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Crossfire

Should the Government Allow AOL and Time Warner to Merge?

Aired January 10, 2000 - 7:30 p.m. ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

BILL PRESS, CO-HOST: Tonight, old and new media join forces. Time Warner and AOL are set to team up in the world's biggest corporate merger ever.

(BEGIN VIDEO CLIP)

STEVE CASE, CHMN. & CEO, AMERICA ONLINE: Time Warner is the first major media company to not only recognize but to fully embrace the new interactive world. Together, we can change the future for the better.

(END VIDEO CLIP)

PRESS: But is bigger better? Should the government allow AOL and Time Warner to merge?

ANNOUNCER: Live from Washington, CROSSFIRE.

On the left, Bill Press. On the right, Robert Novak.

In the CROSSFIRE, Reed Hundt, former chairman of the Federal Communications Commission, and Gene Kimmelman, co-director of the Consumers Union Washington office.

PRESS: Good evening, welcome to CROSSFIRE.

Wow. That's the operative word for the merger announced today between America Online and Time Warner, which, of course, is parent of CNN. In an age of mergers it's still by far the biggest merger ever, creating a new media online entertainment giant with a combined value of $350 billion, and with outlets ranging from AOL chat rooms to CNN programing to "People" magazine.

The move was hailed by Time Warner chief Gerald Levin, who sees no problem getting government approval.

(BEGIN VIDEO CLIP)

GERALD LEVIN, CHAIRMAN, TIME WARNER: It's my view that this is kind of a clean break with the past and represents something totally new. And, therefore, I don't see a regulatory problem.

(END VIDEO CLIP) PRESS: But a leading Senate Democrat, Vermont's Patrick Leahy, was less enthusiastic, urging an element of caution. No caution today shown by the market, however. Time Warner shot up nearly 40 percent, AOL shares fell by almost two points. Both the Dow and Nasdaq set new record highs.

But, of course, no merger can happen without approval by several federal agencies. Will this one get it? Should it? Is this merger good news for consumers or bad?

Bob?

ROBERT NOVAK, CO-HOST: Gene Kimmelman, you put out a statement today on behalf of the Consumers Union, in which you said, quote, "Consumers do not want to be beholden to a giant media Internet dictatorship," end quote.

Dictatorship? You know, Mr. Kimmelman, I don't know what kind of equipment you've got in your home. I can go home after this program, tune on my television set, I got about 300 channels of media. I can plug into the Internet, I got scores of options of how I want to plug in. What kind of dictatorship is when one media company merges with one online company?

GENE KIMMELMAN, CONSUMERS UNION: The issue is who owns those 300 channels? Who owns that transmission system? Time Warner has been allowed by the FCC, unfortunately, in a change of policies since Reed left, to combine a lot of assets with AT&T. The two of them own cable wires into more than 50 percent of consumers' homes. AOL, with more than 20 million online customers, now becomes the biggest provider of the newest media service, combined television and high-speed Internet access. This is the leading-edge issue in an information revolution. We can't allow one company to control all that without other players in the market having a fair shot at getting on that very same wire.

AOL was the leader in saying, we need to get on the cable wire or our 20 million customers are out the window. We're going to lose. And they told us a year ago we're going to push for open access to the cable network or, if we can't get it, we're going to buy cable. Well that's what they did today. They lost the battle, and now they're joining the monopoly.

NOVAK: But you talk as if this is going to be the monopoly that controls everything. It doesn't make any sense, Mr. Kimmelman. When they are talking today about Yahoo! finding a partner in the media business, other online companies finding partners -- these are not vertical mergers, where two people doing the same thing get together, like two banks or two newspapers, they're horizontal.

KIMMELMAN: The problem is a number of them who do the same thing have already gotten together. As I say, AT&T and Time Warner are in very close relationship with more than half the customers in...

NOVAK: But you aren't answering my question.

KIMMELMAN: I'll answer it specifically. The danger is the leading-edge company controls access to eyeballs. We all know from this business that's where the money is: viewership. AOL was the biggest opponent of the cable company's control of this new service, and they gave up today . They said, we're better off buying into it to be part of this.

NOVAK: You're repeating yourself. But I want to ask you this: How can you talk about -- I mean, listen, we're talking about consumers, we're not talking about the companies. How can you say the consumer is worse off if News Corp., Rupert Murdoch, can combine with Yahoo!, if Disney can combine with another online company...

