Is Time Warner next in merger mania?

That is a logical question a day after word first broke of today's announced deal between USA Networks and Lycos. Time Warner has long been rumored to be in the market for a major Internet acquisition, and speculation intensified once it became known that the latest portal deal involved another company with roots in Hollywood.

Executives within Time Warner are known to be discussing the media conglomerate's Internet strategy, well aware of the merger mania seizing the market and its previous shortcomings online. The highly decentralized Time Warner, which has searched for ways to consolidate its scattered Internet operations for years, now appears to be focusing on a strategy to gather its properties into one user interface and bolster its e-commerce efforts, sources say.

But that may be easier said than done. While a smaller company like USA Networks can make an acquisition with relatively clear goals involving traffic and e-commerce, the equation is much more complicated for a sprawling conglomerate like Time Warner.

Until now, a successful Web strategy has eluded Time Warner, as evidenced by early criticism leveled at the company's unwieldy Pathfinder site. The company has long faced the challenge of joining disparate operations with widely varying goals, ranging from television programming to magazine publishing.

"The fact is it can be difficult to coordinate a Web strategy for any large media property," said Forrester Research analyst Chris Charron. "It's not only a challenge of moving traditional media organizations on the Internet, but also a challenge of coordination across different units. Time Warner has stumbled in that regard, but a lot of other major media companies have stumbled."

The question is: Which formula will work?

Linda McCutcheon Conneally, president of Time New Media, noted that while the Internet industry is undergoing mass consolidation, traditional portals that simply aggregate content and offer services such as free email have become passé over the past six months.

E-commerce has become a focal point for many sites during the rush to consolidate and change focus--especially since it is a potential revenue stream, and Wall Street is beginning to show signs of weariness with profitless Internet companies. Since she took the helm at Time Inc. New Media two years ago, Conneally sized up its operations and placed bets on such revenue sources as advertising, e-commerce, fee-based subscriptions for its online magazines, syndication, and selling premium content.

"All four have been successful, except for the premium content that has been less than successful," she said.

Time Warner last month named Michael Pepe as president of its e-commerce operations. Pepe will not only oversee the media giant's online efforts but also serve as "point man" for its other online initiatives.

"[Pepe's] first focus will be to look at all the ways Time Warner's services and products touch the consumer and how they can be touched," said a source, who noted the media giant is focusing on an umbrella user interface. That could take the form of a start-up page on a cable TV set-top box, for example.

Another form of user interface may take the shape of a portal or "destination" site. The media giant was in serious talks last month to exchange some of its Internet properties for a significant stake in Compaq Computer's search directory AltaVista, said a source, who noted the talks have since fallen through. Compaq said late last month it plans to spin off AltaVista and take it public.

In a conference call about quarterly earnings just last week, CEO Gerald Levin said the company would use its existing assets, instead of cash or stock, as currency in future joint ventures or combinations. While Levin was vague on specifics about those investments, a media industry source said Time Warner may look to use its "soft money" currency--free promotion and distribution via its holdings, which also include the WB television network, Warner Music, and Turner Entertainment Networks--in exchange for a stake in an Internet company.

It appears Time Warner is not willing to pay cash or trade its stock for Internet companies, largely because of their high valuations.

"Investors of Time Warner are not interested in seeing it go out and spend $5 billion...to buy an overpriced Internet company," said David Simons, managing director of Digital Video Investments. "That would put Time Warner three steps back on Wall Street in terms of its core of traditional investors."

However, if an Internet company were to shell out billions of dollars for an expensive Web portal, that buyer would have the advantage of using its equally overvalued stock to buy the portal.

"Can you imagine if Time Warner paid $6.7 billion for Excite?" Simons asked. "Investors would storm the Time Warner building--you'd have people on the rooftops throwing buckets of lead to keep them away."

Rather, if Time Warner is to do an Internet deal, it would follow the lead of its offline media counterparts, following the example of today's USA Networks-Lycos deal as well as Disney's 43 percent stake in Infoseek or NBC's 19 percent investment in Snap.

Time Warner's extended family includes its numerous magazines, Warner Bros. Online, CNN Online, and HBO Online. Time Warner also is one of five owners of high-speed cable Internet access provider Road Runner. Each of these Internet properties reports to one of the fairly autonomous units of Time Warner that include publishing, entertainment, cable, and cable networks.

With all of Time Warner's powerful individual brands, however, the company has yet to find a successful method to deliver them effectively from a unified front.

Conneally said her counterparts at CNN Online and Warner Bros. Online have been aggressively experimenting with various business models. Analysts have pointed to CNN Online as one of the more successful sites on the Web for news and say Warner Bros. Online holds a lot of e-commerce opportunities, especially in light of the launch of "destination" site ACMEcity last month.

And Road Runner is concentrating more on rolling out its high-speed Internet service than on marketing it to potential users who live in areas where it is available.

"People who get Road Runner are getting it for the high-speed connection. The sweet spot will come when they also want a rich package of content and features," Conneally said.

"Road Runner has not yet unleashed the power of content and functionality," she said, adding that if she were asked to give her opinion on the subject, "I'm there."

Road Runner serves roughly 180,000 subscribers and has a penetration rate of 2.6 percent in the markets where it is offered.

In sizing up Time Warner's overall Internet operations, Conneally said: "We have content in the digital form, we have broadband cable and the largest direct-to-consumer business for e-commerce. All of it fits together like connective tissue."

Road Runner has specific needs for a user interface based on the combination of high-speed Net connections and television set-top boxes. In banking on the convergence of the Internet and broadcast technologies, Road Runner is hoping to offer a unique viewing experience that may combine Web links on the type of interactive programming guide that accompanies Time Warner cable TV service.

That is likely very different from the goals of a static print publication such as Time magazine that offers a Web site. While Time and Road Runner may share some of the same objectives--such as generating revenue through advertising--the magazine's technological priorities and resources probably won't be devoted to tasks such as embedding hyperlinks in video.

Even within a single medium, Time Warner's properties have vastly differing needs. What is important on the Net to Warner Music executives may have little to do with the goals of the WB television network.

Throw in a 24-hour cable news operation (CNN) and a publishing mix that includes People, Money, and Sports Illustrated for Kids, and the resulting Web formula is anyone's guess.