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Tuesday, December 16, 2008

Will Zell's Tribune Buy Be the Second Coming of AOL/Time Warner

In the beginning of 2000, AOL and Time Warner announced they would merge. At the time, the deal was generally hailed as the coming together of the so called old media (Time Warner) and the new media (AOL). The possibilities for this media conglomerate seemed endless. The idea was the brainchild of one Gerry Levin, then head of Time Warner, and Steve Case, founder and CEO of AOL. Levin was a visionary that had launched HBO into a cash cow, however he had a string of failed endeavors since putting the Ali/Foreman fight from Zaire live in HBO (and thus launching the pay network into what it is now). For instance, the ticker that is a staple of every cable news show was a failed vision of Levin's in the early 1990's. Case was a relatively young Silicon Valley visionary himself. He built AOL from originally a bricks and mortars into a leader on the internet in less than 20 years at the time of the merger.

The merger was put together haphazardly. As such, basic potential problems were overlooked. For instance, the folks at Time Warner were mostly buttoned down three piece suits that considered themselves old school business folks. Meanwhile, the folks at AOL were khakis and short sleeved shirt folks who considered the "suits" at Time Warner stuffy and uptight. The culture clash, something that any merger MUST consider, became one of the fatal flaws of the merger. Both Case and Levin were so enamored with the idea of cross selling such brands as CNN, AOL, Turner Classic Movies, all on a central web site, they never once even considered what would happen when a young khaki and short sleeve shirt culture would meet up the old school buttoned down suit culture. This was one of many oversights of those that put the deal together. (for the whole incredible story check out Fools Rush In)

The other problem for the AOL Time Warner merger was that the idea of the new company was based heavily on taking the new brand onto the internet. At the time it was being dreamed up, this not only seemed like a good idea but the one that made the most sense. After all, this idea was dreamed up in the middle of 1999 when the internet boom was at its height. It only, at the time at least, made sense to re brand such powerhouse brands as CNN, TBS, Time, etc. through a new internet source using AOL. It all made perfect sense at the time. Then, it was time to implement the idea, and what lead from there was one of the greatest debacles in the history of business.

Now, we maybe seeing the reincarnation of the AOL Time Warner merger with Sam Zell's ill fated attempt to buy and privatize the Tribune Company. At the time it was announced, once again the possibilities were endless. A real estate mogul would combine with a media conglomerate. More so, the idea of privatizing a public company seemed revolutionary and bold. Now, all of it seems like it is fast on its way to a debacle. It's clear that far from adding to the deal we are all asking a basic question that likely wasn't asked when the deal was being consummated. What in the world does Zell know about the media?

The Cubs, the brand's most valuable resource, have been rendered nearly impotent as it is going on two years while they are being sold. Trades, acquisitions, and other financial deals are nearly impossible. How can any star be offered any large sum when no one knows who the owners will be. No one will know why exactly the deal to acquire Jake Peavy fell apart but I would bet that not having ownership didn't help.

Furthermore, media is going through a transformation and the economy is changing right in front of us. In other words, much like with AOL/Time Warner, what seemed like a good idea at the time, has become obsolete. Media is going paperless. Print journalism will go out favor entirely soon. As such, only the innovative media will survive, which is why a real estate mogul is the last person that should be running a media company. Furthermore, all the accountants put these numbers together assuming a healthy economy. Now, we have a very unhealthy economy. As such, is it any surprise that the Tribune Company has filed for bankruptcy?

It looks as though again we have a visionary idea totally let down by any sense of practical implimentation. Vision is a wonderful thing but without the ability to implement that vision it is worthless. AOL Time Warner was the best example of this lesson and now it appears that Zell's ill fated attempt to privatize the Tribune Company will be the second.

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