The Mega-Merger That Never Measured Up

This morning I got an email whose subject line said, "I told you so." It was from a former colleague at WebMediaBrands, back when it was called internet.com and we both wrote about stocks, IPOs and such.

I replied that he'd have to refresh my memory, as the psychic impact of "I told you so" had been deadened by 15 years of marriage.

He responded, "That the Time-Warner AOL merger didn't make sense and wouldn't last."

He was right, of course. As reported on InternetNews.com, Time Warner is preparing to "shed its online division."

Time Warner on Thursday made official plans to separate its AOL division sometime around the end of this year, a widely expected move that sheds one of the media company's weakest divisions.

Time Warner (NYSE: TXW), which for months has signaled such a plan was in the works, said the deal has been approved by the board and would be structured as tax-free to its stockholders. It still needs regulatory approval.

Once completed, the deal would once again make AOL an independent, publicly traded company, and close the door on a massive merger between the two media companies in 2000 that critics say failed to live up to its promise.

The unit was once how most people found their way onto the Internet. It has since been left behind as a relic as cable and phone companies picked off subscribers and Google (NASDAQ: GOOG) and others swooped in to dominate online advertising.

But back when the merger first was announced in January 2000, Time Warner's acquisition of the then Internet superstar triggered endless speculation about what it all meant for the future of media convergence.

As it turns out, not a whole lot. Media convergence has occurred regardless of AOL Time Warner, and in retrospect the anti-trust hearings held that summer to debate whether the merged company posed a monopoly threat to other media players seem almost comically unnecessary.

Still, things looked a bit different back then, just months before the Internet bubble began bursting. Here's one "expert":

The potential power of these merged assets makes previous "mega-mergers" such as Excite and @Home seem puny in comparison. AOL brings to the marriage the most popular Internet service in the world. Besides high-speed cable access, Time Warner's holdings include the HBO cable channel, Time magazine, the Warner Bros. movie studio, Warner Music Group and Time Warner Cable.

Potential power, indeed. And look at those assets! But they never gelled with the online business, not enough to matter. There were too many other ways (YouTube) users could access rich media, among other things. (BTW, the "expert" quoted above is me. My analysis of the deal wasn't as bad as I feared, though I hardly was a skeptic.)

I also found a very interesting transcript of a Jim Lehrer NewsHour panel discussion held the day the deal was announced. Participants were Jim Ledbetter, New York bureau chief for the Industry Standard; Bruce Leichtman, director of media and entertainment strategies at the Yankee group; David Bennahum, partner in an Internet venture capital firm; and Norman Solomon, syndicated columnist and author. Here are some quotes from each (remember, this was a different era):

Ledbetter: [The merger] makes sense from a strategic perspective, and of course, it also creates a globally powerful company that combines both old media power and content with new media speed.

Leichtman: I see that the torch has been passed to a new generation, and the new generation is the Internet. And that's where the opportunity lies in increased revenue beyond the 10 to 15% that Time Warner is currently making.

Bennahum: What we're seeing here essentially is the maturation of the Internet as the platform for what will be the 21st century entertainment media universe. And what we've seen in this deal is not merely the conglomeration of some technology with some media, but essentially first shot across the bow of the 21st century media landscape.

Solomon: I think primarily what's in it for the public is a narrowing of choices under the illusion of having more diversity. I'm afraid that we may look back on January 2000 as the time when de facto, the World Wide Web became essentially the world narrow Web, which is counterintuitive because there's all this talk today, all this smoke being blown about how AOL and Time Warner will create these multiplicity of choices through the new media. The reality is, however, that these new media are being used to herd and goad and leverage the consumers, the media consumers into essentially cul-de-sacs where the links in these various new media are self-referential, not often labeled as such.