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CNBC EXCLUSIVE: FORMER AOL TIME WARNER CEO GERALD LEVIN ON CNBC'S "SQUAWK BOX" TODAY

WHEN: TODAY, MONDAY, JANUARY 4TH

WHERE: CNBC'S "SQUAWK BOX"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Former AOL-Time Warner CEO Gerald Levin today on CNBC's "Squawk Box."

All references must be sourced to CNBC.

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QUINTANILLA: AS YOU KNOW THIS WEEK MARKS THE 10-YEAR ANNIVERSARY OF THE MERGER OF AMERICA ONLINE AND TIME WARNER OUR NEXT GUEST WAS A KEY FIGURE IN STRIKING THAT DEAL HERE NOW EXCLUSIVELY WITH HIS PERSPECTIVE ON THE MERGER TEN YEARS LATER GERRY LEVIN FORMER CEO OF AOL TIME WARNER AND OUR GUEST CO-HOST STEVE CASE FOUNDER OF AOL AND CHAIRMAN AND CEO OF REVOLUTION THIS IS EXCITING HAVING YOU BOTH HERE AT THE SAME TIME

CASE: EXCITING FOR US

LEVIN: THANK YOU CARL

QUINTANILLA: HOW OFTEN DO YOU APPEAR TOGETHER? HAVE YOU EVER HOW OFTEN DOES THIS HAPPEN?

LEVIN: IT DOESN'T HAPPEN THAT OFTEN ANYMORE HE GAVE ME A BIG HUG TO BEGIN WITH 10 YEARS AGO AND NOW WE KIND OF COMMUNICATE THROUGH STEVE'S LITTLE APP THERE

QUINTANILLA: RIGHT BUT YOU'RE IN TOUCH THE TWO OF YOU?

LEVIN: WE'RE IN TOUCH STEVE HAS BEEN OUT TO MOONVIEW THAT WE OPERATE IN SANTA MONICA AND I'VE BEEN TO SEVERAL OF HIS PLACES INCLUDING A NICE SPA NEXT TO SIERRA TUSON

QUINTANILLA: I IMAGINE YOU'VE SEEN VIDEO OF THE ANNOUNCEMENT OF THE MERGER RECENTLY IT IS GOING TO AIR A LOT TODAY AT LEAST ON THE BUSINESS CHANNELS THOUGHTS ABOUT IT A DECADE LATER?

LEVIN: WELL IF YOU GIVE ME A FEW MINUTES BECAUSE I HAVE OBVIOUSLY BEEN REFLECTING ON IT THE FIRST THING I WOULD SAY IS THAT THE CONCEPT THAT WAS UNDERNEATH IT WAS PROBABLY SOME KIND OF TRANSCENDENT CONCEPT THE FACT THAT IT STILL RESONATES TODAY AND THE INTERNET IS STILL BARRELLING THROUGH OUR BUSINESSES BUT THERE'S SOMETHINE ELSE THAT I THINK IS IMPORTANT FOR ME AFTER READING THE PIECE IN YESTERDAY'S TIMES ABOUT SANDY WIEL AND THAT'S HOW DO YOU DEFINE LEADERSHIP SO I PRESIDED OVER THE WORST DEAL OF THE CENTURY APPARENTLY AND I GUESS IT IS TIME FOR THOSE THAT ARE INVOLVED IN COMPANIES TO STAND UP AND SAY YOU KNOW WHAT I AM SOLELY RESPONSIBLE FOR IT I WAS THE CEO I WAS IN CHARGE I'M REALLY VERY SORRY ABOUT THE PAIN AND SUFFERING AND LOSS CAUSED I TAKE RESPONSIBILITY IT WASN'T THE BOARD IT WASN'T MY COLLEAGUES AT TIME WARNER IT WASN'T THE BANKERS THE LAWYERS THERE WERE A LOT OF THEM IT WAS NOT STEVE CASE THE BRILLIANT YOUNG ENTREPRENEUR IT WAS JUST TAKING THIS MAGNIFICENT CONCEPT AND NOT BEING ABLE TO MELD IT INTO KIND OF A MISSIONARY ZEAL OF EXTRANEOUS FACTORS BUT I LIKE THIS NOTION THAT THE PROBLEM WITH A LOT OF THE COMPANIES AND IT WAS TRUE OF AOL TIME WARNER EVEN THOUGH WE HIT THE DOTCOM BUBBLE BURSTING AND THAT IS IT WAS NOT FOR ME BUT FOR MOST OF THE PEOPLE IN THE COMPANY A SUPER MARKET IT WAS NOT A SUPERMARKET IT WAS A MALL THAT'S THE PROBLEM WITH CITIGROUP THAT'S THE PROBLEM WITH AIG THAT'S THE PROBLEM WITH GE IT'S THE PROBLEM WITH A LOT OF COMPANIES SO AND I AM NOT GOING TO BLAME ANY PREDECESSORS OR SUCCESSORS I HELPED PICK THEM AND I HAVE GREAT RESPECT FOR THEM SO WHERE IS THE LEADERSHIP IN NOT ONLY THE THREE COMPANIES THAT I JUST MENTIONED BUT LET'S HEAR PUBLICLY FROM LEHMAN BROTHERS BEAR STEARNS MERRILL LYNCH YOU KNOW ON AND ON I'M NOT TRYING TO BE DEFENSIVE I JUST THINK IT'S IMPORTANT THE GOVERNMENT IS BASICALLY RUNNING OUR COMPANIES TODAY SO WHERE'S THE STANDUP LEADERSHIP THAT TAKES RESPONSIBILITY FOR WHAT'S HAPPENED AND DO SOMETHING ABOUT IT

