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The ghost of AOL will haunt the Time Warner-AT&T deal

The 2000 merger with AOL made Time Warner CEO Jeff Bewkes nauseated, so what’s different now?

Jerry Levin and Steve Case AOL Time Warner
Time Warner’s then-CEO Jerry Levin and AOL’s Steve Case seal the deal in 2000.
Chris Hondros/Newsmakers/Getty

In the end, I guess you could finally say Steve Case was right.

Case led AOL to great power in the 1990s, and he then presided over what has become known as one of the worst mergers of all time, when he combined his high-flying internet giant with Time Warner, back at the turn of the century.

It was a truly epic move, all predicated on the very big idea that distribution and content had to marry in the digital age and that whoever did that successfully would rule the next era of media and more.

It was also an epic failure, brought down by a toxic combination of timing and execution.

Which is to say that the body of Time Warner — made up of the mandarins of media whose power was waning, although they did not know it at the time — rejected the deal almost immediately and made sure it would never succeed, even as the fast-and-loose slicksters of AOL did everything possible to seem as lightweight as they still were at the time.

You could write books on what went wrong — and I did — which raises the question of what Time Warner now thinks will go right in the deal it just struck with telecom giant AT&T to be taken out for $85 billion.

As expected, the media has gone wild, dragged along breathlessly as they are for any holy-god deal, nearly forgetting that some of its current principals were the very same people who had been the biggest critics of the match-up of Time Warner and AOL.

On Monday, those very same execs will be the ones telling the world that this time it’s different, that this time is the right time, that this time the union of a phone company and the maker of “Game of Thrones” is just what this era of convergence requires.

Convergence — yes, that word. It was in the very first line of the deal press release, describing a “new company with complementary strengths to lead the next wave of innovation in converging media and communications industry.”

But I will never never forget the mock retching sounds that both Time Warner CEO Jeff Bewkes and HBO head Richard Plepler made when I uttered it in an interview with them, way back when AOL was being foisted on them with the very same written-by-a-banker premise.

Jeff Bewkes and Steve Case
Time Warner’s Jeff Bewkes and AOL’s Steve Case at the premiere of “The Sopranos” in 2002.
Evan Agostini / ImageDirect / Getty

At the time, the pair were lesser beings at Time Warner — Bewkes ran HBO and Plepler ran PR for HBO. Unlike most other Time Warner execs who said nothing publicly about the merger with AOL, both Bewkes and Plepler were adamantly and vocally opposed to it.

In interview after interview I did with them — especially as the combination started turning south, which it did pretty quickly — the pair could not be any more in lockstep about how the digital distribution skills of AOL would do nothing for Time Warner.

It’s not that the two did not understand what was coming — they could see the internet marching into the heart of their business and decimating everything in its path. But they were adamant that the creation of great content would always prevail, that it was still king and that the questionable stock valuation of AOL was a fake that had allowed it to sully the pristine beauty of Time Warner.

This week, I dug up many old quotes from Bewkes I had gotten at the time in which he talked about all this and more — most of Plepler’s thoughts on the AOL invaders were too expletive-laden to use then and now — and one really struck a chord.

“The question is, are people really going to watch what we make on a computer screen or not,” said Bewkes. “I think an awful lot rides on whether that happens or not.”

Well, it happened and more, although I don't fault Bewkes at all for not seeing any of it. Back in 2000, Google was not much of a search company, Amazon pretty much only sold books, Facebook founder Mark Zuckerberg was in high school and the Apple iPod would not come out for a year.

And the most critical event, the introduction of the iPhone in 2007, which kicked off the mobile future that ultimately gets us to AT&T + Time Warner, was not even a thought in the head of Steve Jobs.

Yes, mobile, mobile, mobile, which is why you get this quote out of Bewkes today:

“Combining with AT&T dramatically accelerates our ability to deliver our great brands and premium content to consumers on a multiplatform basis and to capitalize on the tremendous opportunities created by the growing demand for video content.”

It’s one of those digital bromides that would have made Bewkes of yore vomit, of course. Which is why back then, he and others rejected a number of ideas that perhaps would have made things different had they been pushed through at the time.

Among them: Not integrating AOL’s access business with its cable access efforts, called RoadRunner; not pushing the boundaries of digital advertising, such as putting movie ads from Warner Bros. films on AOL and other digital properties; not experimenting aggressively in streaming online, both in video and music, due to vexing copyright issues.

And, crucially, indulging in the urge to discount everything the AOL-ers pushed.

To my mind, that attitude is really what scotched that AOL-Time Warner deal: The wholesale scoffing at these questionable messengers — to be clear, some of them were pretty questionable — without listening to the message itself. Which was that change was coming, so you better get busy moving fast and breaking things.

I am guessing this kind of doubt will seep again in this merger, as the penny drops with the media types at Time Warner that they are now working for a phone company.

As everyone sorts out whether AT&T can really help Time Warner move into the already-here digital future and truly add to its offerings, one of the biggest dangers of a deal such as this is that those at Time Warner see it as a final defeat in a war that began a long time ago.

But resistance to digital was futile back then, as it is now. Which is why I pinged Steve Case for his thoughts on this deal this weekend, which might be the ultimate irony for the longtime entrepreneur.

And here’s what he wrote, in its entirety:

While back in 2000, some didn’t believe in the internet and/or didn’t believe in convergence, of course those concepts now seem obvious. So it’s not surprising to me that we are again seeing attempts to marry communications and content. I just hope the merged company will have the kind of culture that will enable it to drive synergies and create value.

As I explained in ‘The Third Wave’, and as we discussed on your podcast, the idea of the AOL/Time Warner merger made sense, both strategically and, at least for AOL, financially. What was flawed was the execution. But, as Thomas Edison said more than a century ago, vision without execution is hallucination. And execution is all about the right people focused on the right priorities, working together in the right way.

Maybe I should send a copy of my book to the boards and senior teams at both companies?

Maybe, Steve. Maybe. That is, if anyone reads books these days — but that’s another story.

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