KIMMELMAN: The problem is...

NOVAK: ... if CBS can combine with a company. What's wrong with that?

KIMMELMAN: They can all combine. The problem is we've had too many combining. We may have too few...

NOVAK: Well, you...

KIMMELMAN: But here, here's the problem. The cable wire offers a faster speed, a video quality service that the telephone wire, satellite can't offer. And so it's a unique service and it's the cutting-edge service. It's why AOL wanted fair access to it. When they lost that battle, they said, we'll give up and we'll just join with the others and we'll be part of the money making machine. The danger is lack of diversity.

PRESS: Reed Hundt, you were chairman of the FCC, one of the regulatory agencies that must now approve this new merger before it becomes final. If you were still chair of the FCC, would you vote yes or no?

REED HUNDT, FORMER FCC CHAIRMAN: I think I'd be smiling like the Cheshire Cat, gradually growing invisible. I don't think the government is going to get significantly involved in this deal because this is about the new media acquiring the old media. It is not about combinations and markets that currently exist. This is about change. This is a kickoff for the new millennium economy, and I think most people in government are going to say, let's see what's comes of this.

PRESS: Well, you may not see any problems, but not everybody is smiling like the Cheshire Cat today. Neither -- not all Democrats and not all Republicans. Let's start with a Democrat -- I mentioned him earlier -- Patrick Leahy, who's the leading Democrat on the Senate Judiciary Committee, who said today, quote:

"The great promise of the Internet has been to allow people a wide range of information sources and choices. What we should do is to make sure that all that information does not become funneled and controlled by just two or three sources."

As Gene was indicating and Senator Leahy, doesn't this get to the nature of the Internet, and the nature of online that's now constricted by this merger? HUNDT: You know, about five years ago a lot of business consultants were saying that no more new brands could be created in the United States, that all the brands we ever had would last forever. And what the Internet has done is permitted companies to come into existence and be branded, AOL, Yahoo!, to be prominent parts of our different stock markets, and they are found gold. And there's no reason at all to believe the Internet isn't going to continue to nurture more and more companies just exactly like this.

KIMMELMAN: But they were found gold on a telephone wire that connected people to them that everyone had access to, no one could control it. The cable wire is controlled by the cable company owner. AOL wanted them to open up like the telephone wire. they were unsuccessful, and today they're saying, we're going to buy them because we want to make sure our 20 million customers are the leading edge in this new market.

HUNDT: But let's get the facts on the table. What AOL has bought in Time Warner is access to only 20 million of the households in the United States. That's a lot more than zero...

KIMMELMAN: Plus the relationship with AT&T, which has another 40 percent of the market.

HUNDT: That's a lot more than zero, but it leaves 80 million households in the United States without Time Warner being the dominant provider, without providing any kind of access.

PRESS: Let me just move on, if I can, because I mentioned a prominent Republican who was on the campaign trail today. He happens to be the leading Republican contender for the presidential nomination. George W. Bush was asked what he thought about this merger today. He expressed a different concern.

Let's listen.

(BEGIN VIDEO CLIP)

GOV. GEORGE W. BUSH (R-TX), PRESIDENTIAL CANDIDATE: Those of us in government are mindful of accumulations, and the powers that result of accumulations. I don't know enough about it. It's just an interesting new development, and I look forward to hearing the details and making sure that there is competition and that the consumers benefit.

(END VIDEO CLIP)

PRESS: Certainly not the most powerful statement, but he does basically say too much power in the hands of too few -- a concern that you ought to be concerned about.

HUNDT: Well what I mostly heard him say is that he didn't know anything about it.

NOVAK: That's exactly right.

PRESS: No, first he said...

HUNDT: And I'll agree...

PRESS: First he said -- first he said...

HUNDT: And I'll agree that that's George Bush.

NOVAK: All right, Mr. Kimmelman...

PRESS: Spoken like a true McCain supporter.

NOVAK: Mr. Kimmelman...

HUNDT: Like a true Al Gore supporter.

NOVAK: Mr. Kimmelman, I think you're crying all these crocodile tears for the other companies. Let's look at the stock close today, do you mind?

KIMMELMAN: Not at all.

