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Dinosaur Tales: The AOL-Time-Warner Merger

by Glen Emerson Morris

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The merger of AOL and Time-Warner raises some very interesting issues for the advertising and media industries. Though content providers and the media have long depended on advertisers as their primary source of funding, both consider advertisers to be a necessary evil they'd happily do without, if possible. Unfortunately for advertisers, this merger could provide a way for some of them to do just that.

The problem is that since AOL's revenue stream is based on subscription fees, and not advertising revenue, AOL will be strongly inclined to distribute the Time-Warner content library to its Internet subscribers the same way; on a subscription fee basis, and free of commercials. For instance, the entire Warner Brothers film and music libraries could be made available exclusively to AOL subscribers as part of their basic service.

This kind of approach by AOL-Time-Warner would substantially reduce the content available for advertisers to sponsor, and drive up the cost of sponsoring what content was available. It would also reduce the total number of consumers watching advertiser sponsored entertainment at any given time, driving network ratings down even further.

It's not certain AOL-Time-Warner will adopt such a disruptive policy, but it seems certain that it could if it wanted to. It may even be likely that it will, given the reasons for the merger.

The dominant partner in the merger, AOL, started life as a BBS company, and early on developed an identity as both a content and connectivity provider. Recently, as it faced increasing competition as an Internet service provider, AOL realized that it had to have additional content to justify its subscription fees, and saw just what it needed it in the vast Time-Warner content library.

Meanwhile, Time-Warner, wanting to market its content directly to consumers, decided it needed a partner with a developed Internet infrastructure. AOL's established subscription base of over 20 million subscribers made it seem like a good choice.

On paper, the combined strength of the AOL-Time-Warner adds up to a very formidable player in the media industry, but not necessarily an unbeatable one.

On a close look, the details of the AOL-Time-Warner merger raise a few interesting questions. How can a company as big as this giant make and implement decisions fast enough to keep up with today's constantly changing, technology driven, super-hot economy? And if AOL's chief contribution to Time-Warner is a content distribution channel, how valuable will this be in the future when Internet connectivity is available through phone companies as part of basic service? Mass communication is becoming commodity priced. It's only a matter of time before AOL's role of connectivity provider becomes greatly diminished, or disappears completely.

Given these aspects of the merger, it's not surprising that Wall Street chose to be cautious about the merger, remembering that the offspring of two dinosaurs is usually just another dinosaur. Still, it's possible that AOL-Time-Warner will have enough clout to make the deal work, or at least enough clout to cause significant problems for advertisers.

Fortunately, the same communications revolution that set off the AOL-Time-Warner merger is also offering advertisers a way to bypass the media, and to an extent, bypass traditional content providers, too. Under the circumstances, this is an option advertisers may need to consider.

It will soon be possible for advertisers to bypass TV stations and offer real-time video streaming presentations of movies on their Websites. Advertisers would simply pay royalties to the films copyright owners directly, based on the number of viewers. This kind of content distribution would allow the advertiser to custom tailor the commercials to the individual viewer, based on the consumer previous interactions with the company. (This strategy would work especially well in a market with strict privacy laws, like Europe, where advertisers can't buy much information about consumers, but are allowed to collect it directly from consumers, for instance, through product registration forms and questionnaires.)

The specific commercials viewed by consumers on a company Website could be determined on the basis of information from the company's customer service and owner registration databases. The owner of a five year old Lincoln Town Car might be targeted with a commercial for a new version of that car, stressing mechanical improvements in areas the consumer is known to have had problems with. For instance, if the customer had experienced carburetor problems, the ads could stress the new and improved carburetor the latest model car came equipped with.

It would have seemed like science fiction a few years ago, but now it's only a matter of time before the bandwidth is in place to allow every advertiser the option of running their own virtual TV channel on the Internet. Interestingly, the AOL-Time-Warner merger may help spur the development of this kind of technology, even if it is initially used to distribute advertising free content.

It is ironic that the Internet, which is based on a de-centralized architecture, is responsible for the current merger mentality which is creating an ever larger centralization of power, as in the case AOL-Time-Warner. It is also ironic, that at the same time, the Internet is spurring the development of technologies likely to make those centalizations of power impossible to sustain.

The strategy of the new AOL-Time-Warner entity isn't clear yet, but it is reasonable to assume that no one represented the interests of advertisers during the merger talks that created it, and that no one will represent advertisers in its subsequent decisions. What is very clear, is that it will be up to advertisers to look out for themselves in the brave, new, world of the future.

Copyright 1994 - 2010 by Glen Emerson Morris All Rights Reserved

' keywords: Internet advertising, Internet marketing, business, advertising, Internet, marketing. For more advertising and marketing help, news, resources and information visit our Home Page.

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