AOL, Time Warner Merger Finalized

Jan. 12, 2001 -- It's official. America Online and Time Warner are hitched, making this power couple the country’s largest media empire.

The two companies moved quickly to close the deal Thursday night once the federal regulators had given final approval. Before dawn, the company was hard at work changing the log on the Time Warner Web site, issuing new business cards and putting up new signs at both companies’ headquarters this morning.

The new business, AOL Time Warner, joins the nation’s largest online firm — with 26 million subscribers — to the nation’s biggest media and entertainment company, creating a multimedia colossus that owns such popular titles as CNN, HBO, Sports Illustrated and Warner Bros.

"We want to be a different kind of company, a partnership really, with government and nonprofit groups," Chief Executive of the new company Steve Case told ABCNEWS this morning. "We want to make it more affordable for consumers to get information, to see entertainment, to be informed about a variety of products, to be educated by a variety of different topics. We think it's a world of convergence."

However, the FCC’s approval came with three conditions designed to help regulate competition in some areas where consumer groups had expressed concern — high-speed Internet services delivered over cable, instant messaging and Time Warner’s ownership link with AT&T.

Consumer Groups Praise Conditions of Deal

In the year since the merger was announced, AOL and Time Warner have made various concessions to win approval from regulators in the United States and Europe as the companies' combined value dropped some 40 percent from $165 billion in a slowing stock market. For example, under pressure from European regulators, Time Warner abandoned plans to merge with the record label EMI.

But Gerald Levin, who was chief executive of Time Warner and is now the chairman of the new business, said the long wait has helped the companies prepare to merge.

“What I like about his past year is it’s given us the time for everyone to come together,” he said this morning on ABCNEWS' Good Morning America. “We’ve actually had a year of integration, of organization and now we’re going to hit the ground running.”

The deal received high praise from consumer groups, who had feared the merger wold hurt competition. Gene Kimmelman of Consumers Union says the government’s conditions “could actually expand consumer choices for high-speed Internet and interactive TV services.”

That is exactly what Levin and the new business’ chief executive, Steve Case, have been saying since Jan. 10 last year. Case pledges the company “will lead the convergence of the media, entertainment, communications and Internet industries,” to become an “Internet power.”

A New Synergy

With huge distribution systems and an arsenal of content, the companies have an opportunity to explore new tie-ins between their businesses — such as using AOL’s Internet service for Time Warner magazine subscriptions.

AOL’s foray into interactive television service also is expected to get a boost by drawing on Time Warner’s super-fast Web connections and its expansive library of content.

"It's also going to mean enhanced revenues so what we classically call synergies means something more," said Levin. "We're putting our budget into effect today. We're going to run a tighter ship and we're going to use the Internet distribution to really get to the consumer in a way that we couldn't have done separately."

Whether that means possible layoffs at the company is unclear. "It may mean some change in the number of positions we fill," said Levin.

Both Case and Levin said they see convergence of old media with new media as the future, albeit a more distant future than once thought.

“Now we’re going to bring these two worlds that have been kind of separate together in a very integrated way to create the kinds of services that otherwise wouldn’t have been possible,” said Case.

Advanced Instant Messaging Open to Competition

The FCC approved the deal after requiring the companies take modest steps to open AOL’s widespread instant messaging service to rival providers over Time Warner’s cable lines. One of the most notable requirements was in the area of instant messaging — a service that is free now but is seen as having strong economic potential.

However, none of the conditions take effect right away. They won't come into play until Internet services go beyond the text-based versions prevalent today. But as soon as AOL Time Warner introduces advanced instant message services, with features such as televised conferencing, sharing files or messaging over interactive television, the company will have to demonstrate it doesn't have a monopoly. It will have to prove there is an industrywide standard that allows different IM services to work with one another or enter into contracts for compatibility with competitive services.

Another instant message condition is based on the expectation that IM services will eventually be used for people to communicate with one another over a variety of devices — including computers, cell phones and other wireless gadgets — and track them down no matter which device they’re using. AOL Time Warner must make its “names and presence” database — the equivalent of a multimedia telephone directory — compatible with other companies’, said FCC Chairman William Kennard said.

AOL rivals Microsoft, ExciteAtHome and AT&T had sought a broader condition forcing AOL to open its existing messaging service — the short, real-time text messages millions of consumers now use — to all rivals.

Giving Everyone Access to Infrastructure

In an effort to ensure Internet service providers that aren’t affiliated with the AOL Time Warner have access to the company’s high-speed infrastructure, the FCC restricted the new company from forcing those ISPs to make their customers go through an AOL screen before looking at any other pages.

Under the deal, unaffiliated ISPs are also guaranteed an independent billing relationship with their customers, so they don’t have to bill their subscribers through AOL Time Warner. Unaffiliated ISPs are also promised the same technical performance as ISPs affiliated with AOL Time Warner, and the FCC has the authority to review contracts between AOL Time Warner and independents.

Finally, Kennard said, the FCC is reiterating its position that AT&T must dispose of its stake in Time Warner’s Time Warner Entertainment.

Concern with Interactive Television The FCC also said it would take a closer look at ways to ensure cable companies will not steer viewers away from competitors in the emerging market for interactive television. Interactive signals enable consumers to do things like look up information on a team while watching a sports game.

The commission said it will consider whether cable companies must treat interactive programming offered by their competitors in the same as they treat regular programming carried on their systems.

Time Warner owns the cable networks CNN, HBO, TNT, TBS and the Cartoon Network. Its publishing division, which includes titles such Time, People and Sports Illustrated, is the largest magazine company in the United States. And the company has music, motion pictures and other programming under its Warner Bros. and other labels.

Time Warner also operates the nation’s second-largest system of cable lines, after AT&T, with access to about 21 million homes.

The new entity will be based in New York and will have an operations center in Dulles, Va., the current headquarters for America Online.

The commission voted unanimously to approve the merger, but two commissioners dissented from attaching any conditions to the deal.

The Associated Press and The Street.com's George Mannes contributed to this report.