NOVAK: AT&T up 1 9/16, Yahoo! -- a competitor, there are competitors of AOL -- up 28 13/16. Don't you wish you had some Yahoo! stock today? Disney up -- a competitor of Time Warner -- up 4 3/8. All the competitors...

KIMMELMAN: Like the merger...

NOVAK: If this is so anti-competitive, why do the competitors like it?

KIMMELMAN: The market was up big time for almost everybody today. The cable stocks were up even more than what you just said. The problem here is that everyone's looking at yesterday's Internet, which, Reed points out, spawned a lot of innovation and diversity over a telephone wire that everyone had access to. This is different. And the cable companies...

NOVAK: You've made that point about three times, sir.

KIMMELMAN: ... will not let people use it for free.

NOVAK: Yes, you've made that point about three times. Can we go on to something else? I want to ask you this, with all due respect Mr. Kimmelman. Have you ever seen a merger you liked?

KIMMELMAN: Oh, yes.

NOVAK: Name -- would you tell what it was?

KIMMELMAN: well, there are mergers every day...

NOVAK: Tell me one you liked.

KIMMELMAN: Ones in the oil industry we don't mind, we wanted MCI to merge with British Telecom. It brought new capital into the market. It fell apart unfortunately.

When a merger brings new players, more players to play in an industry, we're always for it. You don't see us on this show because we're not yelling and screaming about it. You only see us when we complain.

NOVAK: All I know is that every merger I see, your little organization -- your little organization comes out against it. And you know, they had -- everybody was so happy about this merger today, people who know something about it. And CBS on their evening news had to have something negative, and they could only find one person to put on the air. Do you know who they found?

KIMMELMAN: I can't imagine who it was.

NOVAK: Who was it?

KIMMELMAN: I think each of the networks found somebody.

NOVAK: Who was it? Who was CBS?

KIMMELMAN: I did talk with them today.

NOVAK: It was the only negative -- it was Kimmelman. When you want somebody to trash private enterprise, you look to Kimmelman.

KIMMELMAN: Not -- not at all. Look, we support banks merging at various points, health care providers. When it brings more competition to the marketplace, we're silent. You don't put us on the show because we don't create controversy. We yell and scream when we think there is a danger to more choice, lower prices for consumers and diversity in the marketplace. That's why we're here today.

PRESS: For the record, I saw Norman Solomon (ph) opposing it on PBS today.

(CROSSTALK)

So you're not the only one there.

Reed Hundt, it just makes common sense, though: You don't have to be, you know, an executive to understand this. If you earn -- own a couple of different entities, you're going to make sure that one is helping the other. Right? I mean, that's common sense.

HUNDT: Well, go on.

PRESS: OK. I -- all right. So as Howard Kurtz, the host of "RELIABLE SOURCES," pointed out earlier today on CNN one problem we've got already is Time, Inc. 10 years ago buys Time Warner -- Warner Brothers -- right? -- rather.

So "TIME" magazine puts a movie, a new movie on the front cover. Are they doing that because it's a good movie or are they doing that because they want to help out their new partner? And aren't those kind of conflicts just going to multiply with this sort of a merger? HUNDT: Here's where I think the help is coming from: The new media is reaching back into the past to take the old media and give it a chance of surviving with the new technologies. The reason that these companies are all going up in the stock market that Bob talked about is because they all represent potential acquisition targets by the new media.

Now, it's perfectly possible that there is some set of combinations and conglomerates that is too much. But what's really fascinating about America today is that we embrace change and we embrace technology so that we are supporting as a country by all of our policies the takeover of the old media by the new media. You don't see that in any other country on the planet.

PRESS: But you are not addressing the conflicts that I'm asking about. And now you add AOL to it; you have even more. So AOL has a movie review about a movie that's going to be happen to be seen on CNN. It's going to be on the cover of "TIME." You can hear the soundtrack on AOL.

I mean, where's the independence that you used to depend on from the Internet? It's gone.

HUNDT: The Internet is almost as big as the Library of Congress. Within two months, it will be bigger than the Library of Congress. There are more views and more material and more content available in the Internet that has ever been available at the touch of the finger or the blink of an eye to human beings in the history of the world.

(CROSSTALK)

NOVAK: Mr. Kimmelman. Mr. Kimmelman.

(CROSSTALK)

PRESS: ... wants to jump in, I believe. He wants to jump in.

(CROSSTALK)

NOVAK: Excuse me please. You...

