I haven't been a fan of the AOL Time Warner (NYSE: AOL) merger for lo these many months now. Not only did I perceive many of Time Warner's existing assets to be redundant and therefore fat that needed to be trimmed, but I was also frustrated (from an AOL shareholder standpoint) to see my high-margin, high-growth company merge with a low-margin, debt-ridden, slow-growth conglomerate.
What has emerged? A confusing spread of assets -- many of which I don't think will still be owned by this company two to three years out -- some of which are profitable, some of which aren't, a lot of debt, a share price that is down more than 50% from AOL's former high, and a company that still must prove out the value of SYNERGY.
Yes, SYNERGY.
I capitalize the word because that's sometimes what I like to do with buzz words that are thrown around without, perhaps, enough regard for what they entail or mean. "Synergy," my dictionary still says (it said the same thing last year on the day of the merger), is "a mutually advantageous conjunction or compatibility of distinct business participants or elements." Mutually advantageous: perhaps an exciting prospect for a merger of the dominant online franchise with a huge offline media conglomerate. And yet this casual consumer hasn't yet found himself bowled over by any single telling example of AOL Time Warner SYNERGY, by how the world has notably changed as a result of this most-reported-upon of mergers.
I mean, have you noticed? Was this a big deal? Can you identify any single noteworthy result of AOL-TW "synergy" anytime during this year of 2001? If the answer to any of those questions is "yes," I suspect you're more attentive than the average American.
And yet, this being the end of summer, and summer forever being associated in my mind with the cinema, and this summer having been so generally BAD at luring me to the cinema, I need to point to two engaging reasons to keep your eyes on the cinema this fall while at the same time getting to watch AOL Time Warner try to strut its stuff. For I do foresee, just a few months ahead, a need for AOL Time Warner to begin demonstrating the genius of its business model.
To wit: the launch of what I believe will be back-to-back movie megablockbusters, Warner Bros.'s Harry Potter and the Sorceror's Stone (November 16) and New Line Cinema's Fellowship of the Ring (December 19). So, 'round about the end of this calendar year, we all should begin to get really good at assessing just how good or bad AOL Time Warner may be at�
SYNERGY.
Both of these stories, which began humbly as books before they each respectively became "properties" extendable into virtually any medium or merchandise category, are already so well-known and yet cinematically un(der)treated that each will burst onto the silver screen as something radically new and long awaited. Each cost over $100 million to make. Each seems to me a virtual shoo-in to rake in at least double that, probably within the first few weeks if not weekends.
And AOL Time Warner will be behind both. So now imagine... the toys and games, the stationery, the videotapes, the pay-per-view debut, the network debut, the DVDs, the picture books, the T-shirts, the boxers, the watches, the shoulder bags and rucksacks, the dolls, the key rings, the code rings, the bumper stickers, the 17,349 other collectibles I haven't mentioned, the, um...
Am I getting carried away? Well, a bit, since AOL-TW won't be manufacturing all of these things -- but they'll be licensing them. Even better, right? Sell intellectual property (a.k.a. air) without having to expend the money manufacturing, bay-bee!
And what about the AOL service? "Have I Got Mail" to buy tickets to these flicks online at a discount? (Through an AOL partner, of course, which has paid dearly for the opportunity to sell them.) Isn't it time Harry Potter began gracing the AOL main screen twice as much as the every-other-day stand-in Britney Spears? (Overrated Star of the Century -- already -- by the way, and still so young -- the century, that is.)
Oops... except I guess that would mean Harry would be on the AOL main screen every day? But isn't that the point?
You betcha.
Listen, I'm both a Harry Potter fan and a Tolkien aficionado (you'll note the dateline on that article was about a year ago, when I first began gearing up for Lord of the Rings to come to theaters). These things said, I do not think I'll be buying a Frodo Baggins toothbrush kit (but won't commit to that formally at this time). But I do think we could see AOL Time Warner go into Disneylike overdrive with the marketing of everything surrounding these "properties." With one further plus: AOL's online dominance. The result should be a fraggin' bonanza.
If AOL Time Warner is doing its job right this fall, YOU should be unable to escape the geeky gaze of Harry Potter, the burdened eyes of the beset Baggins. The ultimate tag-team duo. Online. Offline. Betweenline. New Line. Old line. Cosine. And tangents. SYNERGY, baby. Let's watch it BLEED.
You may even find yourself giving up fantasy literature altogether.
David Gardner, August 29, 2001
David Gardner is co-founder of The Motley Fool and has long owned AOL shares. The Motley Fool has a full disclosure policy.
