AOL-TW Benefits Few - America Online merged with Time Warner to gain access to high-speed cable systems - Company Business and Marketing - Column

No deal for consumers

Five years from now the AOL-TW merger will be seen as one of the last great vestiges of the Old World, a gasp by the lumbering dinosaurs of the pre-digital age that helped to widen the gap between the information haves and have-nots.

But let's step back for a moment. Determining the real drivers of the biggest corporate merger in history reveals much about where we're headed.

Why did Steve Case buy Gerald Levin's company? One reason could be content. But that's a lame excuse because other than The Sopranos there's really nothing truly compelling in TW's bag that will get consumers to flock to AOL's service. Add to that a trend towards low-cost or even free Internet access and all that content becomes worthless. Besides, most of that stuff is already available on the Internet for free.

Another reason for the deal involves the egos of the people driving it. The name Time Warner is prestigious, it's respected, it's synonymous with entertainment. It's sexy. People who work in the Internet industry on the other hand are viewed as nerds, geeks, dweebs and propeller heads. So it gives people like Steve Case a boost in the self-esteem department. This in itself could justify the high price tag that Case is willing to pay. But it's not the real reason.

On the other side of the table, Gerald Levin gets to give the impression that his company is a nimble, new media establishment and not the lumbering bureaucracy that it is. From that point of view, the deal was an easy way out of a risky "cutting edge" business decision.

The real reason for this deal as everyone knows is because AOL needed access to high-speed cable systems, which AT&T, Paul Allen and even Bill Gates have all endorsed as the best information delivery mechanism. Without this deal, Case would have been left out in the cold, drained of subscribers who flowed to free Internet providers, an enemy of the cable industry because of his forced access rhetoric. His best bet would have been to hitch a ride with the Bells along with an endless array of other content providers and aggregators.

In essence, AOL-TW is good only for AOL (and for the lawyers, politicians and investment bankers who get their palms greased along the way), not for your average consumer. It enables the AOL brand to be on the high ground in the future.

In the next two years when every household in America is hopping on the narrowband info-highway for free, the Internet will be crowded, aggravating and impersonal. But the good stuff -- the fast, clean and quick Internet that's being dubbed "broadband" today -- will cost a premium. The clueless people who overpay for AOL's shoddy service today will willingly overpay for AOL's shoddy broadband service in the future. And the digital divide will grow.

Hopefully, the Internet is still the domain of geeks, dweebs and propeller heads and not executives like Steve Case. Some sweaty-palmed 14-year-old will probably figure out how to make all this new technology work for the benefit of everybody. Then we can leave the dinosaurs behind.

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