If AOL was proposing to buy Yahoo or Time Warner was proposing to buy Disney, those are very different mergers. This is a very different kind of construct.

Going back to the other question of the synergies, there are going to be huge opportunities to create terrific new business. We have an opportunity now to apply some of the lessons we learned over the past decade to television -- and maybe the next decade reinvent television. It'll be more personalized, interactive -- those are new opportunities.

But the real initial focus is on the obvious things, like that AOL spends hundreds of millions of dollars on marketing to build its brand. Obviously there is a cross-promotional capability in terms of shows or free time and so forth that has huge potential for us.

Q: You've been spending 100 million to market?

CASE: Hundreds of millions. I don't know what the current number is. Probably half a billion or something, something in that range. You spend a lot of money on marketing, and a lot of that money goes to TV networks and magazines and so forth.

Similarly, on the Time Warner side, we do have the capacity to build bigger audiences for Time Warner Websites. You have a bigger audience, you can sell more advertising. So there are cost-savings in terms of promotional, cost-promotion and revenue opportunities in terms of bigger advertising, it's just sort of a no-brainer. That's independent of these exciting opportunities such as AOL TV.

Q: Steve, on the question getting back --

LEVIN: Can I just go back to that because there is underneath this direct parallel between what AOL has built and what HBO has done, and it's what Time Magazine does, it's the power of the subscription. You start out, it costs a lot of money to get it started and you run like hell to get some subscribers who pay you out of inertia on a continuing basis. You then take that money and you build an infrastructure -- this is what people haven't quite grasped yet, and why the valuation of AOL is quite appropriate. It's a revenue stream that's quite reliable, it's perceived value, and it continues.

You then -- assuming you're first -- or you gain a first position, then you have enough cashflow to keep reinvesting to build more service, more value, so the customer either pays you additional money for more services, or you start new services. You get so far ahead and the reason why it is a financially desirable model is that the cost of acquiring either a new subscriber or giving that same subscriber additional service is so modest because you've already amortized the infrastructure cost. That simple proposition is what AOL is about. It's essentially what Time Warner is about.

That's a very profound position to be in. And that's essentially what's underneath the dynamic of both companies. It also struck me that's a very similar proposition, and it happens it's not B-to-B, it's the consumer here. So that's also very good. I think what the shock of recognition is actually how similar the companies are, although they come from these different spaces.

Q: I wanted to get back to the synergy and decentralization which is centralization, and in the previous mergers of TIME and Warner and TIME and Turner, and stuff, what happened was new operating units got created. We now have five operating units. With this merger, we could have a sixth one in the company, that was digital, or it could totally change four --

CASE: You could have 10.

Q: Or you could use this as a way to totally transform the company, so that publishing is not separate from digital or separate from music and you restructure the company in a strategic and radical way because of this, instead of allowing independent operating units to cooperate and compete almost as if they were independent companies. How do you all see that?

CASE: Well, first, we see it as being the most important question to answer correctly and one that begs a lot of thoughtfulness and not something that we should rush over a weekend. So that's why we put in place this integration team with Bob Pittman as a big part and Tim Novack, our vice chairman and Richard Bressler, and they will be working over the coming months to look at a variety of different options and then make a recommendation to Jerry on it.

There's a recognition that there are a lot of different businesses, subtleties, people, a lot of things to take into account, and there are probably half a dozen different ways to structure it. I do think that coming at it with a sense that maybe a fresh approach, a more transforming approach might work better, is one of the things that should be on the table. At the same time, there is a recognition, you've got to protect some traditions, like the journalistic tradition and church and state and things like that.

So I think we'll close the deal later this year, nine months or so, we'll use that nine months and really roll up our sleeves and look at all the different kind of options. I think everything should be on the table.

One of the reasons I was comfortable with Jerry being CEO is a recognition that within Time Warner, let alone within an AOL-Time Warner, they're very different businesses and personalities and cultures and perspectives and traditions and legacies and priorities and so forth. It's not this one-size-fits-all homogenized approach. The way you approach the movie-making business is very different than the way you approach the magazine business or the cable business.

LEVIN: In its day, the Time Warner transaction was groundbreaking. Mistakes were made. One of the primary mistakes was to fully negotiate the structure of the new company almost position by position, in a situation where it's really part of a negotiation before you're up and running based on perceived leverage with respect to each individual point.

That certainly isn't a satisfying thing to do. Secondly, people were reveling in the differences between the cultures, and in fact, over time it became clear to me that there is a lot of similarities. But that was a background strike against its working early on, and then finally, every deal, no matter what principle you try and apply or what management notion of centralization, decentralization, entrepreneurial, synergistic, it's all about the orientation of the people involved, including those who are calling the shots and there was built intention in the companies for just a lot of reasons.

