IQ News: AOL-Time Warner Deal Hastens Convergence

Last week’s blockbuster announcement of the proposed $165 billion megamerger between America Online and Time Warner suddenly created the first of a new breed of traditional media and Internet hybrids.
While the whirlwind courtship irked some investors who fear Time Warner will drag down AOL’s high-flying stock, many ad industry execs see the deal as a win-win for both companies as well as advertisers.
“The merger with Time Warner potentially could create a whole host of new channels for our clients,” said Tom Kiernan, vice president and managing director at San Francisco-based Organic Media.
AOL and Time Warner agree. “Tremendous synergies are possible,” said Myer Berlow, president of interactive marketing at Dulles, Va.-based America Online. “It gives us content brands of a high quality and allows the brands to be ubiquitous.”
AOL Time Warner’s combination of vast content offerings and broad distribution channels also could be a boon to brand advertisers, content creators and technology providers.

Broadband for the masses
Perhaps the most talked-about outcome of the merger is AOL’s acquisition of Time Warner’s cable system, which has 13 million subscribers nationwide. Add AOL’s base of more than 20 million users across its stable of brands and the distant specter of broadband for the masses suddenly seems much closer.
Indeed, the merger bodes well for the many technology companies that have been quietly ramping up their efforts for a wide rollout of high-speed Internet access.
“When [Time Warner CEO] Gerald Levin talked about broadband at the news conference, I thought, ‘Finally!’ ” said Joanna Shields, CEO of San Francisco-based Veon, a broadband technology provider that last week announced a distribution deal with AOL. “The message for developers was to get busy because now you have distribution.”
Veon’s broadband media player plug-in already is being distributed through Redwood City, Calif.-based Excite@Home, but Shields said the AOL-TW deal crystallized the importance of broadband to the mass market.
“There has been a tremendous pent-up demand for broadband,” said Scott Harmolin, CEO at Centerseat, a New York-based broadband production company that will launch its
entertainment megasite next month. But infrastructure providers were waiting for a catalyst to get the market moving, he said, adding, “I think [the merger] is that catalyst.”

a plus for ADVERTISERS
For such big-name brand advertisers as General Motors and Procter & Gamble, AOL Time Warner will be able to offer both targeted advertising opportunities and broad reach across multiple properties. It now can also bring the many advantages of online marketing–including customization and interactivity–into the mainstream and dominate audience share.
“It really opens up the possibilities,” said AOL’s Berlow. “I think it will mean [advertisers] can, in a more seamless way, execute a strategy of both ubiquity and interactivity.”
While the potential integration of ad packages is great, Berlow said it’s still too soon to speculate on whether AOL Time Warner will sell across its portfolio of product offerings, as AOL has done with its roster of brands.
On the agency side, at least, the promise of cross-media ad buys appears closer. “The integration might not happen overnight,” said Organic’s Kiernan, “but over time it seems like a given.”

Content will be king–again
Over the past year, e-commerce has overshadowed content development as the Internet’s killer app. However, with the marriage of AOL and Time Warner, once-and-future-king content looks likely to reclaim the throne.
“People are going to be focused on companies that have content and companies that have unique or interesting ways of presenting content,” said Centerseat’s Harmolin. The key to success, he added, is finding the most effective way of monetizing those content offerings, especially in a broadband environment.
“The integration of commerce and content is something, certainly, that both companies are interested in,” Harmolin said. “What this [deal] says is that the market for content is going to heat up and the value of good content will get higher. Broadband looks like it’s going to happen faster than some have argued.”
For Veon’s Shields, the convergence of old and new media will only improve the user experience–and help developers. “Being able to create a new, superior experience that’s immersive and encourages commerce will change everything,” she said.

Final analysis
While the media has paid much attention to the rise of broadband as a result of the merger, Berlow for one believes that focus is narrow and shortsighted. “There’s a tendency to latch on to technology infrastructure, because you feel like, ‘I can see that,’ ” he said. “But it’s more than that–that’s just the wires, and the wires are not that important. It’s the consumer that’s important.”