Analysis: 'AOL Time Warner everywhere'

Summary:What does the AOL Time Warner merger mean for consumers? Think mass media on a massive scale.

The massive hype surrounding the AOL-Time Warner merger has created a perception that the combined company will change the face of mass media. But what will consumers get from AOL Time Warner that is truly revolutionary, if anything?

For the most part, the only thing analysts are sure about is a flood of new marketing material--hardly surprising from a company often parodied for stuffing millions of mailboxes with CDs offering free trial memberships. But the long-planned merger may yield some interesting "synergies," as such cross-pollination is called in corporate parlance.

For example, analysts say, an online subscription to a Time Warner music and video library is where the real value of the merger lies for consumers. For something like $9.95 per month, they speculate, consumers might soon be able to scroll through 5,000 movie titles and download a movie on demand.

The idea of such broad services that maximize access to Time Warner content through AOL's pipelines raises the prospect of all kinds of alliances in virtually any mass medium. That, however, could raise concerns among competitors who have feared that the merger could create a content monopoly, similar to allegations faced by rival Walt Disney after its purchase of ABC.

After all, a cornerstone of America Online's expansion strategy has been its campaign aptly named "AOL Anywhere."

"Consumers are going to see AOL Time Warner everywhere," said Darren Chervitz, senior analyst at the Jacob Internet Fund, adding that company will be a "giant presence in everyone's lives, whether it's on TV or over the Internet." He acknowledged that "it's a little bit scary that one company will have as much power and control on what people see and how they see it" but said "a lot of people will find it convenient."

Big ideas for the long term
Initially, the company could offer consumers such modest conveniences as one username and password for different types of services and devices, or one e-mail account for the Web and television. Over time, however, Chervitz said AOL Time Warner will have a hand in streaming media through cell phones, stereos or even refrigerators.

He also predicted that consumers will be able to buy a co-branded cable Internet box equipped with movies on demand, a Napster-like music service for Time Warner assets, and an AOL Time Warner "start page."

"They can get into a lot of initial homes this way," Chervitz said.

Moreover, consumers may get the option to subscribe for the first time to services that could be conceivable only through a merger.

"Potentially we will see a subscription-based model online to a library of music content from Time Warner--something like the HBO model or pay-per-view model," said Youssef Squali, an Internet analyst for ING Barrings, who predicts such services will crop up sometime in late 2001 or early 2002. "Assuming consumers have a broadband connection--either through your computer or cable box--you will be able to download the music, the movie or maybe use your cable box as a telephone. From a cost perspective, this will be cheaper than anything you have today."

However, tapping the vast inventory of Time Warner media is contingent on widespread adoption of high-speed Internet access, which is used in only a relatively small number of households today.

Immediately after the merger, consumers aren't likely to see new broadband offerings from the company, largely because AOL Time Warner will need to work through various technical and legal issues. But in the six to 12 months afterward, AOL will be much more aggressive in offering cable Internet access over the Time Warner infrastructure, Squali said.

What may shift for AOL members is the way they can use instant messaging. Consumers will likely see AOL open its IM technology so it can communicate with other services from Yahoo and Microsoft, analysts say, although the Federal Communications Commission is not requiring interoperability immediately.

On the publishing front, consumers will get online access to content from Time Warner publications, including news from CNN, as well as exclusive subscription offers and discounted book offers.

Marketing collaborations have been well under way since shortly after the deal was announced last January, including a promotion for Time Warner's flagship Time magazine that netted 500,000 new subscribers, according to the companies. AOL software also started getting packaged with Warner Music Group CDs.

Analysts predict that a newly merged AOL Time Warner will continue to pick the "low-hanging fruit" by capitalizing on marketing opportunities among its pool of products and services, rather than introducing radically new ones right away. The immediate result will be loudly trumpeted and repackaged services and offerings throughout Time Warner magazines and AOL content.

Cross-promotions will include AOL software CDs stuffed in Time Warner print publications such as Fortune, as well as references to Time Warner films and music artists throughout the AOL site. Time Warner magazines also will be promoted more aggressively through AOL's dial-up service.

In addition, consumers will likely be able to buy their AOL service and a host of annual magazine subscriptions for one monthly price--ordered and renewed through the Web to avoid paper and mailing costs.

Topics: Broadband

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