The Critical 'I'

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Saturday, May 31, 2003

AOL TIME WARNER AND MICROSOFT: PEACE IN OUR TIME?
On the eve of sweeping rules changes from the FCC in media ownership (here's more), a business deal has been consummated that could go a long way toward defining next-generation media standards. I'm speaking of the rather unexpected dispute resolution between AOL Time Warner and Microsoft.

What brought this about, after years of intransigence? Amazingly, it may have come down to personalities, as longtime Bill Gates nemesis Steve Case is now out of the picture at AOLTW, and so the pact is more the handywork of the new, Time Warner-committed regime.

Beyond the negotiations that made this happen, the corporate motivations for striking this deal show what directions both companies are heading. In my mind, it represents a withdrawal by each of them out of the other's traditional turf. Microsoft has long been suspected of regretting ever gotten into media properties, directly (I recall MS President Steve Ballmer remarking that, if he had to do it over again, he never would have committed his company to ventures like MSN, MSNBC and the like; I realize that just because he said it doesn't mean he meant it, but still). This deal allows them to begin shuttering their ISP business and other money-losing non-core businesses, while still assuring their products and standards have favored access to future digital media development. For AOLTW, this is yet another step away from the tech arena which the company was dragged into after the AOL merger. In essence, it's a further refuting of the Internet strategy this company was supposed to be built for, in favor of the far more lucrative media properties. At the same time, it provides a means to extend, or at least hold steady, its AOL brand without the costly promotions.

I certainly don't think this is the end of the game in the digital media arena. Despite the size of these two powers, there are plenty of comparable players and wild cards out there that can throw monkey wrenches into any standards plan: Disney, Apple, Yahoo, Amazon, eBay, etc. It is a turning point, but of what reach, we'll have to see.