STUDIO WINS IN MERGER.

Byline: Jesse Hiestand Staff Writer

BURBANK - Warner Bros. will produce too much valuable entertainment for future parent America Online Inc. to justify the cost cutting and consolidation that mega-deals like the impending merger of Time Warner Inc. and AOL would typically unleash, industry analysts said Thursday.

Warner Bros., in fact, stands to benefit from exposure to the 26 million subscribers to AOL, the nation's leading Internet service provider, which got unanimous Federal Trade Commission approval for the $111 billion merger Thursday.

``The content portions of the business are going to flourish under Time Warner America Online,'' said Mike Kupinski, entertainment industry analyst with A.G. Edwards & Sons Inc. in Chicago. ``These companies don't have a lot of overlap. There's a good fit with the marriage.''

Management may be more consolidated under AOL and there may be more emphasis on the bottom line, but no radical changes are in store for the up to 10,000 people who work for Warner Bros. various film, television and music projects at its Burbank headquarters, said Barrington Research Associates analyst James Goss.

``A lot of the content Time Warner brought to the table was what AOL to an extent coveted,'' Goss said.

That media includes Warner Bros. studios, Warner Music and the WB Television Network, which together generate nearly half of the revenue for Time Warner Entertainment.

Warner Bros. officials would not comment on the merger that will be finalized with the approval of the Federal Communications Commission.

While the new company already has a commanding presence on the Internet, it is betting it can accelerate the adoption of high-speed Internet service through the cable systems of Time Warner, the nation's No. 2 cable company, said UBS Warburg analyst Christopher Dixon. The key to making that work is offering people engaging Web programming.

The deal creates a formidable opponent for other media companies and conglomerates but will ultimately benefit the industry, Dixon said.

``As long as we have an expanding distributions platform for entertainment companies, that's good news, because it brings capital into the industry and also lowers the inherent risk for new projects,'' he said.

The deal would not have gotten past the FTC had the companies not pledged at the last-minute to open their cable lines to rival Internet services and not interfere with their content.

That was a move applauded by The Walt Disney Co., which sounded a conciliatory tone Thursday after actively opposing the deal.

``If AOL was the only ISP (Internet service provider) on these cable platforms they could just block our content and skew consumer choice to their own movies,'' said Preston Patten, executive vice president of government relations for Disney.

``We've had a long, cooperative history of working with these companies, particularly Warner Bros., and with these safeguards in place we're looking forward to resuming those sorts of normal business relations,'' Patten said.

Opening access to its cable system serves the new company's interests far more than having a monopoly on one cable system, said Scott B. Davis, an analyst with First Union Securities Inc. in New York.

``It's much better for them to have open access and take their dominant market share and compete across the country,'' Davis said.

The battle over open access may ultimately have little impact on the cable industry because no one company, even with a limited monopoly, can dominate when consumers can choose high-speed Internet over cable, phone lines, fixed microwave and satellite, according to David Beckwith, spokesman for the National Cable Television Association.

``We were heading that way anyway because there's so much competition,'' Beckwith said. ``Cable realized that it makes business sense to have multiple ISPs because they can help you with your marketing, and consumers like choice.''

THE BIG DEAL

The Federal Trade Commission on Thursday unanimously approved the proposed $111 billion merger of America Online and Time Warner. The deal, the largest in American history, brings together an Internet giant and a media company with ties to film, music, cable television and magazines. The deal must still be reviewed by the Federal Communications Commission, which is expected to approve of the merger by year's end.

AMERICA ONLINE The nation's largest Internet service provider with 26 million subscribers. The combined company will seek ways to offer onlineentertainment and news programming from Time Warner media outles.

TIME WARNER CABLE Serves about 21 million homes nationwide. Regulators insisted the company's efforts to upgrade its lines to allow advanced interactive services not exclude competing online companies access to its cable lines.

TIME INC. The largest magazine publisher in the U.S., with such established brandes as Time, People and Sports Illustrated. The company accounts for nearly a quarter of all advertising revenues from consumer magazines.

WARNER BROS. STUDIOS Home to such major productions as this summer's blockbuster ``The Perfect Storm,'' television hits ``Friends'' and ``ER'' and animated cartoons featuring Bugs Bunny, Tweety Bird and Scooby Doo. Despite its stable, it may not be among the first media divisions of Time Warner to take advantage of the company's digital transformation. The limitations of regular telephone lines in handling live video content have so far hampered the widespread delivery of movies over the Internet.

WARNER MUSIC GROUP The merger gives the new company a boost in industry efforts to provide music over the Internet as well as online music sales.

CABLE NETWORKS Time Warner operations including CNN, TBS and HBO could provide exisiting or new programming on similar ``channels'' on AOL.

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