Winners and losers after AOL Time Warner deal

AOL shareholders will own 55 percent of the new company and Time Warner will get 45 percent even though it's contributing 80 percent of the revenue. Brands like ICQ, Instant Messenger and AOL.com are worth more than Entertainment Weekly, The WB television network, CNN, Looney Toons, Sports Illustrated and HBO to name a few. And that doesn't count Time Warner's cable system.

The playground is digital now and Internet companies may start buying up traditional media players.

Even for the biggest Net cheerleader, the AOL Time Warner deal is a bit shocking. Whether the deal validates lofty Internet valuations remains to be seen, but you can bet there'll be some serious aftershocks.

"When I started covering AOL 10 years ago, I would have never dreamed this was possible," said Abishek Gami, an analyst at William Blair in the US. "It validates the concept that offline and online will merge."

Here are some of the most affected companies:

Winners:

Time Warner -- The company will be dominated by AOL execs eventually, but it did gain an Internet strategy. Without the Net strategy, Time Warner was roadkill no matter how many music acts, videos, magazines and movies it put out.

Time Warner showed time and again that it didn't get the Net. Now it does. It has to.

Richard Parsons, president of Time Warner, summed it up best. "It's damn hard on the Net," he said. "We could have worked a decade and may not have been competitive. We would never recapture that first mover advantage."

Time Warner wanted to be an Internet player real bad, but fumbled interactive TV and Pathfinder. Judging from Monday's trading, it might get that Internet valuation after all.

America Online -- AOL chief Steve Case can talk all he wants about Time Warner's brand and synergies, but this deal was about broadband pipes.

AOL gets access to 20 percent of the country's cable homes, can port its AOL Everywhere strategy, and has tons of cross promotion opportunities.

And unlike Time Warner, AOL has a decent shot to make it all work. AOL is now a media empire.

So why wasn't AOL the biggest winner? AOL's challenges are clear -- AOL has to manage a lot of egos and get those staid old media types on the new media bandwagon. AOL also has to show it can grow at an Internet pace.

Bob Pittman -- AOL's operating chief will be co-operating chief of AOL Time Warner, but don't expect that to last long. Pittman will become CEO at some point, especially if he successfully melds AOL Time Warner's various businesses together. Time Warner CEO Gerald Levin is currently CEO, but as AOL Time Warner morphs into a Net company Levin could make a graceful exit.

AT&T -- With the merger of AOL and Time Warner, AT&T doesn't have to worry about AOL yapping so much about open access and can go on its merry (and proprietary) broadband ways.

AT&T's global broadband domination plans are less likely with AOL in the field, but the company overall comes out a winner.

AOL and AT&T are likely to cut a cable access deal. In addition, Yahoo! and others will pay AT&T dearly for cable access.

Microsoft -- What was this antitrust trial about again? Seems like it was 20 years ago that Microsoft squashed Netscape -- it was in Web years.

The new battleground is broadband and wireless and Microsoft isn't going to dominate either. AOL and AT&T are the broadband giants. Maybe the antitrust folks should look at those two companies and their dealmaking. Look for the Microsoft antitrust suit to go down with a whimper following AOL Time Warner.

Content companies -- "Content is king (at least for a day)" seems to be the prevailing message from AOL. Case and company said this deal was about content as much as commerce. Look for a lot of content companies to go along for the ride on this one. Aggregators need content to differentiate themselves and will spend accordingly.

Possible losers

Excite@Home -- First, AT&T says it will open up its cable pipes to others and then the AOL Time Warner merger hits. The whole logic behind Excite@Home went something like this: Exclusive AT&T cable access will end in mid-2001. By then Excite@Home will have a compelling broadband service with great content.

AOL Time Warner changed that logic. Now AOL will have a compelling broadband service and has all the assets to send everything from Looney Tunes to video on demand to consumers.

Excite@Home can't compete on content and may not be a likely acquisition target -- AT&T owns a big chunk of shares and any sale would require Ma Bell's approval.

Yahoo! -- Boy, is this going to be an interesting conference call. Yahoo reports fourth quarter earnings after the bell and guess what officials may have to talk about -- AOL Time Warner.

Up until now, Yahoo officials have said they don't need or want a mega-media merger. We'll see if the stance changes.

According to Gami, Yahoo is probably the only remaining Net player that could go it alone because it's brand is strong. However, Yahoo may be pushed into smaller deals to acquire proprietary content. Yahoo has typically outsourced content to keep costs down.

The good news? Yahoo could emulate AOL because it has a strong stock. If AOL can buy Time Warner, why can't Yahoo buy CBS or News Corp. Sounds wacky, but anything is possible. Another option could be a Yahoo-General Electric combination.

GE could combine Yahoo with NBCi and put together quite an arsenal. Most likely, however, Yahoo will acquire smaller companies that have proprietary content.

Lycos -- The second fiddle to Yahoo is running out of big media options. The good news is Lycos could now buy a company like USA Networks instead of the other way around.

Lycos will be a loser only if it's left out of the dance. The company's network of properties is impressive, however, and would make a nice fit with NBC, CBS/Viacom or even CMGI.

Those other networks -- The AOL Time Warner deal forces the hands of those other networks. Fox, CBS, NBC and Disney have to make their Net creations work pronto. Sure they've all taken baby steps, but the AOL Time Warner deal will make them sprint. "They all have made Web moves, but no one has knocked the cover off the ball," said Gami.

Stocks to watch

CDNow -- The jury is out on this one. As you may recall, CDNow planned to merge with Columbia House, a joint venture between Sony and Time Warner.

How does the Time Warner-AOL deal affect CDNow?

It's possible AOL may decide it doesn't need CDNow anymore and dissolve the merger plans. Or CDNow could benefit from a lot of AOL distribution.

If CDNow is jettisoned it could become a takeover target for another company, but it's too early to call.

In any case, AOL Time Warner's music division will be one of the biggest winners. AOL Time Warner can sell music by the song through its broadband network. Where that leaves CDNow is anyone's guess.

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