KIMMELMAN: When Reed was talking about (UNINTELLIGIBLE), he didn't feel this way about letting too few people own too many properties. As chairman of the FCC, he worried a lot about mergers and consolidation. Unfortunately, since you've left the administration, virtually no one seems to care anymore. Merger begets merger begets merger. And even if one -- if even one is not a violation of the antitrust laws, what happens now is the entrepreneurs see an opening, they see a loophole, and they say, well, no one's going to step in and block us, because as Reed said, it's the new media. No one dares touch the new media.

The new media relies on this old cable wire, sometimes many years old.

NOVAK: You made that your fifth time that you made that now. KIMMELMAN: That's a very important monopoly to go after.

NOVAK: I'm going to keep track of how many times you make that point.

HUNDT: Let me speak to where I disagree with Gene. On at least one of the points I disagree with Gene.

The point here that he's making repeatedly, says Bob, is that there's only one cable pipe to the home. There are also 6,000 companies in the United States that provide some form of Internet access. There are dozens and dozens of new technologies on the drawing boards. I'm involved with some of the companies, like North Point and others, that are providing new forms of access.

KIMMELMAN: Pony Express versus Federal Express.

NOVAK: We're going to have to take a break. I want to ask you one question. I hope I can get a quick answer.

Bill says that there might be a lack of movie reviews on some movie.

PRESS: I didn't say that! I didn't say a lack of movie reviews. I said -- do you want me to repeat the whole scenario of about the conflicts?

NOVAK: I certainly hope not. You said that there might be only a single source of the movie review of the same movie put out by the same company.

PRESS: No. I didn't say that at all. I didn't say that at all. Now, you surely think with all kind of diversity we have of all the little community newspapers, of all the magazines, you look at all the things to read, are you worried about a single source of information on anything?

KIMMELMAN: I'm not worried about a single source of information. I'm worried about whether the most dominant sources that influence people's choice in the marketplace are owned and controlled by too few companies, too few entrepreneurs. That's the danger.

NOVAK: OK. We're going to have to take a break, and when we come back, we'll look at the wonderful services that will be given to millions of people -- billions of people! -- around the globe by this merger. Or will they?

(COMMERCIAL BREAK)

NOVAK: Welcome back to CROSSFIRE. Think of this: Sometime soon you sit down at your home computer, connect with AOL, push some buttons, and Kazam! you get CROSSFIRE right on your little screen, unless of course the federal government vetoes the AOL-Time Warner merger.

We're talking to Gene Kimmelman, co-director of the Consumers Union, who doesn't like the merger at all, and to former FCC Chairman Reed Hundt, now a telecommunications lawyer who serves on telecommunications company boards and like the merger -- Bill.

PRESS: So Mr. Hundt, we know that this isn't the first recent merger. It happens to be the biggest ever. Let's look at some of the recent ones here up on the screen.

SBC Communications and AmeriTech at 62 billion. AHP and Warner- Lambert at 72 billion. Exxon-Mobil -- one that Gene said he likes, I guess -- 80 billion. All the way up to Time Warner-AOL: 350 billion today.

Why is suddenly bigger better for consumers, or is it automatically?

HUNDT: Well, they're all different mergers in their different sector. This is the biggest one of the century. That much we can agree to.

PRESS: Yes, right, 10 days into it.

HUNDT: But the point here is that the scale in the new media is naturally much bigger than the numbers in the past because the new media and information sector is exploding in size.

PRESS: But the question is, why is bigger better for consumers? I mean, I thought the essence of government regulation, of which you are a part, is to assure competition, because competition allows more choices. By nature, when you combine aren't you limiting the choices and limiting competition?

HUNDT: It's all about the number of choices, right? It's not about the sheer size of the merger. You wouldn't say that a small Starbucks coffee is better than a large Starbucks coffee. And you wouldn't say that a small media company is better than a large media company. It's all about whether there are many choices available or not.

Now, in terms of getting into the Internet there are dozens and dozens of choices, different technologies for getting in, different portals, different Web sites and the thousands and tens of thousands and hundreds of thousands. We just don't see any constriction of choice as yet in the new media.

KIMMELMAN: I don't think that's true. When cable is faster and cable offers video and Internet together, it is unique, no one else can do that technologically now. So the danger is a bottleneck getting created. All we have to have here is an open policy. Steve Case asked for it when he was head of AOL. Let's just let him do it now.

