The weekend resignation of Bertelsmann AG chief Thomas Middelhoff was just the latest casualty in the so-called ”convergence” craze that has derailed the careers of the world’s leading media executives.
Convergence is the name given to an ambitious scheme to distribute traditional media — such as magazines, film and music — on the Internet. Giant media companies such as Bertelsmann, Time Warner and Vivendi Universal hoped to bypass traditional distributors and reach consumers directly via the worldwide web.
When Time Warner and America Online (AOL) merged in 2000 to create the world’s largest media conglomerate, convergence was the main theme, with plans to distribute Time Warner’s vast collection of movies, music, magazines, books and other content via wireless portable devices hooked to the 35-million subscribers of the AOL Internet service.
”Consumers want the Internet to play a greater role in their lives, and are looking forward to the day when broadband can deliver all of a family’s home entertainment, information and communication needs over a wide variety of devices,” AOL founder Steve Case declared in late 2001, announcing a partnership with Sony.
That strategy was mirrored at Vivendi, where then-Chairman Jean-Marie Messier invested and lost huge sums of money in an attempt to create a family of online sites to deliver Vivendi Universal’s content via the Internet.
Middelhoff’s signature convergence play was the purchase of Napster, the pioneering 70-million member music-swapping website that was shut down for wholesale copyright infringement by the world’s leading record companies.
Central to all these companies was the eventual existence of a family of gadgets that went beyond the computer, delivering content — and returning payments — in living rooms, automobiles, and on
the street. These devices, which ranged from colour screen high-end cellphones to Internet-linked home entertainment centres, were enthusiastically embraced by the ”early adopters,” users who had to have the latest gear.
Problems arose when early adopters turned out to be the only adopters of these new technologies.
Not helped by shortfalls in signal strength and wireless speed, mainstream users seemed content in buying decidedly old-technology media delivery systems, like CDs, books and magazines.
”That popular device that will link the strategy of convergence and consumers embrace of that strategy hasn’t materialised,” said Jeffrey Cole, director of the University of California’s Centre for Communication Policy. ”I believe it will, but not any time in the very near future.”
These mistimed convergence strategies have attracted the wrath of investors and company boardrooms. Just before its merger, the combined market value of AOL and Time Warner was $290-billion (296-billion euros). On Monday, the combined company had a market capitalisation of just over $51-billion. Under Messier’s convergence vision, Vivendi has shrunk from a $161-billion company to an $18-billion one.
And though Bertelsmann is closely-held, shareholders are said to be unhappy with the $80-million invested in the still-crippled Napster and $200-million dropped into online bookseller Barnes Noble.com, which continues to languish behind Amazon.com
These expensive, broken convergence dreams are cited for the firing of Messier, the forced resignation of Middelhoff and the recent departure of AOL’s Chief Operating Officer and wonderkid Robert Pittman, a close ally of Case.
But despite the corporate bloodletting, the dream of convergence is still alive, if considerably toned down.
”The premise and the promise are still there,” AOL Time Warner CEO Rick Parsons told a US television industry conference recently.
”It just is going to develop more slowly than, frankly, we led people to believe at the time of the merger.” – Sapa-AFP