AOL-Time Warner merger: Convergence is the name of the game

BANGALORE: Granted that mergers and acquisition are the order of the day. But, it is the inter-business mergers which is taking the coporate watchers by surprise. The $166-billion acquisition of Time Warner by America On Line, the biggest ever corporate acquisition, is expected to drive a spate of mergers and acquisition across the world. What is pathbreaking in the development is there will no longer be any limits on the kinds of businesses that will merge.

The merger is a sure sign of the fact that Net companies, having conquered technology, now wants their share in the content. It was the telecom companies earlier, then came the Net technology companies and it is the turn of media companies to be acquired or merged with Net access companies. The hard truth is, the thirst (for various businesses) has only begun.

It is perhaps easy to understand what AOL and Time Warner stand to gain from the merger. AOL is the largest Internet Service Provider in the US and has a global subscriber base of over 20 million. AOL delivers more mail (through its e-mail service) than the postal department of the US. On the other hand, Time Warner has over 120 million combined subscribers for its magazines and cable services. It is the second largest cable TV operator in the US.

As AOL chief Steve Case points out, the merger is important from the point of view of what it can offer tomorrow and not what it is offering now. To start with, the merged company plans to enter the WebTV market. It will have massive advantage over others, as it has all the three important resources to do so: content, subscribers and technology.

All of a sudden, media companies the world over is sitting tight. In India, we are yet to see the media companies taking interest in the Internet business, though they have realised the potential of extending their content on to the Net. As the ISP business grows, and perhaps outgrows the media businesses, we will see similar mergers and acquisition. In fact, AOL, the acquirer, has lesser revenue than Time Warner. However, the market capitalisation of AOL is more than

the latter.

Suddenly, content has become so important in the whole business of Internet, be it music, films, television soaps or written articles and news. Come to think of it, acquiring Time Warner is only a forward integration for AOL. Late in 1998, AOL had bought the leading browser company Netscape, in one shot helping AOL gain access to the huge Internet market.

This is perhaps the first mega step towards convergence in the corporate world. The new company, AOL Time Warner, will accelerate the convergence of various devices to the Net and help AOL in launching its broadband network. As the technology releases more and more equipments and peripherals to converge, we will see more and more of such mega mergers. One should not be surprised, therefore, if a Net access company acquires a home appliance company, or a hand-held devices manufacuring company.