No sooner had the surprising news of America Online's $190 billion purchase of Time Warner hit the street than pundits started speculating on a rash of Internet companies buying media firms. Don't count on it.

The likes of Yahoo might have the market capitalization ($107 billion) to afford a giant like NBC, but few Internet companies do. And many have other reasons to shun investing in "old" media. In many ways, the AOL Time Warner union is unique - and not only because by its size.

Cable deal True, Time Warner's many brands are valuable to AOL. Yet, AOL chairman and founder Steve Case would not jump to buy the unwieldy Time Warner patchwork quilt if not for the older firm's cable systems. Time Warner Entertainment is the second largest US cable provider after AT&T. Also, Time Warner is part owner (with the future AT&T property MediaOne) of the number-two cable modem Internet service provider, RoadRunner.

AT&T's refusal to open access to its cable modem infrastructure has led a frustrated AOL to cut deals to get its subscribers high-speed access. AOL partners with regional Bell companies for Digital Subscriber Lines - such as Bell Atlantic and SBC - and with satellite networks like Hughes/DirecTV. Now, AOL can get closer to matching the hype of its AOL Anywhere initiative with a full slate of broadband access solutions.

TV and music deal On the other hand, cable access alone isn't enough to make AOL take the bait. A partnership with CNN and other Turner TV properties could boost its AOL TV plans. More immediately, Warner Music offers compelling synergy with its Spinner and WinAMP music sites. In the end, the confluence of broadband pipes and media brands makes Time Warner an irresistible target.

Just as Time Warner is not your typical media company, AOL is not your typical Internet company. The only other firm that plays a significant role as both a portal and major ISP is Microsoft. Yet, MSN's ISP business is small potatoes compared to AOL's approximately 20 million members. Internet companies not pursuing an ISP role, such as Yahoo or Lycos, do not find ownership of cable infrastructure quite so intoxicating.

New over old Still, the AOL Time Warner announcement is historic - and not only because it's the largest corporate merger in history. For the first time, the shoe is on the other foot. This time an Internet company is calling the shots.

Portents of such a turnaround occurred last May, when USA Networks withdrew its bid to acquire Lycos and combine it with its TicketMaster Online-CitySearch online service. The acquisition seemed to make a great deal of sense by matching old media with new online eyeballs. But Lycos shareholders revolted. Their charge: USA Networks CEO Barry Diller was undervaluing The Internet’s potential.

"In the Lycos deal, the traditional media company played the lead, but here it's the Internet company," says Mike Goodman, an analyst at the Yankee Group. Not only can AOL afford Time Warner, but also it has the reputation and cybercachet to keep its stock price high.

"It's a very conscious decision that the company is named AOL Time Warner and not Time Warner AOL," Goodman adds. "It's the only way they can get those Internet valuations."

Convergence Starting from the Internet side of the fence may be the only way convergence mergers can happen in the near future. Despite a rash of big-ticket media and technology mergers since the Lycos rejection, traditional companies are shy to make major investments in the Net.

Disney struggled to effectively integrate Infoseek into its network with and Other media giants passed on investing in high-priced portals and instead focused on developing their own Web properties.

Time Warner toyed with buying AltaVista early last year, but decided even that relatively small portal was too expensive. Instead, it prepared to scrap Pathfinder and refocus its Web efforts on separate initiatives ranging from to Warner Bros.' ACMECity and Entertaindom.

Viacom, one of the most successful media giants in the Internet space with its MTV and Nickelodeon sites, skipped right by Excite, Lycos, AltaVista, and the like and instead picked up venerable CBS. AT&T, now a media company by its purchase of TCI's old Liberty Media subsidiary, is rumoured to be considering selling off its new stake in the content side of [email protected] And NBC settled for buying the smaller, bargain-basement and set about to create NBCi largely on its own.

The AOL Time Warner merger signals that the prospect for convergence between old and new media is now back on the table. Technology and media giants such as Microsoft, AT&T, News Corporation, and Yahoo are suddenly forced to rethink their strategies.

Yet they may well decide to proceed with caution. Yahoo, Amazon, and Microsoft are all capable of a major entertainment company purchase, but finding the right-size fish could be tricky indeed.

Part of the problem is that ongoing convergence in the traditional entertainment industry means it's harder to find bite-size companies that aren't already owned by somebody else. The recording industry, for example, is sewn up by Sony, Time Warner, Seagrams/Universal, Bertelsmann, and EMI. Of that group, only EMI stands alone.

Movie deal Movies are largely the dominion of Sony, Time Warner, Seagrams/Universal, Disney, and Viacom; and MGM/UA is the only sizeable independent studio left. In television, Disney, GE/NBC, Viacom, News Corporation (Fox), AT&T (Liberty Media), USA Networks, and Time Warner control the vast majority of programming. Here, only NBC is said to be available for sale, though USA Networks might also be affordable.

Yahoo could conceivably buy one of these giants, but unlike Time Warner, none of them offer the additional advantage of broadband infrastructure. Other Net companies like Amazon and Microsoft might also be interested in successful entertainment brands, but the prospect of digesting such behemoths is daunting to say the least. may have enough on its plate competing with the Wal-Marts of the world to risk such a major merger. Microsoft still has the Justice Department peering over its shoulder.

"Microsoft will continue to make smaller strategic purchases," Goodman says. "But I don't see them making any major media acquisitions."

The remaining major independents (or rather CMGI investees) are Lycos and AltaVista. They lack the market caps to acquire a big media fish, though it could be a crowning irony if CMGI's Dave Wetherell turns around and acquires USA Networks. (Take that, Barry!)

Major media companies still have the most appealing brands, but they also come with a lot of baggage. Some old-media managers still don't see the full value of the Internet, and others can't figure out how to move their brands onto the Net without sapping traditional revenues. Synergy between different media outlets is beginning to pay off for companies like Disney and Viacom, but perhaps not enough to counter-effect the struggle to effectively manage so many disparate media firms.

Broadband on the run The AOL Time Warner merger is likely to be a fantastic deal for Time Warner, but some AOL shareholders may wonder why Steve Case didn't just cut a partnership deal for cable access instead. After all, AT&T began moving toward open access with the MindSpring announcement and might be inclined to eventually buddy up with AOL as well.

If AOL Time Warner follows through on its laudable vow to open its own broadband access to all ISP comers, we'll all be the better for it. But it also begs the question: Doesn't that make ownership of the pipes less appealing? And might not Time Warner have opened up its access on its own?

In the end, this will likely prove to be a good deal for AOL as well. As Yankee Group's Goodman points out, unlike Internet competitors, "AOL now has a serious revenue stream."

Still, the merger is not as much of a win for AOL as it is for Time Warner. We've come a long way in a year, from media companies buying Internet companies to Net companies buying media companies. By next year, it could be possible the Internet companies might decide they don't need the media companies at all?