QUINTANILLA: THIS IS NOT WHAT WIEL SAYS IN THE TIMES PIECE TO ANYBODY WHO READ IT

LEVIN: NO

QUINTANILLA: HIS TAKE IS THAT IT WAS PRINCE AND HIS MISTAKE FOR CHOOSING PRINCE

KERNEN: WELL HE BARELY WELL YEAH I DIDN'T GET AS MUCH OF THAT AS THAT IT WAS PRINCE'S FAULT AND WE HAVEN'T HEARD FROM STAN O'NEAL WE HAVEN'T HEARD FROM ANY OF THE PEOPLE THAT YOU ARE TALKING ABOUT

LEVIN: YEAH YOU KNOW MAYBE YOU CAN SAY IN MY CASE IT IS A LITTLE LATE BUT I HAVE HAD A CHANCE TO REFLECT ON IT AND TO THINK ABOUT WHAT'S NEEDED TODAY AND THAT'S MAYBE MORE OF A CONCERN ABOUT PUBLIC INTEREST AS WELL AS DELIVERING FOR SHAREHOLDERS BECAUSE LOOK WHAT'S HAPPENED WE DON'T NECESSARILY HAVE A CAPITALIST SYSTEM ANYMORE THE ECONOMY FOR THIS YEAR THE MARKET SEEMS TO BE DOING OK BUT THE ECONOMY FOR THIS YEAR IS GOING TO DEPEND ON WHAT OUR GOVERNMENT DOES AND WHAT GOVERNMENTS AROUND THE WORLD DO SO YES I HOPE THERE WILL BE MORE INNOVATION I HOPE BUSINESS SCHOOLS WILL TEACH VALUES BUT IT IS INTERESTING AND LAST THING AND I WILL THEN BE QUIET

QUINTANILLA: WE HOPE NOT

LEVIN: LOOK AT THE COMPANIES THAT HAVE A MISSIONARY ZEAL YOU KNOW MY OLD FRIEND JOHN HUEY AT TIME INC WROTE THIS SAM WALDON BOOK ITS LIKE RELIGION THERE I HAVE GREAT RESPECT FOR AMAZON JEFF BEZU IT'S BEYOND THE KINDLE BEYOND ELECTRONIC COMMERCE SO MISSIONARY ZEAL ALMOST LIKE A RELIGION SOME KIND OF FAMILY VALUES I ACTUALLY HAVE GREAT RESPECT FOR THE FAMILY THAT RUNS COMCAST AND THE BURKE FAMILY AND WE WILL SEE HOW THAT CAN BE TRANSLATED INTO THE MEGA COLLASUL NBCU

KERNEN: COULD AOL TIME WARNER HAVE BEEN NOT A MALL COULD IT HAVE BEEN EXECUTED IN A WAY THAT WOULD HAVE BEEN A SUPERMARKET?

