Media Deal Has Lost Some Shine

Friday, January 12th 2001, 12:00 am

By: News On 6

NEW YORK (AP) â€” Executives from the newly combined AOL Time Warner Inc. went right into champagne-popping mode Friday, ringing the opening bell at the New York Stock Exchange, beaming before TV cameras and unveiling a new sign installed overnight at their corporate headquarters.

But there's no escaping the fact that the merger that closed on Jan. 11, 2001 faces a different world than the one that was announced on Jan. 10, 2000.

As executives waited that year and one day for federal approval, a stock slump shrank the value of the deal from $165 billion to $106 billion. Slower ad growth is now threatening several core businesses, and expectations have been scaled back for how quickly new services such as interactive TV will be introduced.

Nonetheless, industry experts remain convinced that the driving premise behind the merger â€” combining the Internet with traditional media â€” is still a sound business idea. And in an era where clout counts, a behemoth the size of AOL Time Warner is best positioned to take a leading role in bringing the worlds of old and new media together.

Consumers are likely to see the first effects of the merger as the company brings more of Time Warner's large array of media properties online. AOL's sports sites can draw on articles and pictures from Sports Illustrated; AOL's music sites will have access to the Warner Bros. music library; and news sites can draw on stories from Time magazine and CNN.

But Christopher Dixon, media analyst at UBS Warburg, said the real challenge for AOL Time Warner lies in creating entirely new ways of packaging and delivering media online that will entice both consumers and the advertisers who want to reach them.

The company's goal will be to ``develop new businesses that we can only begin to think about,'' such as delivery systems for music, video and TV programming over high-speed wires, Dixon said.

``If they can come up with a new way to deliver music in a very convenient method, it will be like introducing Windows and Lotus 1-2-3 to a world that only knew DOS and VisiCalc,'' he said.

The company has been promising to develop exactly those kinds of services, but so far no specific plans have been announced. Jerry Levin, CEO of AOL Time Warner, said in an interview that one of the projects being developed was a kind of video subscription service where viewers could pick out programs â€” such as HBO shows ``The Sorpranos'' and ``Sex and the City'' â€” to view when they want.

Once in place, that kind of delivery model could be applied to other forms of media such as music, movies and print. The idea is to exploit AOL Time Warner's relationships with millions of customers who use subscription-based services such as AOL, magazines and cable TV.

``This is a company that will be subscription-based,'' Levin said. ``If you can enhance the acquisition of those subscribers, you can upsell (premium) services, sell access to those subscribers to people called advertisers and deliver content to them.''

Yet even while it looks to the media of the future, AOL Time Warner has some hard business realities to deal with now. CNN, whose ratings have been sinking, is expected to announce hundreds of layoffs; the struggling WCW wrestling unit was sold off this week; and last month Time Warner said that poor box office and music sales would drag down its yearly results.

A profit warning in mid-December caught investors by surprise, and they punished the company's stock. While the shares have since recovered, the new management team is going to have to work hard to convince investors that it can still deliver big profit gains.

Jessica Reif Cohen, an influential media analyst at Merrill Lynch, warned investors in a note this week that the company faced a ``sluggish'' fourth quarter due to slowdowns in its movie and music businesses and slower advertising. She also said that because of the sudden profit warning, ``confidence in the combined management team has been damaged.''

The company has not yet offered the investment community a detailed view of how it expects to achieve all the cost savings and revenue gains as a result of the merger, but it expects to do so at its first Wall Street presentation as a combined company at the end of this month.

Until then, many analysts are willing to give the new team time. ``Given what they're planning to do, I'm willing to listen,'' Dixon said.