Likely Candidates Scan the Horizon

A new wave of new-media/old-media alliances is sure to follow Monday’s stunning America Online-Time Warner deal, but analysts and deal makers said the wave may take a while to hit shore.

“The only question is whether the markets were ready to accept a traditional media company being merged with an Internet company,” said Todd Jadwin, managing director of media and entertainment investment banking at Banc of America Securities in Los Angeles.

“They needed something this big to jump-start their thinking.”

The logic of marrying the premier Internet brand with one of the top global names in news and entertainment was obvious to Wall Street on Day One. But on Day Two, Tuesday, there remained questions whether any other deal on the horizon could match the scope and advantages of AOL-Time Warner.

That won’t stop anyone from trying.

“All the investment bankers right now are working overtime. They are going to be hitting the road next week telling companies what they need to do,” said Bill Burnham, general partner with Softbank Capital Partners, the large San Francisco-based venture fund.

The cast of likely merger players includes such old-line entertainment giants as Walt Disney, Seagram and Viacom; cable-TV firms such as Cox Communications, Comcast and Cablevision; and, on the Internet side, Yahoo, Microsoft and Lycos, among others.

Other candidates might seem less obvious.

“If Yahoo merges with Disney, great. But what’s Amazon.com going to do?” asked Los Angeles venture capitalist Steve Lebow, referring to the fast-growing Internet bookseller.

“They are going to have all these brands coming at them. If Microsoft wasn’t tied up, they would’ve bought Amazon or AOL last week,” said Lebow, a managing partner with Global Retail Partners.

Softbank’s Burnham said he expects such old-line media firms as the Washington Post and New York Times to consider mergers with Internet media outlets such as CNet.

Internet auctioneers such as EBay and Priceline.com were also mentioned as possible participants in the consolidation.

David Bohnett sold his Marina del Rey company, GeoCities, to Yahoo last year and is on the board of several fast-growing Southern California Internet companies, including Stamps.com and Netzero. He said he expects chief executives at many Internet start-ups to be bombarded with merger proposals.

“I expect we will see some mergers that don’t make sense but will get caught up in this next wave,” Bohnett said.

The trick, Bohnett said, is finding combinations in which the executive talent and leadership at both companies are strong and would be able to work well together.

“Talent is going to continue to drive combinations,” he said.

One of the difficulties in matching the AOL-Time Warner deal is finding an appropriate Internet partner.

After Yahoo, with its market capitalization of $105 billion, the size of the players drops off precipitously, to $14 billion for Excite@Home and $7 billion for Lycos.

For that reason, analyst Barry Hyman of Ehrenkrantz King Nussbaum said the next step may be some mergers of Internet firms to attain the size necessary to attract an old-media partner.

Yahoo, for its part, appeared to take itself out of the running Tuesday, when Chairman Tim Koogle said he sees no need to link with a traditional content or media firm.

Just as some traditional media firms may balk at accepting the seemingly inflated currency of Internet highfliers, some online players are simply not in the market.

As Schroder & Co. analyst Arthur Newman put it, “AOL-Time Warner may have shown that there’s a way, but there may not be a will.”

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Tomorrow’s Partners?

America Online and Time Warner’s planned merger could prompt a wave of other deals linking content with Internet distribution, some Wall Streeters suggest. Here are a few potential partners being mentioned, along with arguments for and against.

* Disney/Yahoo

Why: Top entertainment brand meets top Internet brand. Why not: Yahoo says it wants its independence; Disney’s top-down culture opposes Yahoo’s bottom-up.

* Viacom/CBS/Yahoo

Why: Viacom’s MTV and Nickelodeon viewers are in the sweet spot of the Internet demographic. Why not: Viacom chief Sumner Redstone and CBS boss Mel Karmazin like to be in charge.

* Disney/MCI WorldCom

Why: Global content and global connectivity. Why not: Hollywood and phone cultures are sure to clash.

* Microsoft/NBC

Why: Broadcast content for Bill Gates; partnership experience in MSNBC.

Why not: General Electric probably wouldn’t sell NBC.

* News Corp./nobody

Why not: Worldwide satellite network provides international distribution and News Corp. is counting on TV Guide’s clout as an electronic medium to bridge the gap.

* Excite@Home/Universal Studios

Why: Speedy connections for downloading music and movies.

Why not: Excite’s cable owners could complicate the deal.

More Coverage

* AOL and Time Warner have their work cut out for them. A1

* Backers of “open access” cable see troubling signs from AOL. C4

* AOL shares could dip further in the near term, analysts warn. C4

* Yahoo says it does not feel compelled to follow AOL’s strategy. C4