LEVIN: I CERTAINLY BELIEVE THAT TO MY CORE BECAUSE WE HAD KIND OF DONE THAT WITH FIRST WITH HBO THEN WITH CABLE THEN WITH PUTTING TIME AND WARNER TOGETHER AND THEN TIME WARNER AND TURNER AND THEY ALL CAME FROM DIFFERENT PLACES THEY HAD ALLEGIANCE TO SOMETHING CALLED TIME WARNER IF WE HAD BEEN ABLE TO DO THAT WITH AOL TIME WARNER BUT YES THERE WERE A LOT OF EXOGENIST FACTORS THE BUBBLE BURSTING THERE WAS A RECESSION WE HAD A TOUGH TIME THROUGH THE WHOLE REGULATORY PROCESS WHICH IS SO IRONIC THAT THE REGULATORY PROCESS WE'LL SEE WHAT HAPPENS WITH COMCAST AND NBCU BUT THEY IMPOSE RESTRICTIONS THAT ARE BASCIALLY SHIMEROUS I MEAN THEY DON'T REALLY EXIST BUT I THINK THERE WAS SOMETHING THAT WE DIDN'T QUITE SEE WHICH IS I HAD PASSION AND I HAD THE MISSIONARY ZEAL BUT I DIDN'T HAVE SUFFICIENT PASSION AND UNDERSTANDING FROM EVERYONE UP AND DOWN THE LINE THEY HAD A LOT OF PSYCHOLOGICAL THINGS GOING ON WHAT DOES THIS MEAN WHAT'S GOING TO HAPPEN WITH THE CREW THAT CAME FROM STEVE CASE EVEN THOUGH THE STOCK WAS UP AT THE TIME THERE WAS A LOT OF TENSION AND I DIDN'T DEAL WITH THE PSYCHOLOGY WITH ENOUGH COMPASSION IT'S A LITTLE HARD TO EXERCISE COMPASSION CONNECTION AND LOVE WHEN THE MARKET IS VERY UNFORGIVING AS IT WAS AT THAT TIME BUT THE FACT THAT THE INTERNET WAS GOING TO CHANGE THE NATURE OF THE MEDIA BUSINESSES IS TRUER TODAY THAT IT WAS IN 1999

CASE: I THINK THIS PEOPLE ASPECT IS REALLY IMPORTANT WHEN I CALLED A FEW DAYS AGO TO INVITE HIM TO JOIN ME ON THE SHOW THIS MORNING THAT'S ONE OF THE THINGS WE TALKED ABOUT EARLIER I SAID THAT VISION IS ONE THING EXECUTION IS ANOTHER AND EXECUTION REALLY MATTERS AND EXECUTION IS REALLY WHAT MATTERS ALIGNING THEIR INTEREST AND PASSION AND WE HAD THAT GOING WITH AOL IN THE 1990S BUT WE LOST THAT WHEN WE BROUGHT THESE COMPANIES TOGETHER IN RETROSPECT I THINK DESPITE EVERYONE'S BEST EFFORTS IF WE HAD TAKEN THE ENTIRE SENIOR EXECUTIVE TEAM FROM BOTH COMPANIES THE TOP 100 PEOPLE AND BLOWN THEM UP AND STARTED OVER WITH A NEW GROUP THAT NEW GROUP WITHOUT ANY OF THE HISTORY ANY OF THE BAGGAGE THE PERSPECTIVES PROBABLY WOULD HAVE DONE A BETTER JOB LIKE THE WHITE HOUSE EVERY TIME THERE IS A CHANGE IN THE ADMINISTRATION EVERYONE LEAVES AND A WHOLE NEW ADMINISTRATION COMES IN I THINK WE ALL HAD DIFFERING PRESPECTIVES WE WERE BRINGING AND FRANKLY BAGGAGE WE WERE BRINGING AND THAT ENDED UP FOCUSING TOO MUCH ON THE INTERNAL POLITICS AND FRANKLY TOO MUCH ON WALL STREET AND NOT ENOUGH ON INNOVATING FOR CUSTOMERS AND REALLY CEASING THE DAY AS I LOOK AT THESE BIG IDEAS OUT THERE I REMIND MYSELF THAT VISION IS ONE THING AND EXECUTION IS ANOTHER AND IT REALLY IS ABOUT PEOPLE AND THE BUSINESS I HAVE GOTTEN INVOLVED IN THE LAST 5-6 YEARS I FOCUS MORE ON THE PEOPLE SIDE BECAUSE THAT REALLY WAS ONE OF THE LESSONS LEARNED FRANKLY FROM THE MERGER

