SYNOPSIS: Wonders about the AOL-Time Warner merger and the many questions it raises.

As a former columnist for Fortune, I am probably one of the few people who regularly visited the unsuccessful Pathfinder portal. And I can heartily endorse the claim that Time Warner needed someone else's expertise to develop its Internet profile. The Fortune site, part of Pathfinder, was deeply flawed in at least two ways: Much of it was in unreadable yellow type (when I inquired about that, I was told it looked better on a Macintosh, suggesting a slight lack of consumer orientation), and it failed to include the kind of con-tent that might have attracted readers -- that is, it didn't post my columns.

Well, presumably AOL Time Warner content will no longer be pale yellow. But that does not explain why Time Warner was willing to be bought by a company that, by every measure except market valuation, is a mere fraction of its own size. So let me try to answer the big questions raised by this deal.

First, is this a good idea on Time Warner's part? The answer, which we can state very definitely, is that nobody knows. For one thing, remember that even Time Warner is basically selling entertainment, and what Nathanael West declared to be the fundamental principle of Hollywood still goes for multimedia: "Nobody knows anything." Never forget that among the key properties of the supposedly solid half of this marriage is -- you guessed it -- Looney Tunes.

To the time-honored uncertainty of the entertainment business we must add the brand new (or is that new brand?) uncertainty involved in the valuations of Internet companies. As such companies go, AOL is unusually solid: more service provider than dot-com, it has genuine consumer loyalty, a universally recognized brand name, and even makes profits. But does this justify a market value of well over $10 million per employee? Or will AOL 2000 end up being like Polaroid 1972 -- a company so famous, so loved that its name ended up becoming a common noun, but a disaster for the investors who thought that made it a sure market winner? I don't know, but neither does Gerald Levin.

Is it a good idea for AOL? On a strict market-value basis AOL actually overpaid for Time Warner -- that is, its share of the merged company is less than its share of the pre-deal stock valuations. The theory of the (Steve) Case is that the acquisition of Time Warner will create valuable synergies. Again, maybe -- unless five years from now we are all relying on wireless access, and cable sounds hopelessly old-fashioned. I also have to admit that I am (just) old enough to remember the conglomerate-building era of the 1960's, an era that ended so badly that many thought the word "synergy" would be permanently banned from the business lexicon. (But then I thought "empowerment" would soon be laughed out of circulation too.)

O.K., I know: I sound like a professor, not a businessman. Companies have to make bets on the future, whether they like it or not; Hamlet would not cut it as C.E.O. But the realistic uncertainty surrounding this deal does have a direct bearing on the next question: Does this merger, in which the new-era, e-business company is clearly the senior partner, dispel once and for all any doubts we may have about the validity of the extraordinary valuations the market currently places on such companies?

And the answer is, of course not: This deal was based on those market valuations, and provides no real evidence about whether or not they make sense. Only time, with a small "t," will tell us whether companies like AOL will ever be able to deliver the kind of profits that will justify their current price.

And now to the final question: Does this merger imply an end to the dream of the Internet as an open, democratic place, where anyone's voice can be heard? No -- because the expectations that drove this merger could be wrong. But the deal is based on the belief that a big piece of the electronic prairie can indeed be fenced off, that a big company can create a zone of influence within which people watch or listen to its content, coming over its wires, and pay for the privilege. If the cyber-libertarian dream of the Net as a world without boundaries is right, some big businessmen have just made a very big mistake.

Originally published in The New York Times, 1.12.00