When America Online announced it would join forces with Time Warner at the beginning of 2000, there was no small amount of expectation that this largest of all American corporate mergers would bring a seismic shift in the media-entertainment landscape.
New and old media worlds were colliding as the behemoth that controlled Warner Bros. movies and music, CNN and HBO, Time, People and more was overtaken by the nation’s leading online service, a company that only a few computer geeks had heard of a decade prior but had become the default option for connecting to the Internet.
“This merger will launch the next Internet revolution,” proclaimed AOL founder Steve Case.
AOL’s promise of innovation and technological leadership was going to propel the Time empire, which dates back to Henry Luce’s 1923 notion of a weekly newsmagazine, into the 21st Century like a rocket ship rather than, say, a crop-duster.
The company would be a Wall Street darling, it went without saying during what we now recognize as the Internet bubble, but this was one of those mergers that was even going to help people more interested in a company’s products than its share price.
CNN’s sleepy financial channel, CNNfn, would merge with Time Inc.’s popular personal finance magazine, Money, for example, to create the first true rival for CNBC. AOL’s news function would positively glisten, being able to draw source material from niche leaders CNN, Time, Entertainment Weekly and more.
This media merger would be a model for all others, a proof that corporate elephantiasis wasn’t just another boardroom fad. People would be better entertained and informed, as content (movies, TV shows and the like) moved effortlessly across distribution channels (cable systems, Internet services, etc.).
AOL’s one plus Time Warner’s one, in other words, was going to equal three, maybe even four.
Case told Time Inc.’s Fortune that he wanted the new corporation to be the world’s biggest in five years, a forecast you don’t make unless you think consumers will want what you’ve got to give.
Not by the numbers
As it is turning out, in what are admittedly still the early stages of the merger, there is no need to recalibrate those calculators. Like most everything else related to mainstream America’s conquest of the Internet (or vice versa), the merger logic proved fuzzy, the math fuzzier.
“It’s been more like two plus two equals two — or one and three quarters,” says Paul Carroll, a partner with the management consulting firm DiamondCluster International. “It’s not that these people aren’t smart. But there are just all kinds of examples where people have tried to get into businesses that feel like they’re related but aren’t.
“People relate much more to the individual brands. They care about HBO, AOL, Time magazine. They care about `Harry Potter,'” the books-turned-Warner Bros. movie franchise, Carroll says. “But it just doesn’t matter to them that all those things are tied together. Certainly the guys who know how to put up cable in my neighborhood don’t necessarily know anything about what kind of movie I want to watch.”
“When it was first announced, you thought, it’s almost like having an all-star team,” says Jon Friedman, media editor and columnist at CBS MarketWatch.com.
“You’ve got the five best players, and you figure they can’t lose. But they’ve got to work together, and pass the ball and play defense and play as a unit. They have some of the best brand names in the business, but …”
Other analysts are more optimistic, counseling patience. “I think that we have only really begun to see what this merger can bring to consumers,” says Amy Kaser, an equity analyst with Loomis Sayles in Boston. “From a consumer perspective, I think it’s really neat. There are a lot of really exciting new applications from the convergence. From a shareholder perspective, they are still working things out.”
And Richard Parsons, the company’s newly installed CEO, made this entirely salient point in a May public appearance: “We’re the No. 1 movie company, the No. 1 online company, the No. 1 premium cable network company, the No. 1 cable network company, No. 2 cable company, No. 2 music company. What am I missing?”
When asked what the merger completed in January 2001 has meant to the average consumer, though, a variety of experts interviewed offered takes that could be distilled into two words: not much.
“From the consumer standpoint it’s been pretty much a non-event,” says Carroll. “I don’t think it’s bad for the consumer.”
“Most consumers have no idea who AOL Time Warner is,” says Patrick Keane, a vice president at Jupiter Research, a New York-based market research firm.
Indeed, Chicagoans interviewed at random tend to have only the foggiest idea of the corporate entity, understandably enough. Even if you subscribe to AOL and HBO and Fortune, it’s not like you write one check to AOL Time Warner every month.
The biggest hindrance to the venture’s success is that marketing muscle applied to entertainment and media content is not the same as marketing muscle applied to soap. People want to see certain movies or buy certain CDs regardless of which corporation produces them.
“You cannot control creativity. Creativity will come out in all sorts of venues and whenever you try to cookie-cutter it, people don’t like it anymore,” says Roland Van der Meer, a partner in the Palo Alto, Calif., venture capital firm ComVentures.
