The Day the Dotcom Bust Began
The lesson we still refuse to learn about the ill-fated AOL-TimeWarner Merger
The Internet changed for me on the morning of January 10, 2000, when an editor from the New York Times called to ask if I could bang out an OpEd by that afternoon. I was thrilled. The culture of the net, which I had been writing about since the late 1980’s, was finally mainstream enough for the Gray Lady to solicit a think piece from a fringe, cyberpunk writer like me.
But the editor wanted my commentary on something slightly different: Time Warner, a venerable “old media” company, had just announced it would be acquired by America Online — an internet access company that had only been in existence for a decade. Did this mean the Internet had truly arrived? Could I please explain what this merger really meant, in plain English?
I didn’t want to give up the opportunity, but this wasn’t really my beat. I was a media and culture writer. I knew about movies, television, computer games, online communities, and the subcultures they spawn. I was interested in virtual reality, electronic dance parties, chaos math, digital storytelling, media viruses and fractals.
This was a business story. What did I know about stock-only deals, board representation, and market caps? I figured I’d wing it. The Times’ editor saw this deal as the “birth of the digital economy,” and if it was, I wanted to be present and weigh in.
So I analyzed the merger from my own perspective, that of a media theorist and financial naif. A venerable conglomerate with real assets including a film library, magazine empire, theme parks, movie studios, and thousands of miles of television cable was about to merge with the guys who mailed pink-wrapped “10 Hours Free Access” CDs to pretty much every home in America. According to the terms of the deal, the two companies would combine into one, with AOL shareholders owning 55%, and TimeWarner just 45% of the new company’s stock.
The only thing peaking about AOL at the turn of the century was its stock price.
How could America Online, a company with virtually no real assets, accomplish such a feat? Yes, AOL had accumulated a few million users…