Advice to IBM: Don’t Buy Stake in Time-Warner

TO: John Akers

IBM Chairman, CEO

FROM: Mickey the Agent

RE: Time-Warner

We miss you here, you aspiring multimedia mogul! Things have been crazy but, hey, I’m never so busy that I can’t talk deals, deals, deals with my favorite computer company.

The buzz that Big Blue is preparing to pony up half a billion dollars for a stake in Time-Warner Entertainment has made the poolside chit-chat at the Majestic just that much more entertaining. Folks are already making jokes about TIBM-Warner. . . . But I’ve got to tell you, John, that after really thinking about it, I have four words of advice: Please, don’t do it. Hey, I know that John Sculley at Apple has been talking with Ovitz and the Creative Artists boys but, trust me on this, a big-ticket equity deal like this will not make IBM richer, smarter or more competitive. It will only make you unhappy. Let me put it this way: Have you seen “The Player?”

I’m sure you know that Steve Ross and Gerry Levin are also using you as a stalking horse to help scare up investors in Europe. Their basic shtick is that hardware companies now also have to own software to profitably grow.

That’s how Ross managed to sweet-talk Toshiba and C. Itoh to kick in $1 billion for 12.5% of Time-Warner. That’s why you co-own Prodigy. That’s why Sony and Matsushita have wolfed down studios and pop culture software. That’s why Philips bought a chunk of Whittle Communications.

An IBM investment in Time-Warner effectively proves that their vision is valid. That would make a lot of nervous bankers very happy.

Now I know your people argue that digital media technology is creating a convergence of computers, publishing, telecommunications and video. But let’s be blunt, John, that’s what they said about computers and communications--and didn’t you sell your stake in Rolm, the telecommunications company you spent more than $2.5 billion to acquire a few years back?

The issue isn’t that technology creates convergence; it’s where does IBM want to position itself as technologies come together? You don’t buy convergence, John, you grow it. IBM hasn’t brought a lot of finesse to its strategic equity investments. You bought Rolm; you didn’t buy into Microsoft.

Please don’t tell me how many hundreds of millions you’ve lavished on Prodigy. Folks in the industry still chuckle over the MCA/DiscoVision fiasco of the 1980s. You remember? That was your joint venture with MCA to create a home video-disc market to combat the VCR.

So, unless you want to play portfolio manager, why make a big equity investment in Time-Warner Entertainment? Why get cozy with a cable TV outfit when you know that the Baby Bells will soon be able to provide video on demand in competition with cable operators?

What you really want to do is become a video systems integrator. You want IBM to become the company that makes the media that facilitates the convergence of all these technologies. You want IBM video processing chips in everyone’s cable converter boxes, not just Time-Warner’s.

You want IBM chips and flat display screens to attach to telephones to turn them into TVs. You want to create open architecture TV modeled after your wildly successful open architecture personal computers so that people can cheaply build their own digital high-definition television sets.

You want to create video operating systems that you can license so cheaply to cable companies, telephone companies and broadcasting companies that they can’t help but sign on. That’s a more cost-effective place to put $500 million than Time-Warner.

IBM’s challenge isn’t buying up exclusive rights to Madonna or exclusive access to the top 20 cable systems; it’s crafting the architectures that make multimedia convergence possible. To be sure, that’s what Apple is trying to do.

But then, you’ve cleverly struck relationships with Apple. Now you’ve got to craft relationships with the Bell companies and the cable companies and the publishing companies.

Don’t forget Nintendo and Sega! Don’t invest in them! Give them multimedia integration at low cost! Microsoft didn’t get rich charging a premium for its operating systems; neither will you.

So for now, forget content. Forget equity investments. Think about seducing people into putting their video and digital media on your platforms. Think about weaving your technology into their networks. The goal is influence; not control. The media world today is an enormous puzzle of pieces that don’t quite fit with each other. Your value-added won’t be buying up the other pieces; it will be in making it possible--and desirable--for them to fit. That should be IBM’s future in consumer multimedia. Gotta go now, John, I’ve got Akio on the other line. . . .