Headliner Deals 2000

Folio: The Magazine for Magazine Management, Jan, 2001 by Susan Thea Posnock

THE TRANSACTIONS THAT MOST TRANSFORMED THE INDUSTRY CONTINUED TO BE DRIVEN BY CONVERGENCE, AS MEDIA COMPANIES LOOKED TO BUY ASSETS THAT SUPPLY TOTAL MARKET COVERAGE.

BACK IN 1999, PUNDITS PREDICTED THAT 2000 would be the year when dot-com companies would go on a traditional-media-company buying spree. And that's the way the year opened: America Online bought the Time Warner media empire. But something funny happened on the way to dot-com domination--the bottom fell out of the Internet market. By the end of the year, power had shifted to traditional publishing companies and Primedia walked away with the number-six Internet site in the country, About.com.

"You could look at those two deals as being bookends for the year," says Grant Draper, director, The Jordan Edmiston Group. "AOL acquiring the hard media assets at the beginning of the year, and now at the end of the year we have the hard asset magazine publisher acquiring the Internet company. To me, that says a lot about where the year has gone in terms of the value of traditional media assets."

Overall, the year's biggest trend was continued convergence. But also notable was the increasingly important role of financial players, continued consolidation, and the move toward globalization.

Dollar-wise, 2000 was a blockbuster year. There were fewer deals through the third quarter than in the same period in 1999, but the dollar value was significantly higher. According to Whitestone Communications, there were 29 consumer magazine deals totaling about $165 billion, compared to 37 totaling $1.8 billion for the same time period in 1999. Trade magazine activity also slowed down in terms of the number of acquisitions, but again showed an increase in value with 48 deals totaling an estimated $5.2 billion, versus 76 deals totaling about $1.9 billion in 1999.

1. TIME WARNER

BUYER: AMERICA ONLINE INC.

MERGER'S ESTIMATED VALUE: $165 BILLION

SELLER: TIME WARNER

DATE: JANUARY

It wasn't far into 2000 before America Online and Time Warner Inc. announced the biggest, splashiest media deal of the new millennium. The merger of the two companies grabbed global headlines and spurred debate over the creation of a media superpower that would dominate distribution channels from the Internet to cable to movies to magazines. The transaction--valued at around $165 billion--was still awaiting regulatory approval at year-end.

This deal has come to represent the convergence of old and new media, which in a way is a statement about the astonishing resilience of AOL: Just four years ago, conventional wisdom was that the company could not survive as a proprietary online service in the Internet age. "It's clearly the ultimate marriage of the Internet and traditional print properties," says Wilma H. Jordan, CEO of The Jordan Edmiston Group Inc.

The merger creates a $30 billion media company and gives AOL the brick-and-mortar presence it needs to move forward in the new economy. Time Warner, for its part, coming off its disastrous experience with Pathfinder, adds the single most powerful combination of online content and access to its array of media businesses. When complete, AOL shareholders will own approximately 55 percent of the new company, while Time Warner's shareholders will own approximately 45 percent.

The deal shook up traditional media companies, which couldn't believe an online company could buy a powerhouse like Time Warner.

Time Inc. CEO Don Logan says fears that the deal creates an untouchable media dynasty are unfounded, especially as it relates to publishing. "There are still thousands of magazines out there, so we have only a tiny fraction of the total amount published," he says. Rather than squashing competitors in the wake of Time Inc.'s growth--not only through the AOL merger, but also through the acquisition of Times Mirror Magazines--Logan says the industry benefits from the development dollars the company is investing in the future. "We believe that it's important to have a strong magazine industry and are very supportive of doing everything we can to keep the industry strong. We don't believe it makes sense to have a single dominant player. We want strong competitors," he says.

The publishing industry will profit from advancements the company may now be able to achieve, Logan insists. For instance, in preliminary online marketing tests with AOL, Time Inc. magazines gained 500,000 new subscriptions--many of them with continuous--service status-over five months. "The combination with AOL will allow us to develop new sources of subscriptions, which means it really becomes new sources of subscriptions for all magazines."

AOL Time Warner may also lead the way in media bundling, Logan says. "We've talked about how we can combine our resources for certain target accounts to create opportunities for marketers that want to buy online, print and television at the same time," he says. "If we find ways of packaging our Internet and Web activities with advertisers in profitable ways, then the industry benefits."