QUICK: YOU KNOW PEOPLE SAY ALL THE TIME THE PROBLEM WITH BIG MERGERS IS THIS IDEA OF MERGING CULTURES IS THERE A POINT WHERE MERGERS ARE JUST TOO BIG IT IS IMPOSSIBLE TO OVERCOME THE CHANGE IN CULTURES OR THE DIFFERING CULTURES?

LEVIN: WELL YOU KNOW I THINK YOU CAN SAY THAT BUT YOU KNOW WALMART IS A HUGE COMPANY AND IT HAS A CULTURE BUT ITS NOT

QUICK: BUT THEY DIDN'T BUY AN OUTSIDER AND BRING THEM IN

LEVIN: THEY DIDN'T BUY IT TIME WARNER AND TURNER FOR EXAMPLE COMING FROM A TED TURNER AND VERY VERY DIFFERENT CULTURES WORKS TIME AND WARNER WAS VERY SKETCHY AND DIFFICULT IN THE BEGINNING BUT WE WILL SEE WHAT JEFF DOES NOW BUT IT KIND OF WORKS SO I DON'T THINK ITS SIZE ALONE I THINK ITS THIS MANAGEMENT IS A HUMANIST ART AND FRANKLY WE HAVE A WALL STREET ISSUE BECAUSE YOU ARE DRIVEN TO DELIVER AND THAT WAS PART OF OUR ISSUE I TOLD STEVE I WENT BACK AND LOOKED AT OUR PRESS RELEASE AND OUR FIRST BOARD MEMO AND THE STANDARDS THAT WE HELD FOR OURSELVES THAT FIRST YEAR EVEN IF THERE HAD BEEN NO RECESSION AND BUBBLE BURSTING WOULD HAVE BEEN VERY DIFFICULT TO ACHIEVE AND YET THERE WAS THIS PRESSURE FROM WALL STREET AND BY THE WAY EVERY MERGER ANNOUNCEMENT IS ALWAYS ABOUT SYNERGY AND ONE PLUS ONE EQUALS THREE OR FOUR AND SO YOU KIND OF GO TO THE MOUNTAINTOP WITH EXPECTATIONS WHAT HAPPENS WHEN YOU FALL FROM GRACE INEVITABLY THERE ARE GOING TO BE EXOGENIST FACTORS THAT ARE GOING TO AFFECT YOU I WOULD HATE TO SHOOT AN ARROW THROUGH ANY TRANSACTIONS SAY THAT BIG COMPANIES DON'T WORK ON THE OTHER HAND I THINK PAYING ATTENTION TO PEOPLE BECAUSE STRATEGY IS VERY MUCH ITS NOT CALCULUS IT DOESN'T COME FROM A LEDGER SHEET IT COMES FROM INSIDE PEOPLE IT COMES FROM THEIR EXPERIENCE THEIR EMOTIONS THEIR COMFORT LEVEL I MEAN WHAT JEFF BUCUS IS DOING TODAY WITH TIME WARNER BOB IGER IS DOING WITH DISNEY HAS A LOT TO DO WITH WHERE THEY CAME FROM HOW THEY WERE RAISED AND I MEAN THAT IN A GLOBAL SENSE AND WHAT'S COMING FROM INSIDE THEM NOW THEY'VE GOT AN ARTICULATED RATIONALE WITH THE STREET SO THAT ANALYSTS CAN UNDERSTAND IT BUT IT REALLY COMES FROM INSIDE BUT THOSE ARE TWO COMPANIES THAT I WOULD RECOMMEND

