AOL's golden Web snares real assets

January 16, 2000|By Sean Somerville and Mark Ribbing | Sean Somerville and Mark Ribbing,SUN STAFF

It's striking enough that upstart America Online is buying media titan Time Warner. What's more is that AOL is getting top billing.

Suddenly, Time magazine, whose "Man of the Year" issue became an annual note in the rhythm of 20th-century America, is to be part of a technology company that started with electronic mail. Suddenly, Time Warner's television, movie and music studios, its glossy magazines and 24-hour live news operation are to serve as "content" for distribution through yet-to-be-invented devices.

To many, the deal provides the most tangible proof yet that the Internet will become a fixture of American life, on at least equal footing with television, movies, music, radio and magazines.

"Essentially what we're seeing is two separate industry leaders coming together to define the next-generation business model, which is Webcasting," or broadcasting over the Internet, said Scott C. Cleland, managing director of Legg Mason Wood Walker Inc.'s Precursor Group.

But others say that for all its rapid growth, the Internet is oversold. When it comes to enthusiasm for the Internet, they say Wall Street and Silicon Valley are way ahead of Main Street.

For the Internet to have the kind of success envisioned by the merger, millions of consumers must discard comfortable old habits. But it's not clear that audiences will conform to the grand plan and watch HBO's "The Sopranos" over Time Warner's cable lines at AOL's site.

"People aren't going to be watching television on their computers," said A. Michael Noll, a professor at the Annenberg School of Communications at the University of Southern California. "Looney Tunes, the last brand name listed by AOL and Time Warner, is really what this deal is all about. You put all these properties together and they don't have anything to do with each other."

That's not to say anybody is discarding the Internet. After all, AOL's $179 billion purchase of Time Warner, announced Monday, would make it the largest merger ever. That a relative upstart like AOL could even hope to take over a corporation as vast and venerable as Time Warner is a sign of just how far the Internet has come.

Consider where the two companies were a mere decade ago: In July 1989, Time Inc. prevailed in a court fight against Paramount Communications for control of Warner Communications in a $14 billion deal. That merger created the world's largest media company.

Three months later, in October, the Washington Post unceremoniously reported the birth of AOL -- on page F9 in the eighth item in a column of financial briefs, just below the announcement that the law firm of Jones Waldo Holdbrook & McDonough had moved downtown.

The Post brief read: "Quantum Computer Services Inc. introduced America Online, a nationwide service for personal computer users that includes computing support, software libraries, computer forums, a technical product database and news from Apple Computer Inc."

After existing for decades as an obscure party line for the technological elite, the Internet has exploded. According to Forrester Research Inc., there were 38.8 million households with Internet access in 1999, a number that will rocket up to nearly 60 million by 2003. Internet-based companies such as AOL and Amazon.com Inc. have not merely prospered; their rise in the stock market has altered popular notions of what prosperity is.

Amazon.com, for example, saw its online sales of books, music and other items grow from $510,000 in 1995 to $610 million in 1998 to $963.8 million for the first three quarters of 1999. The value of Amazon.com stock has shot up by more than 4,000 percent since the company went public in May 1997.

In December, Time named Amazon.com Chairman and Chief Executive Officer Jeffrey P. Bezos its "Person of the Year," a title generally awarded to political and military leaders.

Now Time is itself seeking to lash its fortunes to the Internet, and the expansion of the online realm appears virtually unstoppable.

"The Internet is for real because it fundamentally changes how people communicate, interact and do business," said Cleland, of Legg Mason's Precursor Group. "The Internet is a functional revolution. What this signals is that entertainment content is early in the food chain of what consumers can be expected to want on the Internet."

How did it come to this?

Some explanations are obvious: the widespread installation of personal computers in homes, schools and businesses; the swift development of useful and well-promoted online sites and services; and the prospect of faster and easier Web access.

For any phenomenon as huge and multifaceted as the Internet, though, there are bound to be less conspicuous catalysts. Annabel Z. Dodd, who teaches telecommunications issues at Northeastern University in Boston, said that when people discuss the prime movers of the Internet, "nobody ever mentions e-mail anymore. That was very fundamental."

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