not going to change anytime soon. Moore's Law seems to be progressing, you just, fine: Every 18 months, the processor speed doubles. But what you're going to be seeing from the consumer end is a real kind of broadening of the number of appliances and the variety of appliances with which they can access interactive content. People are already trying to put together, you know, Internet microwaves, Internet refrigerators. I'm not necessarily saying that's the direction things are going to go in, but especially with the set-top box market, AOL's interested in taking the Internet off the PC and putting it onto the television.

WATERS: Well, it's all fascinating. Aram Sinnreich of Jupiter Media, we thank you so much for helping us understand this story today.


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