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Winning over Wall Street will require a prolonged process of--pick your noun--either education or spin. Music-business executive Danny Goldberg, a former head of Warner Bros. records, says the merger both "validates the Internet and validates the value of content." But it also forces the invention of a new currency to reflect it; as the AOL and TWX stock prices yo-yoed up and down last week, it was clear that investors had no idea how to put a price tag on something that was neither an Internet highflyer nor an old-economy cash-flow locomotive. AOL lost about 20% of its value before recovering to $63. Time Warner leaped 58% on the news, then settled at $82, up 26% for the week. In the nobody-knows-anything world of Wall Street, one analyst was predicting a 50% increase in AOL's stock price between now and next fall when the deal is expected to close, another was predicting a continuing slump, a third meaninglessly narrowed the medium-term price target to "between $55 and $90," and the last little analyst cried all the way home. "The Street has no historical reference," says one of the dealmakers.
Finally, there will inevitably be personnel and turf issues to unravel some nerves, as already seems to be happening to some Time Warner executives suspicious of the sudden omnipresence in the media of Case's agile No. 2, the 45-year-old Pittman. Himself a former Time Warner executive, Pittman is the highest-ranking manager in either company who made his bones in both the entertainment business and the digital world. Within hours of the deal's announcement, the corporate handicappers had tabbed him as Levin's successor. He had better be patient. According to an investment banker who knows both men, recalling the 1992 blitzkrieg with which Levin deposed his predecessor, N.J. Nicholas Jr., "betting against Jerry Levin in a boardroom struggle would be a big mistake." Especially when, as in this case, it would take a 75% vote of the board--to consist, initially, of equal numbers of Time Warner directors and AOL directors--to dump the CEO.
Along the way, there's business to be done. New media buccaneers refer to their easiest challenges as "low-hanging fruit," and in the merger announcement the two companies listed a series of efforts that would launch immediately: CNN.com programming featured on AOL services; AOL discs stuffed into Time Warner product shipments; cross-promotion of Warner Bros. movies on AOL-owned MovieFone. If none of these seems especially delicious, that's because low-hanging fruit rarely is.
Within a year expect major initiatives in broadband, where AOL visionaries see their eventual future, and in recorded music, an area that has been less gold mine than minefield for Time Warner in the past few years. "We can change the way people interact with music, change the distribution medium," says Jonathan Sacks, the senior vice president who supervises the main AOL service. Contemplate a music company that no longer has to bother manufacturing or shipping CDs, or sharing revenue with retailers--one that distributes its music directly from its hard drive to yours.