That is why you see America Online’s AOL Music arm, one of the success stories on AOL in recent times, touting its new content coup. It has exclusive rights to four new songs from Bruce Springsteen, an artist who’s not on the in-house Warner, Elektra or Atlantic labels, but rather on Columbia Records, a Sony company.
“I think they’ve actually done a fairly good job of balancing the promotion of the stuff they own and the stuff they don’t own, which is becoming less and less over time,” says Keane.
Certainly, there have been cross-promotional successes. AOLTW says AOL generates 100,000 new Time Inc. subscriptions monthly, for instance, a favor that has been returned by the magazines’ generating 800,000 new AOL registrations.
Too aggressive?
Other observers, however, contend that the AOL service’s aggressive promotion of content from its corporate siblings has become obtrusive and might be harming AOL itself.
“We’ve been inundated with promotions, commercials and marketing pitches for all of the AOL Time Warner products and services, ranging from AOL to Teen People to CNN to various movies like `The Perfect Storm,'” says Friedman, of CBS MarketWatch. “It’s a factor in people being disillusioned by AOL Time Warner.
“They’re so intent on boosting revenues they’re almost force-feeding this. And, it’s funny — AOL Time Warner will boast that the cross marketing helped make big hits out of movies like `Lord of the Rings,’ `Perfect Storm,’ `Ocean’s Eleven.’ But they don’t say anything about `Pay It Forward’ and `Little Nicky.'”
AOL Time Warner executives, who have been keeping a low public profile in recent months, were not made available for this article, but a corporate spokeswoman says that the corporation’s “biggest issue” is the soft advertising market.
Consumers’ unwillingness to have synergy forced down their gullets is also why new CEO Parsons, speaking after being installed in May, said a key corporate strategy would be for each individual company to focus on achieving excellence.
Some experts interpreted that as meaning Parsons was setting aside some of the merger’s loftier goals, but the spokeswoman emphasizes that in that same speech Parsons also stressed the need for integration of the various companies.
The backdrop for such decisions is the incredible plunging price of AOLTW stock, down, at press time, to under $13 a share from $71.25 for AOL and more for Time Warner on Jan. 10, 2000, the day the merger was announced. There is also renewed focus on media mergers with the management upheaval this week at Vivendi Universal, another of the media conglomerates.
The big squeeze
Most articles about the company in recent times have been dedicated to exploring the stock tumble, a decline due largely to investor concerns about AOL’s ability to keep growing as computer users become more sophisticated and Wall Street seemingly grows less patient with media behemoths. This is not one of those articles. But the price is important because it puts pressure on the individual companies to economize.
The CNNMoney channel still hasn’t launched, although the soft advertising market has probably been more to blame than any corporate austerity measures.
And it was widely believed in the movie industry that if the “The Fellowship of the Ring,” the first “Lord of the Rings” movie in a series of three, had failed at the box office last December, it would have meant the end for New Line Cinema, which could have been shuttered altogether or put under the control of fellow AOLTW moviemaker Warner Bros.
Big returns
“Fellowship,” which used AOL and the Internet for a savvy, whistle-wetting marketing campaign, has done more than $300 million business in the U.S. alone, and in a few weeks New Line will release another potential blockbuster, its latest “Austin Powers” film, “Austin Powers in Goldmember.”
“`Lord the Rings’ was a masterstroke of Internet buzz-stoking,” says Dade Hayes, an assistant managing editor at Variety who covers the film business.
But Hayes also points out that, contrary to overall AOLTW interests, people at New Line were “taking thinly veiled potshots” at Warner Brothers’ “Harry Potter,” which they viewed as a competing film, coming out just weeks before “Lord.”
Certainly, some AOL Time Warner television offerings seem to have been helped by the conglomerate’s new ability to spatter-market, spraying pop-up ads and other cross-promotion like paintballs.
The WB network, an AOL spokesperson says, was able to make the series “Gilmore Girls” into a successful replacement for the departing “Buffy the Vampire Slayer” (which WB didn’t want to pay a premium to keep) in part because of a lot of promotion on AOL.
Over at crown-jewel HBO, Carolyn Strauss, senior vice president of original programming, says that she has noticed few changes at the channel since the merger.
“Well, we had to switch our e-mail,” she says. “[But] HBO has been a fairly solid performer and so has been able to maintain a great continuity from pre- to post-merger.”
But ask Gardner Stern, the creator and executive producer of “Breaking News,” why the TV series never got on the air at AOLTW offshoot TNT, despite the cable channel ordering 13 episodes and the series being produced by AOLTW’s New Line Television.
