AOL Time Warner Changes Industry Overnight

Yesterday, when we first heard the announcement about the pending merger between America Online and Time Warner, it was a stunner.

While cynical journalists are not often taken by surprise, the news virtually took our collective breath away -- and we were not alone. The deal made the entire industry pause and hold its breath.

Within minutes, such phrases as "the deal of the century" and "unbelievable" were being broadcast over the airwaves, as many analysts scrambled to explain the short and long-term ramifications that the melding of the two giants would have on the Internet and the e-commerce landscape.

A Seemingly Perfect Deal

Under the monster merger, AOL will gain access to Time Warner's broadband assets, while Time Warner's media properties will immediately gain an online audience that is 20 million people strong. The new company will have combined revenues of more than $30 billion (US$).

"We were the missing piece of each other's puzzle," declared an upbeat Gerald Levin at a press conference Monday morning. The Time Warner CEO is slated to be the CEO of the new company.

AOL Chairman and CEO Steve Case, who will be the Chairman of the combined company, described the upshot of the merger this way: "We're going to map out a route to the promised land."

AOL president Robert Pittman, who will be one of two COOs of the new giant, was even more ebullient. "The merger will blow the roof off our ability to offer e-commerce packages together," he said.

Deal Will Change The World On Two Planes

AOL Time Warner, presuming that regulators allow it to live, will change the world on two planes. First, it will cause a mad scramble amongst cable television companies and telephone companies to acquire and merge with Internet service providers.

Second, it will cause these soon-to-emerge Internet/TV access companies to create numerous alliances and partnerships to find appropriate content for their new ventures.

Portals, ISPs and High Speed Access Big Winners

Over the short term, the biggest winners will be Internet portals like Yahoo! and AltaVista, as well as ISPs like EarthLink and Excite@Home. Cable TV companies and large telcos are going to be scrambling to make such acquisitions in order to match the impending merger between AOL and Time Warner.

High speed access is clearly one of the key winners of the merger. AOL Time Warner will now be leading the charge to high-speed Net access, with broadband cable being the medium of choice. Cable companies, which are already moving swiftly to convert their facilities to digital access, will now be doubling their efforts.

Telephone companies also will not be left in the dust. Expect phone companies to speed up their implementation of DSL and also to jump onto the cable acquisition bandwagon.

Content, Content and More Content

The other plane is content. The "promised land" that Steve Case talked about is a merged world of digital television and Internet in which shoppers can view a commercial, click to buy it, and then go to AOL's online store empire. In the interim, the television show will be recorded for playback on demand once the shopper completes the purchase.

AOL Time Warner's prospective executives are literally licking their chops at the prospects of content deals. Bob Pittman, for example, waxed eloquent at the press conference about prospects of AOL getting involved in online distribution of Time Warner's music holdings.

Pittman was the founder of MTV, which propelled him to fame and to a leading role as a key architect of our digital future.

Whither Microsoft?

We would have loved to be a fly on the wall in Bill Gates' office today. He obviously has to hate being the Department of Justice's whipping boy while AOL and Time Warner can get away with announcing the mega-deal of the century, even if the century is only 11 days old.

Then again, Gates may not be as upset as we might think. The AOL Time Warner merger is going to focus attention away from Microsoft (Nasdaq: MSFT) as the evil empire and put a lot of pressure on the government to let the giants fight it out in the marketplace.

While the ultra-competitive Gates may not have been a happy camper today, he still has some very strong assets that will keep him in the battle for years to come. Expect to see the government cut a deal with Microsoft that lets everyone save face and get onto the bigger picture -- which is keeping pace with AOL Time Warner.

The Real Bottom Line

The real bottom line is that everyone will come out a winner from today's proposed merger because it is going to cause the entire industry to move faster toward a world in which the Internet is integrated with comparatively low cost broadband access into our homes and businesses. The resulting e-commerce explosion will reverberate throughout our economies for decades to come.

What do you think? Let's talk about it.