Lessons From J.P. Morgan

The merger of America Online Inc. and Time Warner Inc. is obviously big - and good - news for the Internet Economy, let alone for the tens of thousands of employees and investors in it. Net veterans may have been annoyed by the patronizing "Today, you are a man" tone coming from press analysts after the announcement. Still, it is a moment of arrival for the Internet that we will remember years from now.

For American media and American democracy, the news is obviously less good. The merger only increases the momentum toward a media ecology in which a handful of gigantic omnicorporations struggle for dominance in presenting comprehensive packages of music, books, movies, television shows and Web sites - and, oh yes, news. We already have the Disney-ABC family, the General Electric-NBC family (with its new, kissing-cousin ties to the Washington Post-Newsweek family, and to Microsoft with MSNBC), the News Corp.-Fox Television-Fox studios family, the Viacom-CBS family, the Sony-Columbia Pictures family and Bertelsmann with its extensive holdings in book publishing. In addition, all of them are now dwarfed by this new arrival.

Strikingly, the two top-quality news operations in the country are the two left standing (comparatively) naked and alone: the New York Times and the Wall Street Journal, each of which has relatively minor chain holdings. The question they'll now have to answer is whether there remains a high-end niche market for the kind of journalism they produce. The answer so far has been yes, especially for the New York Times, which has fattened while following the Journal's strategy of building a truly national, elite readership.

The merger also intensifies the idea that all types of "media" are essentially the same - movies, docudramas, network news broadcasts. They are all part of the great "infotainment" spectrum and are judged mainly on whether they can draw a crowd. Indeed, at the press conference announcing the deal, Gerald Levin and Steve Case explicitly celebrated the convergence of virtually all media types in their new company. The bane of the news business - if it's considered by the quaint standards of "journalism," which tells people things they need to know about the world, rather than staying on strictly commercial grounds - is the pressure on print and broadcast outlets to tart themselves up with celebrity profiles, entertainment news and general infotainment baubles so as to compete with outright entertainment shows. The nightly news, fearful of losing viewers to Hard Copy, becomes Hard Copy Lite.

To be fair, what happened last week was a less dramatic step in infotainment's momentum than the one Time Inc. took in 1989, when it first merged with Warner Bros. and the rest of Warner Communications. Also, to be fair, Time magazine has remained the strongest of the newsmagazines since that merger, and it's not likely that an empire as far-flung as this new one could exercise any kind of centralized content control. To be fairest of all, the AOL-Time Warner merger is more important in symbolizing the media trends that have been under way for years than in making them significantly worse.

But to look again on the bright side, the symbolic importance of the merger can hardly be overstated. As every "old-media" commentator pointed out the next day, when news first broke that Time Warner and America Online were getting together it was impossible not to assume that Time Warner was in control. In part, this came from a general failure of imagination about the size of the Internet Economy. It also reflected the specific image of dominance that Time has had in the print world. A few hours after the merger press conference, one magazine publisher told me of his memories of Steve Case coming to magazine-industry conventions a decade ago. Case would patiently work the halls like a salesman, trying to buttonhole editors and persuade them to put content on his fledgling site. A few editors listened; even the ones who did were condescending. The barons from Time were the ones - back then - most likely to brush past him without a glance, like American diplomats ignoring market vendors in Beirut. And now he is their boss.

By extension, AOL's victory is the Internet Economy's victory. (With one crucial caveat: Case's company has not just revenues but large profits, making it unrepresentative of Net firms as a whole.) I nominate this moment as having distinct symbolic importance for the Internet Economy. The AOL-Time Warner deal should be seen as the event in which the boom economy of the early 21st century came to resemble the boom economy of 100 years earlier.

As evidence and reference material here, I submit the life and works of J.P.

Morgan. His story is available in several attractive versions, which should be the starting points for conversations about what's next for the Internet. Jean Strouse's authoritative biography, Morgan, is about to appear in paperback. The House of Morgan by Ron Chernow, who also wrote last year's biography of John D.

Rockefeller, Titan, is still in print. For those long, slow commutes down Highway 101, Audible.com offers a recorded version of The Great Pierpont Morgan, by Frederick Lewis Allen, which was published 50 years ago but seems entirely fresh in language and insight. If you check any of them out, you'll see these suggestive resemblances, and more, between the age of J.P. Morgan and the age of Steve Case:

* A shift from technological innovation, to financial business-model innovation, as the root of wealth. This latest Net deal, like all the rest of the Internet Economy, could not have happened without the technological progress of the last two decades. And future progress - especially on broadband connections and wireless access - will make it all the more valuable. But in itself, AOL Time Warner is not a technology deal. It is marketing, positioning and strategic innovation designed to make old components more valuable when combined in new ways.

* It very strongly resembles the sources of real wealth a hundred years ago.

J.P. Morgan, like many of today's Net moguls, made no significant technological contribution in his time. Other people had just come up with a range of crucial inventions - the telegraph (the Net of its day), the telephone, electric power and electric appliances, modern methods of extending railroads and producing steel. Morgan made his money by organizing the markets, the alliances and the financing for the new industries that technology had made possible. He oversaw the combination of fragmented steel companies into U.S. Steel, of small electric firms into General Electric, of warring farm machine companies into International Harvester.

* The wealth came very suddenly and eventually proved disruptive. A hundred years ago, fortunes were coming out of nowhere. New schemes of financial legerdemain - especially, the "New Jersey Corporation" structure, which allowed one company to own the stock of another - drove stock values to heights that annual profits or asset values could not explain. (Is any of this sounding familiar?) The seeming windfall fortunes caused increasing political resentments while the stocks were rising and destabilized other businesses when many of them collapsed. From this instability came a generation's worth of pressure for government regulation and reform.

* The moguls eventually came to feel they had public and even cultural responsibilities. J.P. Morgan was the farthest thing from saintly or self-denying. His huge, beet-red nose was assumed to come from a sybaritic lifestyle (it was actually a skin disorder), and his stupendous yacht, the Corsair, makes Jim Clark's famous sailboat seem puny. But at several crucial moments he took large financial risks for what he considered to be the public interest. For example, when a speculative panic depleted the U.S. Treasury's gold supply in 1895, Morgan promised President Grover Cleveland that he would organize his allies to stop it - and did. Such gestures were easier when a handful of grandees ran the financial system. Still, Morgan was not embarrassed to say that he had an obligation to be of public service. He clearly cared about his cultural role.

In their times, J.P. Morgan, Andrew Carnegie and John D. Rockefeller were mainly known for their business achievements. But their names live now because they plowed their money into libraries, foundations and museums full of art.

The Internet Economy has no figure exactly like this yet, but as its deals announce the arrival of a second Gilded Age, it might reflect on the few positive lessons of the first one.

James Fallows (jimf@thestandard.com) most recent book is Breaking the News: How the Media Undermine American Democracy.

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