2002 is going to be the year of the second-half media recovery, so they say.

Of course, not so long ago, those same people were saying the same thing about 2001.

Well, at least a few things seem certain for the coming year. One, though once the Internet seemed to upend the power structure of the media business, the once-powerful will stay that way. Big companies will get bigger, smaller media operations will continue to struggle, and the online music business, among others, will remain squarely in the hands of major labels, not the Napsterites.

Two, after a few years of hearing "content is king" rattling around in our brains, we'll be hearing more about distribution as the power behind the throne -- the cable systems, TV networks and satellite operators that are entertainment gatekeepers.

AOL Time Warner


wants to make full use of its broadband pipes to the home.

Vivendi Universal

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wants access to TV screens in the U.S. And Rupert Murdoch, though he lost his bid for DirecTV, still hankers for a way to beam his programming directly to the American household.

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Here are some of the biggest stories worth following this year:

1. America Online

Someday, of course, companies will want to advertise again. The question for AOL Time Warner, among other media companies, is whether that day will fall in 2002.

Since it was first announced two years ago, the merger of America Online and Time Warner has gone from being a story of great expectations to one of diminished hopes. Plot AOL Time Warner shares since the deal was announced in January 2000, and you get a 56% loss, compared with a 20% loss for the

S&P 500


Since New Year's 2001, the stock story hasn't been as bad. At the Monday afternoon price of $32.22, off the 52-week-high of $58, AOL Time Warner was down 7.4% for the year, compared with a 12.4% loss for the S&P.

Yet operationally, the company has still been a disappointment. Despite management rearrangements, employee layoffs, and much talk and action devoted to getting different elements of the conglomerate to move in a coherent direction, AOL Time Warner had a tough year in the advertising business just like everyone else. Despite loud and repeated announcements that its size and structure served as a sort or force field against advertising losses, the company failed to meet long-targeted goals for earnings before interest, taxes, depreciation and amortization, a common media industry bottom-line yardstick.

Now, in addition to waiting for the bounceback, AOL Time Warner faces several more nagging questions, including: What effect, if any, will CEO and visionary mergerite Jerry Levin's departure have on the company's operation? Will the company be able to prop up its sagging music business? What boost will AOL Time Warner get from the forthcoming episodes in the

Harry Potter


Lord of the Rings

series? How successful will the company's efforts to market America Online service over its Time Warner cable systems be?

2. The Bird and the Wire

Earth-moving changes in the balance of power are slated for the cable and satellite business in 2002. But the ultimate effect of these tectonic shifts remains obscured by the horizon.

At 2001's close, two of the nation's three biggest operators of cable systems,


TST Recommends

(T) - Get Report

AT&T Broadband and



, announced plans to merge in a deal that would leave AOL Time Warner, the closest competitor sizewise, in the dust. Built on two already formidable forces in the cable TV industry, AT&T Comcast would have an unprecedented ability to drive down programming costs and determine the fate of new television channels.

Although AT&T Comcast apparently faces few meaningful hurdles on the way to its creation, the same can't be said for the proposed merger of

EchoStar Communications

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Hughes Electronics


, which has already encountered vocal opposition coming out of Congress.

At year's end, the two satellite players were saying that they couldn't remain a meaningful competitor to cable TV operators -- which often operate free of terrestrial competition in their service areas -- without merging, especially given the requirements they face forcing them to carry broadcast stations in local markets they'd prefer not to.

Meanwhile, skeptics of the merger's fairness point out that in areas with no cable service, the deal would turn a two-player game into a monopolist -- the very thing EchoStar and Hughes say they'll be stronger competitors for in urban areas.

While other programmers and providers try to anticipate the impact of these two deals -- which likely won't close until the end of 2002 -- other questions loom for the multichannel TV industry: Will



-- the family-controlled New York-area cable operator and programmer, a company that only days ago

announced a round of layoffs -- live up to the perennial rumors surrounding the company and sell out? Industrywide, will revenues from digital video, Internet data and now-burgeoning video-on-demand make a dent in the billions of dollars worth of capital expenditures that cablers have done over the past few years?

3. The Thriller in the Diller

Yes, he's married to a glamorous fashion icon, but Barry Diller has spent the past few years as master of a relatively cheesy domain: CEO of pro-wrestling-tinged

USA Networks

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, operator of the Home Shopping Network and USA Network.

Now, with the deal to merge entertainment assets of USA with Vivendi's Universal Studios Group, Diller finds himself back on top in Hollywood as chairman and CEO of the new Vivendi Universal Entertainment. But he still hasn't given up the idea of blending media with commerce, planning to remain as chairman and CEO of the surviving USA Networks, which is to be renamed USA Interactive.

Thus, the Universal media empire goes from being the object of desire of a man dismissed as a star-struck outsider (Edgar Bronfman Jr.), to a French outsider (Vivendi Universal honcho Jean-Marie Messier), to the prototypical Hollywood insider. That's Diller, a man who started out in one of those jobs that's such a cliche you'd want to dismiss it as fictional: the mailroom at the William Morris talent agency.

The low-key (at the press conference, at least) Diller says he's not going to shake things up at Universal, but certainly something will happen now that the movie-focused Universal and the TV-focused USA Networks reunite following an earlier deal that split them up.