As one of ” a confluence of factors,” he says, the AOL Time Warner merger was finalized while the series was shooting, “and I think because of that and the desire to economize in that new behemoth corporation, they were suddenly much more concerned about any sort of major expenditure.”
“Breaking News,” a critically acclaimed drama series about a maverick cable news operation based in Chicago, turns up this month on Cablevision’s Bravo cable channel instead, more than a year after it was supposed to bow on TNT.
CNN, one of AOL Time Warner’s prize possessions for its visibility and influence if not its revenues, has been busily remaking itself since the merger and the installation of a new management team, including principals from Time and from the WB network (which is one-quarter owned by this newspaper’s parent, Tribune Co.).
The CNN changes have earned a mostly negative critical reception as the operation has hired high-priced stars with mediocre track records such as Connie Chung, shifting away from Ted Turner’s mantra that “the news is the star.”
The upstart Fox News Channel, no rival for CNN in terms of breadth of news coverage, is now leading the ratings race with a more frugal strategy of making stars rather than hiring them. The highest-rated show on cable news, by a landslide, is hosted not by an ex-network anchor, but by Bill O’Reilly, a former network correspondent more recently with the tabloid “Inside Edition” show.
No revolution
Contrary to Steve Case’s bold prediction, the merger has not launched any new Internet revolution. Instead, with the transaction’s use, essentially, of pumped-up AOL stock to buy an old-line company, it’s been hailed as a symbol of what was wrong with the last Internet revolution. But in the meantime, there’s no denying the strength of AOL Time Warner’s individual companies, even its first name partner.
AOL may have been publicly embarrassed when the conglomerate freed its individual companies from the mandate to use AOL for corporate e-mail, because many were finding it wasn’t up to the task. But AOL also remains by far the most potent brand name among Internet service providers, fending off hyperaggressive attacks by Microsoft’s MSN and retaining close to half of all wired households in the U.S.
The real next revolution may come in an AOL weak point — when homes switch from telephone to much faster broadband access — but the broadband adoption curve has been slow, giving AOL Time Warner executives more time to figure out how to make its pieces fit better together.
Even Jon Friedman, the AOL Time Warner skeptic, allows that AOL top man Bob Pittman, a former MTV executive, “is a very smart guy in terms of understanding consumer trends and motivations. If he can’t make it work, nobody can.”
And executives are liberated in their efforts, contends Keane, of Jupiter Research, by the very facelessness of the AOL Time Warner brand.
“They don’t have to put the effort around creating some false vision for what AOL Time Warner is. It just happens to be a mass force with tentacles in virtually every area of the consumer economy.”
AOL companies
Some of the principal companies under the AOL Time Warner banner:
America Online: AOL Service, CompuServe, ICQ, MapQuest, Moviefone, Netscape, AOL Broadband.
AOL Time Warner Book Group: Little, Brown and Company, Warner Books, Bulfinch Press, Warner Faith, Time Warner AudioBooks.
AOL Time Warner Interactive Video
Digital Services Development Group
Home Box Office: HBO, Cinemax, Comedy Central (joint venture).
New Line Cinema: New Line Television, Fine Line Features.
Time Inc.: Time, Sports Illustrated, People, Fortune, Money, Real Simple, In Style, Business 2.0, Sunset, Progressive Farmer, Marie Claire, For the Love of Cross Stitch and many more.
Time Warner Cable: five local cable news channels, Road Runner (joint venture).
Turner Broadcasting: CNN, TBS, TNT, The WB Television Network, Cartoon Network, Turner Classic Movies, Atlanta Braves, Atlanta Hawks.
Warner Bros.: Warner Bros. Pictures, Warner Bros. Television, Looney Tunes, Hanna-Barbera, Warner Home Video, Castle Rock Entertainment.
Warner Music Group: Warner Bros. Records, The Atlantic Recording Corp., Elektra Entertainment Group, Rhino Records, Columbia House (joint venture).
The cross-promotion game
Movies released by AOL Time Warner firms since merger announced.
%% SYNERGY STARS PRODUCTION U.S. GROSS RECEIPTS
“The Lord of the Rings: $109 million $312 million
The Fellowship of the Ring” (New Line)
“Harry Potter and the Sorcerer’s Stone” $130 $318
(Warner Bros.)
“Ocean’s Eleven” (Warner Bros.) $85 $183
SYNERGY ALSO-RANS
“Little Nicky” (New Line) $80 $39.4
“Pay It Forward” (Warner Bros.) $40 $33.5
“A.I. Artificial Intelligence” (Warner Bros.) $90 $78.6
%%
