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Albuquerque Journal

 

The Death of Old Media

January 11, 2000

By Peter W. Huber

America Online’s acquisition of Time Warner marks the beginning of the end of the old mass media, and the end of all serious debate about the triumph of the new.

What is this $164 billion enigma called AOL, anyway? Digital post office? Private club? Bulletin board? Newspaper? Music distributor? Radio broadcaster? Wannabe television network? It’s all of the above, or, if you prefer, none of them. AOL is, at its core, an architecture: a set of digital protocols, rules, and structures, some of them proprietary, some of them Internet-based, embedded in software, running on servers, and linked up to networks. Amazon.com has done it to the bookstore, and hopes to do it to the rest of retailing. Ebay is doing it to the auction house and the yard sale. AOL is doing it to a broad swath of messaging, chatter, publishing and broadcasting.

And Time Warner? The parts that really matter to this merger represent a grab bag of old, analog content--companies like CNN, Time magazine, Warner Bros. studio, Warner Music Group, the HBO cable channel, Warner Books, and the WB television network. All of them perfectly good businesses, well-managed and generally profitable. But still, very old wine. Time magazine published its first issue in 1923. Many of Time Warner’s other properties can trace their origins back to the 1930s or the 1960s. AOL is the new bottle. It was founded (under a different name) in 1985.

For the next decade at least, the new digital bottlers will be in complete control. They will attract the money, define the architectures, and dictate the timetables. The old media vintners will sell out to them, one by one. However the next five copycat deals are superficially structured--and count on it, the next five are going to come thick and fast--they’ll all be aimed at shoehorning old media into new. Observe that Stephen Case will be chairman of AOL Time Warner. The New York Stock Exchange symbol will be AOL.

We’ve lived through superficially similar transitions before, but none as fundamental as this one. The telegraph was eventually overtaken by the telephone, then newspapers by radio, then radio by broadcast television, then television by cable. But what’s happening now is far bigger, because it transcends pretty much everything that came before in Gutenberg’s, Marconi’s, and Bell’s old galaxies. Digital architectures, like the one AOL has developed so successfully, are plastic enough to cut across all the old media. And to slash costs and vastly expand quality and choice when they do.

Time Warner Chairman and CEO Gerald Levin has grasped what many casual observers, especially older and wealthier ones, just can’t yet believe: For the old media, now, it’s go digital or die.

If they’ve bothered to log on at all, the skeptics know exactly what’s wrong with AOL: On an ordinary dial-up modem, the performance is still rotten. There are far better ways to chat, read a newspaper, or listen to a radio broadcast. Web-based video is still laughably inadequate. As a digital jack-of-all trades, AOL remains the master of none. But however badly it delivers, it delivers a lot: everything from e-mail to jerky video broadcasts, very cheaply, to anybody with a desktop and a line. And all digitally packaged, which makes content flexible and interactive, in ways that none of the old media can ever begin to match. Some 25 million subscribers, teenagers prominent among them, won’t leave home without it.

The quality remains bad because the networks remain slow. But they’re going to be fast, and soon enough. Well over one million homes already use cable modems, and another 200,000 subscribe to the main alternative, phone-line DSL. Bandwidth penetration will double and redouble every three to six months, from here on out. High-speed connections are already ubiquitous in the business world. And with high-speed lines at hand, the digital platform that AOL defines will, in time, obliterate any messaging and publishing competitor that depends on paper, VHS tape, or the analog protocols that define today’s radio, television, and cable.

After some amount of the usual hand-wringing, antitrust regulators and the FCC will approve the deal. AOL is in the content business itself, but overwhelmingly as a distributor, not a producer. Time Warner is a distributor too, and owns part of Road Runner, a small broadband portal that arguably competes directly with AOL. But the merging companies will throw these overlaps overboard without regret. Once the regulatory chatter dies down, the authorities will accept this merger for what it mainly is, a way to move old content into the new medium.

Messrs. Case and Levin may help take that clear, by spinning off Time Warner’s cable properties. Those systems currently serve approximately13 million cable subscribers, and make for a nice little business, but they’re a distraction. AOL Time Warner’s huge promise isn’t in distribution, it’s in the new confluence of messaging and content. The merged company doesn’t want a lock on 13 million cable customers, it wants a strong shot at 100 million U.S. residences, and another billion or so around the globe.

While Time Warner may have to jettison its cable properties, AT&T is doggedly buying--first TCI, then most recently MediaOne. In a declaration that should horrify AT&T, AOL and Time Warner have already announced their commitment “to ensuring consumer choice” of Internet service providers and content, and their “hope this merger will persuade all companies operating broadband platforms to provide consumers with real choice.” AT&T has much different incentives: It has been putting most of its money into high-speed local connections, not content, and it desperately wants some kind of lock on local wires and its old core business, long-distance voice.

Other old-media companies must be equally alarmed. They have to scramble to forge comparable deals, if there are any to be had, with the second- and third-tier portal players, the likes of Yahoo, MSN, and Excite At Home. Being second or third may not be worth much in the long term, however. A dominant portal like AOL can expand and absorb new content and service on the Web in much the same way as Microsoft has expanded and absorbed things into Windows. Indeed, AOL has been far more aggressive than Microsoft in adding new proprietary content, interfaces, and software drivers to its service. And networks can lock in their customers even more securely than stand-alone computers can, because whole communities find it much harder to defect than individuals do.

By all logic, this should also be the beginning of the end of the Microsoft trials, though government being what it is, there’s no assurance that it will be. Netscape, the browser company said to have been Microsoft’s main victim, was acquired by AOL last year. AOL Time Warner will now operate a platform on the Web at least as commanding as Microsoft’s platform on the desktop. Through its far-reaching “AOL Anywhere” campaign, AOL is moving swiftly to make its service available through a broad range of hardware beyond personal computers, and through many other operating systems beyond Windows. The long-wire connections to AOL’s servers will soon be as fast as the short-wire connections that currently link keyboard, mouse, and monitor to the PC. Thereafter, it will be at least as convenient to run most applications on distant servers as it is to run them on desktop hardware.

The analog stragglers will hang around for another decade or so, but they’re history. The AOL-Time Warner merger will go through, pretty much as scripted, and the legions will mass for the next great battle. It will pit desktop against server and portal against portal. Stay tuned--no, make that, stay wired. The next analog-to-digital megamerger, perhaps ever larger than this one, will be announced within 60 days.

Original Source: http://www.manhattan-institute.org/html/_wsj-the_death_of_old_media.htm

 

 
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