Midas Touches AOL

Remember a few years ago when the business fad du jour was asking yourself what business you were in? Well, someone at America Online Inc. must have taken it seriously because the company's acquisition of Time Warner last week was about just that.

While AOL is an Internet company in that almost 70 percent of its revenue comes from people who pay for the right to dial in to its network, AOL knows it isn't in the modem and trunk business. It is a media company that makes money by generating content that attracts paying subscribers, which in turn attracts advertisers. The Internet just happens to be the delivery vehicle.

But the Internet also happens to be King Midas. Five-billion-dollar AOL has a market cap of around US$142 billion, while the $28 billion Time Warner, the largest media and entertainment company in the world, only musters a market cap of $110 billion.

So Wall Street's fascination with Internet stocks enables a company with 22 million subscribers and a handful of other assets to swallow an entertainment behemoth whose magazine group alone has 120 million subscribers, to say nothing of the customers reached by its TV, cable television, music and movie units.

What does that mean for enterprise business users? There are a few broad implications:

Integrating Time Warner assets such as CNN into the AOL fold will make for a richer online experience, which will in turn attract more users to the Web, increasing your potential market reach and changing the types of services you can offer.

Together AOL and Time Warner will have the incentive to push multimedia advances, everything from the online delivery of music and movies to simply improving the multimedia experience for your average browser. This may up the bar in terms of what users expect online and force you to keep up.

Adding significant cable TV holdings to AOL changes the dynamics of the whole cable TV open access debate. AT&T has fought AOL and others who are calling for access to AT&T's huge cable holdings. But the acquisition of Time Warner may move the sides closer together because AOL will suddenly have its own cable plant to protect, and AT&T might want to strike a deal to get access to those cable TV facilities.

If nothing else, this deal is emblematic of the maturing of the Internet as a mainstream business medium, which means more money will be devoted to making it more reliable, secure and robust.

-- John Dix

jdix@nww.com

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