Media, Net Worlds Won't Be Same After AOL-Time Warner Deal

Talk turns to which media and Internet companies might be next.
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Who cares if the century is only 10 days old? This is its deal.

America Online's

(AOL)

$180 billion proposed acquisition of

Time Warner

(TWX)

, announced Monday, is rife with implications for the fast-changing media and Internet industries. The deal, which heralds the start of a long-promised convergence of the media, entertainment and Internet sectors, left analysts and investors wondering when the next big deal will be, and speculating on participants in a cross-industry consolidation.

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"This will prompt companies on both sides of the chasm to reconsider their marriage availability," says Dan O'Brien, new-media analyst with

Forrester Research

in Cambridge, Mass. Among the first companies to come into focus:

Disney

(DIS) - Get Report

. Disney declined to comment on merger speculation.

Pot Boiler

Referring to the lukewarm receptions that awaited recent Internet inroads by Disney and

GE

(GE) - Get Report

, Alexander Cheung, manager of the

(MFITX)

Monument Internet fund, says: "If you look at

go.com

(GO) - Get Report

and

NBCi

(NBCI)

, they were good efforts, but they were really half-hearted. This is like, let's get married, let's do it.

"What that means in the interim is that the Internet may not be well-built out globally, but everyone in the world that has exposure to TV will see AOL," says Cheung, whose fund counts America Online as one of its top 10 holdings. "That's going to put some pressure on companies like

MediaOne

(UMG)

and the others like

Excite@Home

(ATHM) - Get Report

. And it probably will make a good entry point for AOL to talk to other independent operators."

Which means that AOL, already one of the biggest landowners of Internet real estate, is now poised only to get bigger. As others try to grow to keep up, it has to either develop units internally or take the more ready-made route of looking for merger partners.

Wonderful World

For his part, O'Brien says this deal puts Disney in the cross hairs of acquisition speculation.

"They've been having some trouble moving their presence onto the Internet," O'Brien says. "They're a likely acquisition candidate, maybe by someone like

Yahoo!

(YHOO)

." Yahoo! didn't immediately return calls seeking comment.

Yahoo!, O'Brien says, is the second company whose fate comes to mind in the wake of today's merger. Other partners that might be a good fit for it might include

Microsoft

(MSFT) - Get Report

, he says. Microsoft declined to comment.

Moving Day

"The big guys are moving," says Pam Craig, global managing partner for media and entertainment for

Andersen Consulting

. "They were asleep at the switch and let all these start-ups get going, but now they're not asleep, and they're a real force to be reckoned with."

For fledgling start-ups that have thrived in a bull market, the merger is a blow. "It'll be harder to have the great new Internet idea and make it," Craig says. "As this space starts to consolidate and big media companies really take this seriously and have share locked up, it'll be harder and harder to start a new AOL."

As perceptions like that started to spread, Net companies gloated. "Time Warner's a classic example of a company that totally missed the boat on the Internet," said Alan Meckler, CEO of

internet.com

(INTM)

. Pathfinder, Time Warner's previous Internet initiative, "is probably one of the greatest blunders in the history of the Internet.

Time Warner had all the great brands, and instead of trying to create a new brand they could have been the site for money, sports, everything."

Sea Change

As for what the next big deal will be, Meckler says, "This is just the beginning of a huge change in valuations. You're going to see companies like

McGraw-Hill

(MHP)

-- big print media companies -- buy top content brands that have models that can make money. Huge international publishing companies like

Dow Jones

(DJ)

,

New York Times

(NYT) - Get Report

-- they've dillydallied, made little investments here and there, but now you'll see them going out like they did 30 years ago where all of these companies had big groups that would go out and look for print properties to buy. Now they're going to put together swat teams and go out and buy content companies."

With the ready-made broadband solution that Time Warner's Road Runner cable modem service gives AOL, service providers will be the what-ifs in the merger equation in the months to come.

AOL will use Time Warner's content "to extract more dollars from every subscriber

it has by putting more information in front of them," says Ken Smith, co-portfolio manager of the

Munder

(MNNAX) - Get Report

NetNet and

(MTFAX)

Future Technology funds. Together his funds are invested in America Online,

MindSpring

(MSPG)

,

EarthLink

(ELNK)

,

Concentric

(CNCX)

and

Nextlink Communications

(NXLK)

.

Here's Why

Shares of MindSpring and its merger partner EarthLink are climbing Monday, says Smith, because of heightened speculation that the new EarthLink won't stay single long after its deal closes. But Smith says the combinations of Time Warner's broadband cable networks with AOL, and of Concentric's DSL systems with wireless provider Nextlink (also disclosed this morning), both pose incremental threats to other ISPs.

"On the margin, it's a little negative for MindSpring and EarthLink," Smith says. "Anybody who has a dialup model needs to start planning how to move that to broadband."

Another unsolved problem is whether AOL, which has vehemently urged

AT&T

(T) - Get Report

to open its cable network to rival providers of Internet access, will play equally fair with its new Time Warner cable infrastructure.

"My best guess is we'll end up with open access," Smith says. "If the participants don't do it, the FCC will force it."

Staff reporters

Beth Kwon and

Kevin Petrie contributed to this dispatch.