Is It Time For An AOL-Time Warner Sequel?

Pretty funny. You mean, the past two years' value destruction wasnt enough for us? The not so funny issue behind the headline is that the content vs distribution factors that have plagued music, film, journalism, tv and the internet are not going away. For all Facebook's efforts to hire savvy marketers and ramp up ads, revenue is still below scale. eBay and Amazon are facing off over internet sales. At some point, a strategic combination cum marriage of convenience, especially if it employs all that unused equity value at the big social network and software companies might just become impossible to ignore.

Dennis Berman explains why this is not just likely, but inevitable - and that it just might work this time.

"This isn't a joke. The buzz from California is that it just may be time to try another AOL-Time Warner.

That $164 billion merger disaster defined a decade of thoughtless deal making, reckless ego and vaporous "synergy."

But for Hollywood executives and bankers now toting their iPads like baby blankets, the new technology has brought them back to an old conversation about "content" and its distribution.

Just as cable-television upended the distribution of films and television, so too are increasingly mature digital platforms like 20 million-customer Netflix or even Google Inc.'s YouTube. As these platforms spar with cable-operators and media conglomerates for consumer attention, they are finding it increasingly necessary to differentiate themselves.

That means having better movies, better television series, better comedy clips, and even better news to compete against the likes of Comcast and Time Warner. That means traveling so far into the new realms that you end up back at the old: A strategy to marry the newest Internet distribution with the highest-quality old-line entertainment. Just weeks ago, Time Warner began renting its movies, including the "Harry Potter" series, over Facebook.

The old-line media companies are trying mightily to defend their turf, whether it is Comcast's purchase of NBC Universal, or the Hulu streaming video service, which was founded by old-media hands, including News Corp., which owns The Wall Street Journal.

But eventually, the theory goes, the new dogs will take the next big bite: A full-on deal in which an Internet player like Netflix or Amazon.com will acquire a news organization, studio or TV-production house. Imagine Google grabbing the New York Times, or Facebook buying its own entertainment arm.

Just as cable-television upended the distribution of films and television, so too are increasingly mature digital platforms like 20 million-customer Netflix or even Google Inc.'s YouTube. Above, a guest views the YouTube exhibit at the YouTube Play: A Biennial of Creative Video exhibit and event held at the Guggenheim Museum in New York, in October.
.Crazy? Listen to Google's chief financial offer, Patrick Pichette, talk about the performance of YouTube during last summer's World Cup soccer tournament. He's describing something that sounds a lot like … Time Warner.

"It's a huge kind of a first page, and it's aggregating audiences," he said, noting that Sony and Coca-Cola bought advertising to reach rapt World Cup fans. "This is the power of YouTube today. It's like a world-wide audience."

Netflix Chief Executive Reed Hastings said on a late January conference call that direct investments in studios or production were "quite unlikely," and that the company was better off "letting other people take creative risks."

That attitude seemed to change just a few weeks later, when Netflix announced March 17 that it was exclusively producing a 26-episode political-thriller called "House of Cards," estimated to cost tens of millions of dollars. More ambitions came into view late Friday, when Netflix announced a five-year, $100 million deal with storied studio Miramax to stream its 700-title library to subscribers.

One shudders to call any of this AOL-Time Warner 2.0. Keep in mind Netflix has a market cap of only $12 billion. Even after a decade of stock declines, Time Warner's is three times that.

But somehow, the old ways of thinking have been jostled by the inspiring rise of new technologies and new audience behavior. Maybe the hated memory of the AOL-Time Warner deal won't last forever, either. Mark Zuckerberg was just 15 years old when the deal was announced in January 2000.

"For AOL-Time Warner, the technology wasn't ready yet," says one of Hollywood's leading deal makers. "Now it is."

Netflix's path seems eerily similar to the upstart of its day, Home Box Office Inc. Founded in 1972, the pay-TV network soon was irritating movie studios and by 1983 producing its own movies, the first about the legendary one-legged Canadian runner Terry Fox. By 1989, its owner, Time Inc., was desperate to find its own movie studio. It eventually took the plunge, agreeing to a historic deal with Warner Communications Inc., which ushered in the age of the globe-striding media conglomerate that later came under assault.

"Creative people want to write books and do movies and make cable deals," said Time Vice Chairman Gerald Levin in March, 1989. "The talent of the future will be more comfortable working in a broader-based company that has all of those businesses."

Mr. Levin's AOL-Time Warner deal may have been one bridge too far. But until then, a magazine company had successfully morphed itself into a cable company and then morphed again into a global media concern. Someone is going to do it again