So that's one experience, having lived through the experience and then working through it has actually been very valuable, just as working through Orlando or the failed Teletext has been very valuable.

With the Turner merger, we did have a transition team and we did put people, but we also took some things out of Turner and moved them around. We disaggregated a motion picture studio, we moved a lot of the distribution, and actually one of those moves we've just recently reversed four or five years later.

So that's a pretty interesting model for trying to do it right. In this case, I think we had yet a new situation where my philosophic tendency will be to want to make more of a transformation than anything that's gone before, still consistent with the fact that even in the new company, the pre-existing Time Warner businesses are 75 percent of the revenue and to a great extent cash flow.

The other thing I'd say is in this case, the personal orientation of the people will be very important and so how do you know upfront that that's going to work? And here's where I believe a lot of the preaching that has gone on recently by us and by me, about our values, is absolutely critical to the success of this business transaction because if I didn't believe that -- and Mel, it goes back to his call and the thing going around in my mind is for sure this is great and I get it, it's a big idea, but this is TIME MAGAZINE, this is Warner Bros., this is the heritage of this company.

There needs to be not just business respect for that, so disaggregate it in some kind of Internet flourish, but respect for it in the values as to what this thing is all about. So unless I made a big mistake in personal assessment here, that's the pivot point for me. When I became comfortable with that, it's not that we still could have fallen apart on valuations, lots of other things, but that's why I believe this'll work with respect to people.

CASE: I just echo that. That was a big deal to me because there are -- I'm not going to name them -- there are media companies that are successful that I could not fathom merging with because I don't think they have some of the shared values in terms of shouldering the responsibility for what they do, of really recognizing not just the shareholder interest but also the public interest.

I think that's very important. I think companies need to be more active in not just playing to Wall Street but also doing what's right for Main Street.

I really believe that. And Jerry does. It's not just saying it. You have to live it. But it's an important signal and a fairly unique signal.

So I think that was a key part of this, looking at properties and saying I'd be proud to be chairman of a company that had this and this and while there might be other mergers and media companies that you could name, I wouldn't be able to say the same thing. I think on the organization side it's important that as we make this transformation that Time Warner become an Internet company and that AOL become a media company -- but not simply about transforming them, but morphing them into this next thing.

It's really the recognition that the combination of these, integrated in the right way, is extremely compelling and it has to be designed carefully, like real sensitivities to make sure that the ultimate structure is organized in the way that best serves the needs of consumers. That ultimately is what companies are all about.

If you look at successful companies and less successful companies, to me one of the real lessons of the last 10 years is all about people, that the people you are able to attract and motivate and retain and so forth, if you've got the right people focused on the right initiatives, then you're in business, and if you don't, you're not.

It's more like a sports team. The right players, the right coaches, make a huge difference. When a good coach comes into a team that's been losing, somehow you start winning. How did that happen? It shows you that the importance of people.

So the structure has to be designed with great sensitivity, great recognition that there are subtleties between these businesses, many of which I'm sure I don't yet appreciate and hopefully we'll learn more about in the months ahead. Ultimately, the best way to serve consumers as well as the best way to attract and retain talent is to be this kind of hot-house of innovation because of the fact that people really want to be part of this company. They see it as being an exciting opportunity from a business standpoint but also a wonderful platform to make a difference in the world.

That's what's going to drive this for us.

LEVIN: Just once they -- if somebody covering this transaction can find the causal connection between the wild-eyed idealism that's being expressed and Wall Street standards, that would be terrific because that's what we're searching for. I really believe it, and it comes about because if I'm right, that that base of values translates into the right people and therefore the right structure, the right organization, then the performance will follow and therefore it will be a leading edge company, and it will deliver shareholder returns.

If somehow that causal connection can be made it would be terrific because right now it sounds like this is a separate thing. We have these values, and we go in here and make the money.

Q: Steve, you now have on your board the CEO's of two large media companies, Thomas Middlehoff and Margorie Scardino. Do they stay on the board after the merger, and if so, does that suggest any possible further either alliances or mergers, particularly in overseas markets?

AOL: Well, they're different. We have not determined the makeup of the board other than each company will contribute eight people. But Thomas Middelhoff will not be on the board because Bertelsmann is a competitor of Time Warner. I briefed Thomas over the weekend about this, and he decided, which we felt was the right thing, to not participate in the board meeting because he didn't feel like it was appropriate. Margorie Scardino from Pearson is different. Quite a bit different than Bertelsmann, quite a bit less competitive.

CASE: Well, no, my understanding is there are some discussions, a year or two ago about maybe you'd consider Margorie to join the Time Warner board.

LEVIN: Rubin Mark, who is on our board, is on the Pearson board.

CASE: So she is, it's a little bit different case. She did participate in the phone calls. We did not feel she was conflicted. So she will be considered.