What's The Deal: Broadband Bugs Bunny

Usually, this column crunches numbers. This week I'm stuck on non-numeric questions about the AOL Time Warner Inc. deal. Since the announcement, there's been a lot of talk about "broadband content." But what exactly does that mean? And will the merged AOL Time Warner be a successful source of it?

Supposedly, Time Warner gives AOL a cornucopia of brand-name content to capture broadband Internet usage. Yet media coverage of the deal, while peppered with the words "broadband" and "content", doesn't define their intersection. The Wall Street Journal could muster only "full-blown multimedia extravaganza."

Television?

Okay. Call it "rich media," laden with animation, audio and some sort of video.

That's about as satisfying as describing a gourmet meal with only the words "sauteed," "roasted" and "flambed."

I'll get a T1 line's worth of communication from folks who claim to have the key to broadband content, or say that I'm just clueless about the whole thing.

The technology certainly is within mass-market range; and the novelty of speed is compelling, though not enduring. But still undiscovered is what new content will truly move the masses to the degree of old-fashioned TV.

Even today's less-is-more incarnation of "interactive TV" - sparingly used icons, simple choices and understated displays - hasn't yet proved it will be a barn burner.

Moreover, AOL and Time Warner don't need each other to stream video. Time Warner doesn't need AOL to embed "get more info" buttons into its cable programming. It already does. That leaves "broadband content." Seems like a natural for Time Warner's troves of traditional media. So did CD-ROM.

The arrival of CD-ROM in the early 1990s made major media lust for what was trumpeted as "cross media synergy." Time Warner was in the forefront of those who lost huge sums attempting to translate their "premier content" to multimedia. The intellectually perfect vision proved maddeningly elusive, beyond brisk sales of Bugs Bunny mugs at Warner Bros. studio shops.

The reality was the same as always: The biggest winners in new media are those born within it, not those who must reconfigure and reorient.

For example, the best-selling video games came from new companies like Electronic Arts. Creations such as Mortal Kombat were hits. Video games based on hit movies like Jurassic Park bombed. So did major media attempts at reverse synergy, like Disney's "Super Mario Brothers" movie.

The first hit children's programs on TV were the Kukla, Fran, & Ollie and Howdy Doody puppet shows. Puppets, of course, didn't work on radio. CNN and MTV came from cable, not the networks.

So it seems that creating new content for broadband should be a natural for AOL, and that trying to morph Time Warner's old media wouldn't help.

The problem for AOL - and indeed the entire Internet - is that seven years after the Web was born, the online medium hasn't come close to producing mass market fare with the encompassing allure of TV. It's not for want of trying.

AOL and Microsoft plowed hundreds of millions of dollars into efforts at online entertainment that failed. Even before that, AOL couldn't successfully meld Net access with CD-ROMs, which Steve Case touted as "training wheels for broadband" in 1994. Time Warner, meanwhile, has been widely blasted as having bumbled the Web.

Can two companies who haven't produced blockbuster online content on their own create killer "broadband content" together? Maybe. But beneath the vision they wrapped around the merger, there's at least a hint of a more basic motivation.

Until the announcement, AOL relentlessly touted comparison of its membership count with the size of the prime-time audience of CNN and other cable networks.

It also waved around surveys (widely disputed for their methodology) showing Net usage eating ravenously into TV viewing time. But listen to Steve Case after the merger announcement:

"We went from one million to 20 million subscribers in the last five years," Case says. "That's great, but a billion people watch CNN. We've gone from members spending an average of one hour a week to one hour a day on the service - but there are 23 other hours in a day ... [and] if we really want to have an impact, we have to paint on the broadest possible canvas."

That certainly sounds like concern about limits on AOL as a Net company.

Meanwhile, Time Warner, as a mature media-meister, faces reduced exposure to its content in a market of increasing choices. But mere combination under those circumstances mainly gains size, not growth. Enter "broadband content."

Robert Sarnoff, the inventor of color TV, hailed its promise to bring great art into the home. Yet RCA didn't merge with Sothebys or the Louvre. Perhaps AOL, together with Time Warner, is the 21st century equivalent of that. (Not to mention that the value of libraries of ever-aging TV series isn't as enduring as that of Rembrandts or Picassos).

What's for sure is that killer apps of "broadband content" are less likely to come out of AOL Time Warner than from a new generation of visionary risk-takers. Maybe that, instead of a $2.5 billion merger windfall, is why Ted Turner was smiling.

David Simons is managing director of Digital Video Investments, an institutional research firm. Write to him at simonsd@digvid.com.

At the time of publication, neither DVI nor any of its employees had securities positions in any of the companies mentioned herein. This column is solely for informational purposes. Under no circumstances is it to be construed as a recommendation to buy or sell securities. Neither DVI nor the author can provide investment advice to individuals.

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