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re: <nettime> AOL loves TIMEWARNER
Noel Douglas on Wed, 26 Jan 2000 22:10:46 +0100 (CET)

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re: <nettime> AOL loves TIMEWARNER

Hi Everyone,

Just thought this column from this week's socialist worker (UK) might be o
f interest re the AOL/time warner merger.

I also wouldn't be so fatalistic about the merger (Karen's 'what can we do
?'), it would seem that Seattle is (hopefully) the beginnings of a much
wider movement against Capitalism, that has been fermenting for a few years
now, and that is where all our hopes lie, in the movement of ordinary
people fighting an d struggling across the globe, but in the meantime
Capital will keep concentrating into bigger blocks because that a s we know
is the logic of Capital.



Online for a crash?

 By Alex Callinicos

 LAST WEEK was a bad one for anyone bored to tears by the endless hype abo
ut the internet. All the boosters of e-commerce (the use of the internet to
buy and sell goods and services ) had a collective orgasm at news of the
merger of the Time Warner media empire with the world's biggest inter net
service provider, America Online (AOL).

The Guardian's headline was typical: "$350 Billion Media Merger Heralds N
et Revolution." It quoted the claim by the deal's authors that they were
creating "the world's first integrat ed media and communications company
for the Internet Century". This is like those televisions ads which conju
re up the image of a world in which all six billion of us are happy,
prosperous, Americanised consumers living much o f our lives through the
internet. It is closely connected with the euphoria surrounding the
economic boom in the United States.

 Last week US Treasury secretary Larry Summers urged Europe to develop a U
S style "new economy" based on deregulation and "flexible" labour that can
avoid inflation or slump. In fact, most serious commentators agree the
reality is quite different. The US economy has been sustained b y a stock
market boom. Middle class households whose shares have soared feel richer
and so are spending more, which is good for economic growth. Such stock
market bubbles have often occurred throughout the hist ory of capitalism.
Financial markets can temporarily rise much faster than the actual
production of goods and services.

But when these bubbles finally burst the effects on the real economy can be
catastrophic. The classic case is  the Wall Street Crash of October 1929,
which ushered in the Great Depress ion of the 1930s. Japan has yet to
recover from the collapse of the "bubble economy" in 1990. Indeed over th e
past year or so most share prices on the Wall Street stock exchange have
started to fall.

The euphoria has kept going because of an extraordinary surge in the shar e
prices of high-tech companies, particularly those associated with computing
and the internet. This has p ushed their share prices way out of line with
the underlying profitability of these companies. Last week US h igh-tech
stocks were valued at 200 times their earnings.

The internet bubble has not just personally enriched the bosses of the hi
gh-tech companies. It has increased their financial power compared to older
corporations. These are often muc h bigger in terms of the physical assets
they own or the workers they employ, but their share prices have n ot risen
as fast. The AOL-Time Warner merger illustrates what this can mean. AOL is
the senior partner, taking 55 percent of the new company. Time Warner has
effectively been taken over, even though it cont ributed 85 percent of the
revenues and 80 percent of the cash flow.

It is only AOL's high share prices that made this surrender by a bigger t o
a smaller company possible. But, in buying up Time Warner shares with its
own shares, AOL had to agree to val ue Time Warner shares as worth 69
percent more than their level. Why? Because everyone is afraid that th e
high-tech bubble will burst, sending the share prices of internet companies
like AOL tumbling. AOL is effectiv ely offering Time Warner shareholders
compensation against the risk of this happening.

As the Financial Times commented, "In this so-called 'merger of equals' e
very AOL dollar of pre-market capitalisation is worth less than
three-quarters of each Time Warner dollar. Internet money...is not the same
as 'real economy' money." The underlying fragility of confidence in the
"net revolution" was shown the day after the deal was announced. Wall
Street wiped $30 billion (A318.2 billion) off t he combined share value of
AOL and Time Warner as part of a more general fall in internet and media
prices. The AOL-Time Warner merger isn't anything to do with the "Internet
Century" really. It is just another sym ptom of the bubble of speculation
that is keeping global financial markets afloat, and indeed the world
economy. Th ere is an economic rationale to the deal. Mass access to
personal computers and to the internet does offer a new way of
communicating the images and other information produced by a company like
Time Warner. But technological change doesn't guarantee economic expansion.
The 1929 crash occurred at a time when inno vations like the telephone,
radio and automobile were beginning to enter mass use. It is impossible to
pred ict with any accuracy when the Wall Street bubble will finally burst.
But when it does, all the boosters are going to look pretty silly.


noel douglas>media>art>design www.crd.rca.ac.uk/desiderium

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