BUSINESSWEEK ONLINE : JANUARY 24, 2000 ISSUE
COVER STORY So Who's Next? ''They're all looking at each other'' Hunched over their Cobb salads, the power lunchers at Spago and Le Cirque are also feasting on takeover rumors. What Net-media alliance will be next? ''They're all looking at each other, saying 'What about you?''' says former Universal Chairman Frank J. Biondi. Dealmakers were suddenly abuzz with tales of what Michael or Sumner are thinking. Deals that seemed improbable weeks ago are now hot rumors. Among the players that the power crowd has been discussing: MICROSOFT (MSFT): UPSIDE Microsoft hopes AOL's alignment with Time Warner pushes other entertainment and news organizations into its arms--either as partners or customers for its ''enabling'' technology for Web-site operators. It has even gone so far as to spin off content properties such as Expedia to avoid clashing with potential customers. DOWNSIDE The greatest threat to Microsoft is the heightened competition for its MSN and WebTV Internet services. AOL now has a rich array of content and a cable-delivery system the software giant can't match. With only about 3 million Net access subscribers for MSN and WebTV combined, Microsoft lags far behind AOL's 22 million customers. And so far, it has forged close relationships only with smaller Web content players like WebMD, a health-care site. PROGNOSIS Microsoft swears it isn't seeking a major merger or exclusive partnership, but analysts envision all sorts of couplings. ''Could AT&T, Disney, and Microsoft get together in a huge keiretsu? It's very intriguing,'' says Michael Kwatinetz, an analyst at Credit Suisse First Boston. By Steve Hamm in New York AT&T (T): UPSIDE When it completes the acquisition of MediaOne Group, AT&T will become the largest cable operator in the U.S., with connections to more than 25% of the country's cable customers. The birth of AOL Time Warner could encourage other content companies to seek access to this system, which is being upgraded to carry data at broadband speeds. DOWNSIDE On the Internet, AT&T holds a weak hand. Its WorldNet Internet service is only a fraction of the size of AOL. Meanwhile, Time Warner has pledged ''open access'' for its high-speed cable-modem service--putting pressure on AT&T to do the same and stop favoring Excite@Home, of which it is a partial owner. AT&T'S biggest hole now: no content. PROGNOSIS The AOL-Time Warner deal means AT&T and other carriers must take another look at alliances and deals in the media world. ''Most traditional telecom companies have shied away from content,'' says Yankee Group Research telecom analyst Brian Adamik. ''The content-distribution model is very powerful. It will cause telecom companies to wonder if owning a pipe alone is enough.'' By Steve Rosenbush in New York YAHOO! (YHOO): UPSIDE Yahoo! is sitting in the e-catbird seat. The largest portal on the Web, Yahoo (YHOO) attracts 120 million unique visitors a month worldwide; 65% of U.S. Web users visit the site. And as one of the few profitable Web media outlets, Yahoo boasts a $94 billion-plus market cap that gives it tremendous buying power. Yahoo says that it has no plans to buy content companies--though some speculate it could make a play for Disney (DIS)--but, ''We have strong relationships with a pretty broad range of content providers. We're going to continue on that path,'' says Chairman Tim Koogle. DOWNSIDE Yahoo has little guaranteed distribution to make sure its site remains widely available. If broadband operators refuse to open their networks to all content providers, Yahoo might be left out in the cold. And since it doesn't offer Net access services, Yahoo's hold on users is more tenuous than AOL's. PROGNOSIS Since Yahoo continues to rapidly increase its registered users, it seems likely to remain one of the Web's leaders. But if media players continue to consolidate, Yahoo may be forced to make some dramatic acquisitions. By Rob Hof in San Mateo DISNEY (DIS): UPSIDE AOL is coming around to agree with what CEO Michael D. Eisner has long believed: Content is king. He says that Walt Disney Co.'s brands and its ability to churn out world-class content are its strongest bets in the New Media world. It owns a winning collection of household names including Disney, ESPN, and ABC. And it has decades of experience at cross-selling--leveraging its worldwide theme parks, cable-TV holdings, and a TV network to promote its films. DOWNSIDE Disney identified the Web as a new opportunity early, but properties such as the Go portal could be dwarfed by the combination of AOL and Time Warner Inc. And it has been unable to conjure up a broadband strategy. PROGNOSIS With its stock on the floor due to problems at its company stores and home-video units, the company could face a takeover. One possible suitor: AT&T. ''One of the first things I thought about after hearing about the AOL-Time Warner deal was that Disney is next,'' says Lee Masters, president of Liberty Digital, John C. Malone's Internet acquisition vehicle. By Ronald Grover in Los Angeles VIACOM (VIA.B): UPSIDE The AOL-Time Warner deal bolsters Viacom Chairman Sumner M. Redstone's view that content and brands matter on the Internet. And he owns plenty of both, from the Paramount studio to cable networks MTV and Nickelodeon. When his $80 billion merger with CBS closes, the company will add the most popular broadcast TV network and the No. 1 radio network in the U.S. DOWNSIDE Viacom and CBS have both been building up online businesses lately, but they were slow off the mark and still have to figure out how to integrate the online businesses of the two parents. Moreover, Viacom's lucrative cable music channels MTV and VH-1 face heavy online competition from AOL Time Warner, which will have a big presence in digital downloading and online music sales. PROGNOSIS With CBS dealmaker Mel Karmazin as Viacom's CEO for the next three years, little can be ruled out. If he thinks the best move for Viacom stock is to partner with or be acquired by an Internet company, Karmazin will make it happen. Says Redstone: ''If there's a deal out there, we'll look at it, but we're going to look at it very carefully.'' By Richard Siklos in New York NEWS CORP. (NWS): UPSIDE News Corp., owner of the Old Media icon Fox film studios, has impressive worldwide distribution assets with satellites in Asia, Europe, and Latin America and the Fox TV network in the U.S. The Fox brand has been extended to sports, news, and children's networks on cable. The company also owns newspapers in Britain, Australia, and the U.S. and book publisher HarperCollins. It has spent lavishly to acquire top-notch sports teams to provide programming for its broadcast and cable outlets. DOWNSIDE Bruised relationships with cable operators slowed efforts to place cable channels on U.S. systems. Not yet a presence on the Net, it has earmarked $300 million for New Media investments. It has few assets in the music industry. PROGNOSIS The family-run empire isn't likely to cede control in any deal. More likely are content-sharing joint ventures with Net companies. ''We're comfortable with our position,'' says James Murdoch, Rupert's son and an executive vice-president of News Corp. ''But clearly the whole sector will start to undergo a lot of activity as people start to get worried.'' By Ron Grover in Los Angeles _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					RELATED ITEMS Welcome to the 21st Century COVER IMAGE: Men of the Century: Bob Pittman and Steve Case TABLE: How the Giant Fits Together Running the Numbers on the Deal TABLE: One Stab at Valuing the Stock Commentary: Is This Baby Built for Cyberspace? A Little Help from the Feds So Who's Next? ONLINE ORIGINAL: Loving AOL--Before Time Warner ONLINE ORIGINAL: AOL-Time Warner Creates "negative Synergy" INTERACT E-Mail to Business Week Online

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