Mergers are no threat to competition

Posted: Monday, January 24, 2000

The recent megamerger between America Online and Time Warner seems to have terrified half the country. Some are intimidated by the sheer size of the combination. Others fear that the new company will have monopoly-like power. Still others worry that AOL's Internet focus will compromise Time Warner's journalistic integrity.

All these frightened people should just put their feet up and chill. After all, no one had ever heard of AOL 10 or 12 years ago. This shows that consumers and journalists are not the ones who should worry. AOL Time Warner is the party at real risk. The pace of technological change is so fast that some company formed yesterday may eclipse it in even less time.

Just as important, there is more media competition every day. AOL itself represents a new form of media and is just one of the powerful new entrants. For example, Internet companies About.com and AskJeeves were both founded in the last two years and are already key media players. The days when the public received most of its information from a few print publications and TV networks are over.

Still, cries of alarm are drowning out such reassurances. First, there is the anxiety surrounding mergers themselves. There are too many. Maybe, the fearful assert, a small handful of stateless megacorporations will end up ruling the world. AOL Time Warner, AT&T, General Electric and the like are just too big.

These fears ignore the most powerful business trend in the world. Namely, American entrepreneurialism. The pace of business start-ups today is almost incomprehensible. The speed at which some of these are becoming big businesses is similarly unprecedented. New and major corporations are sprouting far faster than others are being absorbed into mergers. This means more competition, not less.

In terms of stock-market valuation, five of today's 10 largest corporations were bit players only 10 years ago. But now, Microsoft, Cisco Systems, AOL and Yahoo are at the top of the list, right beside General Electric and Ford. Are any of these new powerhouses assured of continued business success? Will they all be on the same most-valuable-company list in 2010? Not a chance.

The best confirmation is AOL itself. It is less than 20 years old. Yet, in that short time, AOL has achieved a market valuation twice the size of the now venerable Time Warner. Indeed, AOL's even younger Internet rival, Yahoo, currently has a considerably higher valuation than Disney.

Second, there are worries over the prospect of AOL Time Warner controlling too much media. From print to cable TV to the Internet - just too much under one roof. Either the company will flex its muscles and charge too much for it, or there will be only one editorial viewpoint across all these outlets. Either way, consumers lose.

This anxiety ignores the relentless proliferation of media sources and the fierce competition among them. The public actually has more choices for information and entertainment than ever. Let's take business and financial information. Yes, the merged company will own Fortune magazine and CNNfn. These are successful outlets with millions of readers and viewers. But more and more consumers are receiving business news from new sources.

Even 10 years ago, there were no television channels dedicated exclusively to business. Today, there are CNBC, Bloomberg and CNNfn, to name three. Even more recent are business and financial Web sites, whose audience is skyrocketing. Yahoo Finance, CBS MarketWatch and The Street.com are all the rage. The ability of one media company, such as AOL Time Warner, to control business and financial information diminishes every day.

What about CNN and other television news outlets? In 1980, the major news networks had more than twice the share of television viewers that they retain today. In the interim, more than 75 million U.S. homes acquired access to cable television. There are now at least five all-news networks available to every one of them.

More recently, we have seen the Internet begin to crowd out all television. My 16-year-old daughter, who loved TV just two years ago, has virtually stopped watching it. Internet chat rooms now dominate her spare time. Network television is on the defensive. NBC and ABC could merge tomorrow, and the combined company would control too few viewers to constitute a threat to the public interest. Neither will AOL Time Warner.

Also, technology is the consumer's best friend. This evolving media giant faces severe competition from new technologies. Its Warner Music business, one of the world's largest, is gravely threatened by the downloading of music to consumers over the Internet. Its Warner Home Video unit, also a leader, may be made obsolete by the imminent availability of movies on demand at home. Indeed, AOL's own backbone, the monthly fees paid by its 20 million subscribers, may be weakened by strong competitors offering free Internet access.

The third set of anxieties - the journalistic ones - are also misplaced. The public is now receiving information and opinion from more outlets than ever. AOL Time Warner may own Time, Fortune and CNN, but the influence of each is waning. Even if these three took the same editorial view on all major issues, overall public impact would be negligible.

In reality, AOL's acquisition of Time Warner is a sign of America's great entrepreneurial dynamism. A young company, whose business is new media, surpasses the icon of old media and then buys it. For a sequel, maybe a new company, called, say, Hooray, formed last night in some California garage, will eclipse AOL Time Warner within three or four years. Is this a great country, or what?

Robert Altman, an investment banker, served as deputy secretary of the U.S. Treasury in the first Clinton administration.



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