Backtalk: Lipstick on a Pig?


Given the stodgy pace established media giants havedemonstrated in finding their respective places on the Internet, not to mention all of theresources squandered on bungled, false steps -- notably, Time Warner's Pathfinder --it was inevitable that a dot-com company would merge with a bricks-and-mortar titan.

Oxygen's Gerry Laybourne told me her dream -- to wed acable-programming network with Web content -- would have been impossible to get off theground at her old digs, The Walt Disney Co.

She predicted that the only way traditional media giantslike her alma mater and others of that ilk could really get into the Internet would be tobuy a dot-com outfit.

After all, history -- what an oxymoron when talking aboutthe Internet -- has demonstrated that new ideas never come from towering skyscrapers.Instead, they bubble up from funky garages and drafty lofts located in low-rent districtsin Silicon Alley and Valley.

There, creativity is not stifled, and hard work and longhours with low wages -- with a work force of mostly 20-somethings -- are rewarded withoptions. That financial model has created some wealthy young nerds who wouldn't dreamof working at a Time Warner.

But that model may have changed last week when AmericaOnline turned out to be the buyer of Time Warner, the nation's largest media company.

Most, like Laybourne, would have bet the ranch that TimeWarner would have been the buyer. And that unexpected reversal was what had heartspalpitating and heads spinning since last Monday, when the largest media deal to date wasannounced.

After the deal was revealed, chaos prevailed. Billions ofdollars fell off the original $456 billion price tag when shares of both companiesplummeted for two days after the announcement. They rallied slightly last Thursday, atthis writing.

The problem: Analysts and investors no longer know whichyardsticks to apply to this new hybrid entity, which is to be named AOL Time Warner. Allof the old rules -- like there were any that applied to dot-com companies -- went poof.

Understandably, AOL shareholders -- who have been spoiledby phenomenal and unrealistic growth and, some might say, who don't giving a flyingWallenda about the traditional yardsticks, like price-to-earnings ratios -- bailed out.

Time Warner took a hit, too, and there will be a lot morevolatility in the months ahead as new rules are made and broken regarding valuation.

And this is good, if it happens. A marriage of AOL and TimeWarner will force the market to find a more rational way to determine the true value ofdot-com companies.

At the end of the day, you have to wonder what is reallygoing on in the mind of AOL chairman Steve Case.

We know he exhaled cable's broadband pipe as the wayto deliver his pokey, dial-up service via cable's robust network to the masses.Potentially, the deal could also make his problems with open access on cable vanish, aswell. But that's another column.

But maybe Case was just fearful that the dot-com balloonwas beginning to burst, and that the market would wake up and take a long, hard look atthe valuation of many of these seemingly vaporware companies. That was already under way,even before last week's stunning announcement.

And if the deal does go through, as most expect, only timewill tell if this was a stroke of genius or just another desperate move by an establishedmedia company to cash in on the Internet.

Symbolically, at the press conference announcing thismerger, Time Warner chairman Gerry Levin, a pinstriper, abandoned his tie. And AOL'sCase, uncharacteristically, wore a suit. It was an attempt at humor, but it spoke volumesabout the disparate corporate cultures of these two companies.

Can a shoot-from-the-hip outfit like AOL flourish in whatwill become an even more gargantuan media company that might potentially create even morelayers of red tape?

Or, as more homespun people might ask, are Time Warner andAOL just putting lipstick on a pig? In other words, both have their problems, and thismarriage might be a real solution.

Or maybe it's just a day at Elizabeth Arden, wherecosmetics, when well-applied, can conceal the flaws but not cure them.