America Online's mission statement is clear, but not simple: "to build a global medium as central to people's lives as the telephone or television . . . and even more valuable."
Perhaps nothing illustrates better what the company means by "more valuable" than its pending acquisition of Time Warner, which will create an unprecedented communications and entertainment conglomerate that aims to control what millions of Americans see and hear by owning both content and the pipes that deliver it.
Meanwhile, AT&T is lumbering to transform itself into a different kind of giant under Chairman Michael Armstrong. The nation's largest telecommunications and cable provider is shunning the notion of trying to be both an entertainment and communications company. Instead, it aims to add value to its pipes through myriad partnerships with other companies, collecting fees along the way. Though representing different paradigms for a new generation of communications companies, the two emerging powerhouses have a single important goal in common. Firstly to boost the amount they collect from individual households from less than $100 per month from telephone, Internet and cable services to more than $200 per month as personalised television, music, shopping, videoconferencing and other services are folded in.
More fundamentally, the companies are deciding which third parties to allow onto their pipes. Those negotiations will set the rules for which companies can get onto the TVs, telephones and computers of America, through the enormous, high-speed networks that these two companies will control.
The business plans of hundreds of other companies that need these giants to reach their customers will be profoundly affected. With two companies controlling such vast amounts of access to American consumers, getting left out of their offerings will make it hard for newcomers to gain meaningful market share. Both AOL and AT&T are working to bring interactive offerings to varied platforms: cable TV, dial-up Internet, wireless devices, Digital Subscriber Line and new kinds of phone services based on the language of the Internet. Key to the success of partner companies will be the terms under which the giants allow them into their "walled gardens," or the area that users see first on their PC, TV or wireless device. By building the garden, the controlling company decides which entertainment, shopping and services will be offered.
"The question is, how high are the fences going to be in those walled gardens," Barry Diller, chairman and chief executive of USA Networks, said at the recent Western Show cable convention in Los Angeles. "For anybody in programming who is outside of them, it is getting increasingly difficult. Making a good program that comes and goes with no one knowing - that's the issue."
The term "walled garden" was coined by media mogul John Malone, who sold his cable empire, Tele-Communications, to AT&T, and now chairs affiliate Liberty Media Group. AT&T Broadband officials described the concept as akin to a magazine in which users can see different ads, order different products, play games and choose programs, all edited by AT&T. Under Malone's vision, the parent company "herds eyeballs," standing at a turnstile, sharing fees with its partners.
Customers of a TV-based walled garden, for example, will be able to venture into the vast world of the open Internet, but will likely have to work at it, as AOL's customers do now. They will be encouraged instead to stay within the offerings they are presented, through companies that have cut deals for eyeballs with AT&T. The giants' visions are likely to take much clearer shape in 2001. AOL's acquisition of Time Warner is expected to win federal approval around the end of the year, with AOL CEO Steve Case taking the helm. AT&T, meanwhile, is proceeding with a restructuring designed to bring greater freedom to its futuristic arms, AT&T Broadband and AT&T Wireless.
Like other giants in the emerging blend of communications, services and entertainment, AOL Time Warner and AT&T are competitors. But just as important, they are intertwined in a series of business dealings. "All these companies are connected with six degrees of separation," said Scott Cleland, CEO of research company Precursor Group. "The marketplace is much more incestuous than one might think." The future relationship of the two companies may become better defined this week when AT&T faces a deadline for telling federal regulators how it plans to divest certain properties to meet limits designed to keep any single cable company from growing too powerful. AT&T's choices include selling its 25 percent share in the Time Warner Entertainment partnership, which owns most of the Time Warner cable systems and networks such as Home Box Office. Its second choice is to divest its ownership in other cable systems. AT&T has already said it would move partially toward a third option: selling off programming interests. In October, the company announced plans to spin off Liberty Media, which holds stakes in programming and Internet companies.
