MARKET MONITOR COLUMN
INTERNATIONAL CONSULTANTS GUIDE
January,2000

AOL Time Warner - implications for Europe

In the aftermath of the AOL Time Warner announcement this month, the question on many journalists lips has concerned the deal's implications for Europe. In the United States, the primary convergence play today centers around the emergence of broadband connectivity to homes. This means that media companies must bring together rich-media content and broadband distribution in order to serve digital entertainment to millions of data hungry consumers. The AOL Time Warner deal brings exactly these two components together. AOL, which has long campaigned for open access to broadband cable networks, now gets Time Warner's cable channels and its Roadrunner cable modem service, and is also provided the opportunity to combine AOL's wealth of internet content with Time Warner's television, film, music and print content.

However. In Europe, the development of mainstream broadband networks is slightly further away. The immediate convergence opportunity here surrounds mobile data, with the emergence of WAP phones and higher speed mobile networks such as GPRS. Companies such as Vodafone and Orange are already busy building mobile information portals, sometimes using technologies, content aggregation and services from a variety of start-up companies. Durlacher estimates that commerce conducted over mobile devices (including consumption of information and entertainment) will reach Euro 23 billion by 2003. In Europe, an integrated media company must therefore include the requisite components for mobile content and mobile distribution. We feel that the convergence game in Europe will see partnerships and mergers involving mobile network providers (e.g. Vodafone, Orange etc.) and mobile platform providers (e.g. Nokia, Symbian, Psion), as well as media companies and internet companies.

Europe's patchwork of languages and cultures will mean that Europe also requires its own rich local content. AOL's partnership with Bertelsmann already gives it a significant media partner in Europe, and it is likely to be too tied up digesting Time Warner this year to make any other major moves. There is no European internet player as powerful as AOL &endash; companies such as Freeserve and T-online (which could be spun off by Deutsche Telekom as a private company) have less dominance than AOL and are only regional players. Hence, in Europe we could see the more powerful media companies taking the proactive role of buying up local internet players. In addition, US internet companies, with their highly valued paper, could make moves to spend it by heading towards Europe.