Issue #203, February 1, 2000  

Will The AOL-Time Warner Deal Sink Microsoft?

By Stephen Lawton

      How will the AOL-Time Warner deal du jour affect Microsoft? Will it be the beginning of the end? Is this a threat to the world as we know it? Does anyone really care? This is a deal that really rocks and rolls. 
        Will the America Online (AOL)-Time Warner deal be the beginning of the end for Microsoft? That question was posed to me by one of our contributing editors shortly after the "merger of equals."
          We concluded that the deal had nothing to do with technology, but it could have interesting side effects.
          If AOL-Time Warner wanted to turn the operating system business on its ear, it could partner with a Linux software developer to create consumer-class applications. Imagine not only getting your e-mail, movies, news and sports through a cable-modem-enabled AOL link, but running Linux-based apps from AOL, your application service provider. Who needs Microsoft when you have a Netscape-based browser (do you really think AOL will keep Explorer as its default browser if it's going after Microsoft?), Linux applications and Linux thin clients? This scenario should make Microsoft reconsider the competitive landscape.
          IBM is putting its weight behind Linux, and what makes Microsoft think other big systems vendors won't follow? This deal du jour is expected to be the catalyst for several other megadeals, none of which are likely to be good news to Bill Gates. During the antitrust trial, Gates liked to say Microsoft won't be No. 1 forever, and his firm is indeed facing challenges. In this column I've called on the industry to stand up to Microsoft, and this is the second time AOL has. I expect we'll see more challengers soon.
          The AOL-Time Warner deal marks the first time the Net has been validated as an entertainment medium.
          For the first time you'll have a company develop the book, make the movie, distribute it by cable, create an Internet community for it and review it in the popular press. Have I forgotten anything? Sure, most of that was in place before, but adding AOL's 20 million customers creates an awesome audience for building a community. It's a vertical monopoly. (Ouch, there's that "M" word again.)
          But despite all of the rhetoric about synergy, business opportunities and the merging of new and old media, a deeper, more sinister reason underlies the merger. Forget that Steve Case, AOL's chairman and CEO, initiated the discussions in October 1999. It doesn't matter that Gerald Levin, Time Warner's chairman and CEO, will maintain day-to-day control of one of the world's largest entertainment enterprises. And forget that media mogul Ted Turner made a cool $3 billion with the stroke of his own pen.
          In reality, Time Warner needed a fall guy to take over one of the company's biggest PR headaches ever. The real reason for the merger - which pleases Turner and wife Jane Fonda to no end - is that now someone else is responsible for working out the Atlanta Braves' John Rocker problem, and Ted and Jane don't have to worry that one of them will get stuck with Rocker if they decide to split permanently.
          For a complete list of Time Warner's holdings, go to the Columbia Journalism Review's Web site at

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