The Sinkhole of "Synergy"

By Tom Lowry

BAMBOOZLED AT THE REVOLUTION

How Big Media Lost Billions

in the Battle for the Internet

By John Motavalli

Viking -- 334pp -- $26.95

It's no secret how horribly the media industry bungled its foray into the world of the Internet, costing companies tens of billions and immeasurable amounts of shareholder trust. The failures are still making headlines: One by one, some of the most visible poster boys for so-called synergies between media and the Internet--Vivendi Universal (V ) CEO Jean-Marie Messier, AOL Time Warner (AOL ) Chief Operating Officer Robert Pittman, and Bertelsmann CEO Thomas Middelhoff--have been deleted from their jobs this summer.

The buzz created by these juicy ousters must seem like a promotional godsend to John Motavalli, author of Bamboozled at the Revolution: How Big Media Lost Billions in the Battle for the Internet. His book is a timely, if sometimes disjointed, chronicle of how, from 1993 to early 2002, one member of the media's Old Guard after another blew it in the Brave New World. "When companies try to do things they're not geared up to do, they mostly mess up," writes the former New York Post columnist who later worked at Internet incubator CMGI. "It's like a Volkswagen assembly line suddenly being asked to start building Cadillacs. They simply don't have a clue and the machines are configured wrong."

Bamboozled also casts a critical look at the media's Net coverage, making reference to several magazine cover stories, including some in BusinessWeek, that lionized execs who later took a fall. Motavalli completed his work in the spring, before the latest spate of news that includes the Securities & Exchange Commission and Justice Dept. accounting probe at AOL Time Warner Inc. Now, renewed questions about all the media companies' convergence strategies make Bamboozled compelling.

On the basis of scores of interviews, Motavalli considers the maneuvers of several of the Big Media players, from News Corp.'s (NWS ) unsuccessful $2 billion online partnership with phone company MCI Group to Walt Disney Co.'s (DIS ) failed Go Network, which led Disney to take a $790 million non-cash charge in 2001. But Bamboozled focuses mostly on Time Warner Inc., whose January, 2001, sale to America Online Inc. is widely viewed as the biggest bust of all. AOL Time Warner's stock has plunged more than 70% since the merger closed, wiping out $100 billion in market value. The merged entity failed to deliver the profit growth it had promised, in part because of the ongoing advertising drought but also thanks to AOL's flubbed broadband strategy. Adding to AOL's humiliation, Time Warner execs are once again running the show.

Motavalli begins his tale in 1993, when Time Warner CEO Gerald M. Levin was proclaiming that the future had arrived in the form of a new service in which Time Warner would invest $5 billion, the Full Service Network. This high-tech system would allow Time Warner cable subscribers to use TV interactively, ordering movies or shopping. But the venture never took off, marking the first of several Time Warner new media debacles, including the failure to make the company's Pathfinder Web site a major portal. Those failures only heightened Levin's desperation for an Internet strategy. Fearful that AOL might make a deal elsewhere, he sold Time Warner to AOL at the peak of the tech bubble.

Motavalli has assembled a remarkable collection of anecdotes showing clueless media executives fumbling the ball in cyberspace while clashing with their Polo-shirt-wearing, entrepreneurial counterparts. In one episode, which takes place shortly after the AOL deal was announced in January, 2000, Time Warner CFO Richard J. Bressler (now CFO at Viacom Inc.) asks David Colburn, AOL's president for business affairs, to explain pop-up ads. Can Colburn send more information about them? Amazed at Bressler's lack of Net acumen, Colburn replies: "Rich, why don't you invest $21.95 in an AOL subscription and consider it due diligence."

Elsewhere, the author recounts a 1994 meeting that highlights the tech guys' arrogance. AOL had proposed a joint venture with Time Inc., but, as AOL Chairman Stephen M. Case had just learned, Time Inc. New Media head Walter Isaacson had rebuffed the offer. "You know, you're probably right, Walter, you know how to get subscribers better than us, you know how to program better than us," Case says sarcastically. "But if whatever you do fails, you will get the job as editor-in-chief of Time magazine." True enough, Isaacson had risked little--he went on to be the the top editor at Time and today runs Cable News Network.

All such tales are great for media junkies and media investors. But the level of detail may be too much for the average reader. And often, the author will simply describe events, providing little interpretation. Finally, it would have been instructive to include a chapter devoted to a media company that resisted the temptations of the Internet. Sony Corp. (SNE ), for example, refused to take the plunge. These days, its chief executive, Sir Howard Stringer, is having the last laugh.

In his conclusion, Motavalli anticipates a new pragmatism. He believes that trends favor the Web and electronic distribution of some types of content but that media companies would do well to return to their old ways of doing business. Perhaps the lessons from the scary days of 1999 and early 2000, along with the memory of the billions lost, will help Big Media avoid being bamboozled the next time around.

Media Editor Lowry covers AOL Time Warner from New York.

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