• PC World
• » Tech Industry

The merger of new-media leader America Online and content goliath Time Warner creates a single hybrid entity that will offer consumers a smorgasbord of twenty-first century communication: high-speed Net access, software, set-top box support, and, of course, a wealth of material.

"This is the classic one plus one equals three," says AOL President and Chief Operating Officer Bob Pittman. "We are each the missing piece for the other's puzzle."

One big puzzle piece is AOL's new ability to offer subscribers high-speed Net access via Time Warner's high-speed Internet access network, now marketed as Road Runner. Others include the accelerated rollout of AOL's TV set-top boxes; its AOL Plus, the rich-media content offering designed for AOL's broadband members; and other programs like telephone services.

"This merger will launch the next Internet revolution," declares Steve Case, AOL chair and chief executive officer, who will serve as chair of the new company, AOL Time Warner. Gerald Levin, Time Warner chair and CEO, will be CEO of the new entity.

Analysts at Zona Research concur, calling the pairing "the harbinger of a new kind of company" that is more than an Internet service provider or e-commerce venture, more than a traditional media conglomerate, and more than a typical retailer, offering unprecedented breadth and depth.

The stock swap deal, valued at $166 billion, would be the biggest corporate merger ever. It is still subject to shareholder and regulatory approval, but analysts do not anticipate any major regulatory hurdles.

What's in It for You?

Monday's deal is meant to please Wall Street rather than Main Street, some analysts argue.

"This is about diversifying AOL and Time Warner," says Barry Parr, analyst with International Data Corporation. "I don't see how the consumer benefits directly."

It's wrong to assume a bigger company will equal lower prices, says Brett Azuma, vice president and worldwide director for the Gartner Group.

"It's a good [deal] in terms of providing better, high-quality content," Azuma says. However, other ISPs could lower pricing for competitive reasons, he notes. "The pressure will definitely be on," Azuma adds.

At least some consumer groups are already voicing concern that AOL Time Warner would be too large and too powerful.

"Consumers do not want to be beholden to a giant media-Internet dictatorship, even if it promises to be a benevolent one," declare the Consumers Union, Consumer Federation of America, Media Access Project, and Center for Media Education in a prepared joint statement. The statement asserts media consolidation leaves "consumers with fewer choices, limited competition, and higher prices."

Analysts agree on one point: Monday's deal raises the stakes in the consolidation scramble in the Internet and media industries, and will likely trigger more such pairings.