When Steve Case, the head of America Online, announced his company's takeover of Time Warner in 2000, his speech was pure, flag-waving victory. "This merger will launch the next internet revolution," he said.
On August 21 this year, when AOL Time Warner announced 1,700 job cuts, the world's largest internet and media company said the restructuring would help it exploit the web's "next chapter".
In 19 months, exactly the age of this column, the revolution has become a book and the world has completely changed. Or rather, reverted to something like its old self.
The company conceived in the first few days of the new millennium is still our best and biggest example of the enormous changes wrought on the media industry by the internet. Yet AOL Time Warner's travails over little more than a year and a half show how fleeting the flag-waving was. The company is now being forced to prove itself as a good ol' cost-cutting conglomerate. Its short history provides yet more evidence that new technology, no matter how powerful, cannot overturn normal business and economic cycles.
The stock market provides as good a tool as any to chart how much things have changed. When the merger was announced, shareholders were paying $76 for every AOL share and $90 for those in Time Warner. Their combined market value was something in the region of $353bn. Anyone can now buy a stake in the combined AOL Time Warner for about $40, or roughly half what the internet service provider alone was thought to be worth when it launched its audacious takeover.
What gleeful rivals and unhappy shareholders now wonder is how Time Warner could have let itself be bought at the height of the internet boom by an upstart. Shareholders would have made more money if they had been given a dollar every time someone said that Gerry Levin could have bought AOL if he'd just waited six months longer.
AOL Time Warner's shares have been crushed by both last year's collapse in the dot.com market and the US economic slowdown. Company executives have exacerbated the problem by sticking with aggressive targets for both revenues and earnings. Nineteen months ago, the company predicted that it would increase earnings by 30% to $11bn on sales of $40bn this year because of the power of its combination. Since then, the advertising market has collapsed, fuelled by a shrinking economy and the fact that there are no pet dot.com companies left to spend a fortune advertising on primetime.
Universal McCann, the advertising company, predicts that ad sales will increase just 2.5% this year, compared with an increase of almost 10% in 2000. Ad sales contribute about one quarter of AOL Time Warner's revenues. There are now fewer analysts who believe that AOL Time Warner will meet its ambitious financial targets than there are profitable dot.coms.
Which takes us back to the bloodletting. In order to prove that it is serious about both the numbers and its ability to manage a downturn, AOL has cut 10% of the staff at its core internet division since the beginning of this year. The latest round of cuts comes after the company has sacked thousands of former Time Warner staff. The axing of cubicle workers in Virginia, however, acts as a warning to other employees.
Gordon Hodge, an analyst with Thomas Weisel partners in San Francisco, says, "My guess is that AOL felt it had to lead by example. There was certainly less fat in the old AOL than at Time Warner. If I worked for the latter, I'd be worried right now."
But while things look grim for some of the 90,000 people still employed by the company, AOL Time Warner has become the company to fear in the media industry.
A former executive of a struggling financial news site says, "Their merger set a new benchmark. After that, it was obvious that you either had to be very, very big, or very, very small and focused. It was no longer such a big deal to be nimble and new."
In the months following the merger, news websites started to follow each other off the cliff, either into the arms of bigger companies or straight to their death. Large media groups, meanwhile, rethought their strategies.
Many are still rethinking and all have retrenched. Only technology companies such as Microsoft and Yahoo!, it seems, are still willing to experiment with new media services. Witness Yahoo's efforts to act as the online marketer of choice for Hollywood and Microsoft's desire to buy a satellite business with Rupert Murdoch.
The next chapter of new media history is unlikely to seem as revolutionary as the events of 2000. But a variation of an old theme is still worth reading.