NOVAK: You said that, Mr. Kimmelman. All right.

KIMMELMAN: And let's do one other thing, let's make sure AT&T, the largest cable company has no business relationships with Time- Warner, the second largest cable company. Let's let them compete so there are more choices in the market.

NOVAK: Mr. Kimmelman, you really believe -- and I used to think Mr. Hundt believed this, too. I'm glad to see he's had a new berth in the private sector. But you really believe that government should be -- should not let free enterprise be too free, don't you believe that?

HIMMELMAN: Not at all true. I want choice in the marketplace. You are talking about old monopolies, local telephone, old monopolies, cable, you are talking about a new medium. We want to make sure they don't fall into the trap of the old monopolies.

NOVAK: You know, all the people who know this business today have been talking about content, the -- a lot of the journalists who don't understand it and the politicians like Pat Leahy and you. You don't talk about content, but let me just list some of the things from Time-Warner that's going to be available, and I think it's going to be changed with some interactive factors, Time-Warner brands include: cable networks CNN and HBO, "Time," publishing, "Time," "People," "Sports Illustrated," film studios New Line Cinema and Warner Brothers, Warner Music, Cable Systems, sports teams -- Bill doesn't like that -- but he -- Atlanta Braves, Hawks and Thrashers.

PRESS: I'm against sports teams.

NOVAK: Isn't that -- to bring all that into online with interaction, isn't that exciting?

KIMMELMAN: It's exciting and wonderful. But don't let them dominate the wire so that no one else can combine similar parallel assets and offer and you different choice and offer Bill a different choice. That's what we need.

NOVAK: Well, you haven't explained to me how this prevents, for example, Yahoo! from being combined with Rupert Murdoch and News Corp.

KIMMELMAN: They can't get the same high-speed over Rupert Murdoch's system. They cannot do it. They can't get the same interactivity. They can't get it over SBC or Bell Atlantic. The cable wire is faster.

NOVAK: Well, a lot of people disagree with you.

KIMMELMAN: Don't think so.

PRESS: Do you think that -- I mean, only one of these mergers, they're not even a merger -- the only of these companies that I've seen challenged by the Justice Department lately is Microsoft. Why? Is the Justice Department doing its job looking at these mergers?

HUNDT: I don't think that's fair. I think that the MCI-Sprint deal is being very seriously examined right now. This is a merger of two companies in a very tight industry.

KIMMELMAN: Doing the same thing. HUNDT: It's not about the new media and the old media, it's about two companies that are doing the same thing, it's being very seriously examined. I think the FCC, my successors did a fantastic job putting a real serious look at the telephone-company mergers and they put conditions on those mergers that opened those companies to new competition that has led to billions of dollars of value being created.

KIMMELMAN: I don't think it will work. I think we are getting too few.

PRESS: All right. I think we know where you both stand and that's got to be it. Thank you very much for your time for coming to join us, Gene Kimmelman, thanks for being here. Mr. Novak and I, the media giant, will be back with our closing comments.

(COMMERCIAL BREAK)

NOVAK: Bill, one of the most unfortunate legacies of Theodore Roosevelt is the anti-capitalist, antitrust laws that we still work under and the trouble is the politicians shouldn't be dealing with areas they don't know anything about. George W. Bush frankly admitted he didn't know anything about it, then he expressed an opinion anyway. Pat Leahy didn't admit he doesn't know anything about it, but he doesn't. Get these guys off the stage and let the people who are successful in America make this policy.

PRESS: Well, let me say this, Bob, I have to admit that I don't fear this merger. I'm not as worried about this merger as I was about the oil company mergers or the bank mergers, because as you pointed out, the difference is you are expanding a line of products, you don't have overlapping products. I think the potential is that this could be very exciting for consumers. There is also the risk, however, that it could reduce a number of choices, water down the product and basically, you know, have a lower quality product. That's the risk.

NOVAK: There's a risk always -- when people listen to you there's a risk they might believe you. But you got to go on even if there is a risk.

PRESS: People listen to you there is a risk that they are going to have a heart attack by some of the nonsense you say. That's the risk of CROSSFIRE.

From the left, I'm Bill Press, good night for CROSSFIRE.

NOVAK: From the right, I'm Robert Novak, join us again next time for another edition of CROSSFIRE.

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