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Why did deal of the decade fail?

2009-12-10 07:21:54

As AOL prepares for the next decade free of Time Warner, the BBC's technology

correspondent Rory Cellan-Jones looks back on the merger that was meant to

change the world.

Was there ever a deal like the one which saw AOL merge with Time Warner in

January 2000?

It took place during the biggest bubble the stock market had ever experienced,

and it marked the final triumph of the internet over the old media.

Or so it seemed at the time.

AOL was the best-known name on the internet - who'd heard of Google then? -

while Time Warner controlled a sprawling empire of magazines, music, movie and

television businesses.

Together they would form, in the words of their press release: "The world's

first fully integrated media and communications company for the internet

century."

And while it was billed as a merger of equals, Steve Case of AOL - in a tie for

once - was evidently the senior partner as he embraced Time Warner's chairman,

a tieless Gerald Levin, before crowds of excited reporters.

Those journalists were in no doubt - this was not just a huge business story,

it marked a sea-change in the way the world worked.

A glance at the story on the BBC's website gives a flavour of the mood. One

reporter is quoted as saying "it will reinvent television and the possibilities

are endless".

Another proclaimed that "putting these two companies together means huge gains

for both", and a third, one Rory Cellan-Jones, said: "Shockwaves from the

merger are already being felt around the business world."

Even that venerable BBC voice Alistair Cooke pondered the meaning of the merger

in his Letter from America, mocking the jargon used to describe the deal's

importance and wondering whether it really meant "The death of the old media",

as the newspapers seemed to think.

Dotcom revolution

A decade on, it's hard to recapture the febrile atmosphere of those times.

Quite suddenly, young internet companies run by twenty-something entrepreneurs

were apparently worth billions, despite having little or no revenue.

Anyone with any ambition was leaving their job in a bank, an accountancy firm

or a newspaper to be part of the dotcom revolution.

And amateur investors sat for days in front of their computers trading in the

shares of the dotcoms and urging everyone else to "fill your boots".

Martha Lane Fox was just a couple of months away from floating her tiny travel

and tickets internet start-up lastminute.com at an outlandish price when the

news came from across the Atlantic.

"I was busy stuffing tickets into envelopes," she recalls."Time Warner/AOL

seemed a big deal - proof the world was irrevocably changed."

Not quite right, she now concedes.

In April that year, I travelled to AOL's headquarters in Virginia to interview

Steve Case for Newsnight.

The sprawling campus seemed rather staid and corporate for the funkiest company

on the internet, and Mr Case's answers to my questions were all pretty bland -

but there was little doubt that I was in the presence of the man in charge of

changing the world.

But from Virginia I flew on to Silicon Valley, and as I arrived all those day

traders were looking at screens turning red.

On April 14th, the Nasdaq index of hi-tech shares fell by 10%, leaving it 35%

down from its peak a few weeks earlier in March.

The bubble was bursting and over the next couple of years a lot of those young

hopefuls who'd abandoned steady jobs or bet their house on the dotcom dream

would have a rude awakening.

Pipes and poetry

The wheels did not fall off the AOL/Time Warner deal for quite a while.

But gradually the tensions in the marriage between old and new media began to

tell.

Neither company was quite what it seemed - AOL may have built a huge audience

of internet users, but they were to prove fickle as the years went by.

Time Warner had a great stable of old media brands but they were struggling to

adapt to the online world - and a fading AOL was not the best route into

digital homes.

The idea of bringing together the people who supplied the internet with the

owners of compelling content - the pipes and the poetry as the phrase went -

seemed compelling in January 2000.

But the companies that grew and prospered over the decade turned out to have a

single-minded focus on the web as a means of communication, knowledge gathering

and socialising.

The brash young internet players found that it was more important to build a

great platform which everyone would enjoy using than to own the content that

would be distributed over it.

It was meant to be the decade of AOL - instead, the noughties have seen the

triumph of a company which has grown hugely powerful without getting into bed

with old media.

"This merger will launch the next internet revolution," said Steve Case at that

press conference in 2000.

But it turned out to be Google, not AOL, which changed the world.