KERNEN: WELL IT WAS AN AGE WHERE THIS WAS A NEW PARADIGM THERE WAS A NEW PARADIGM WE SEE IT EVERY DAY BUT IT DIDN'T JUSTIFY THE VALUATIONS OF BOTH OF YOUR COMPANIES THERE WAS NO WAY TO MAKE IT WORK GIVEN WHAT THE VALUATIONS WERE AT THAT POINT OF THE BUBBLE NO WAY

LEVIN: JOE I UNDERSTAND THAT I REMEMBER CAROL LUMAS DID A PIECE IN FORTUNE THAT REALLY KNOCKED THE MERGER FINANCIALLY AND I HAD THIS BELIEF THAT THE INTERNET WAS GOING TO OVERTAKE EVERY EXISTING BUSINESS

KERNEN: YOU'RE RIGHT AND IT DID

LEVIN: AND ESTABLISH A NEW FORMAT

KERNEN: CISCO WAS 750 BILLION DOLLARS I THINK AT THAT POINT IT WAS ALMOST A TRILLION DOLLAR COMPANY THAT'S NEVER SEEN THE LIKES OF THAT AGAIN VALUATION OF EVERY COMPANY AND HOW MANY INTERNET DARLINGS THE NAMES ARE GONE

LEVIN: ARE GONE

CASE: THERE'S NEW ONES NOW OBVIOUSLY THERE'S AN INTERNET DARLING WITH NOT SURE WHAT THE VALUATION A COUPLE HUNDRED MILLION PROBABLY

KERNEN: IT COULD HAVE FIGURED MAYBE FIGURED OUT TWITTER CAUSE YOU HAD INSTANT MESSAGING, FACEBOOK FIGURED OUT ALL THAT STUFF

CASE: IN SOME WAYS WITH TWITTER AND FACEBOOK THE SOCIAL MEDIA WAS THE CORE OF AOL EVEN 25 YEARS AGO WE LAUNCHED INSTANT MESSAGING IN 1985 WHICH ESSENTIALLY WHICH TWITTER ESSENTIALLY IS A STATUS UPDATE WHICH IS WHAT INSTANT MESSAGING HAS BEEN ALL ALONG WHAT THEY ADDED WAS SOME PERSISTENCE AND OPENED UP THE PLATFORM IN A VERY CLEVER WAY AND I GIVE THEM CREDIT FOR IT CREATE MORE OF AN INFRASTRUCTURE AND TURN IT INTO MORE OF A INFORMATION UTILITY BUT THAT WAS THE CORE OF AOL ALWAYS ABOUT COMMUNITY AND THAT SOCIAL ASPECT OF IT AND THAT'S STILL WHAT'S DRIVING THE INTERNET FORWARD TODAY

LEVIN: BUT YOU KNOW AOL ESSENTIALLY HAD EVERYTHING ITS A LITTLE HARD TO PUT YOURSELF BACK IN 1999 BUT AOL WAS THE INTERNET

QUICK: YES I REMEMBER I WAS COVERING THE INTERNET FOR THE JOURNAL AT THE TIME WELL YOU GUYS WOULD EVERY MONTH PUT OUT THE MILLIONS OF SUBSCRIBERS FOR THAT MONTH

LEVIN: WHICH IS ANOTHER ATTRACTION YOU KNOW TIME WARNER WAS ESSENTIALLY A SUBSCRIPTION COMPANY WITH SOME ADVERTISING AND HERE'S THIS INTERNET COMPANY NOT WITH WHAT I THOUGHT WAS FLAKY VALUATIONS BECAUSE IT HAD A SUBSTANTIAL SUBSCRIPTION BASED GROWING VERY RAPIDLY THE HIGH MULTIPLE AND I STOOD BEHIND THAT VALUATION

KERNEN: TIME WARNERS VALUATION WAS NOT MUCH MORE REASONABLE THAN AOLS WHAT WAS TIME WARNERS

LEVIN: AOLS WAS

KERNEN: UNDER A BILLION

LEVIN: NO AOL WAS TWO AND A HALF TIMES WHAT TIME WARNERS WAS AT THE TIME

QUICK: WELL GENTLEMEN WE HAVE TO TAKE A QUICK BREAK RIGHT BUT STAY RIGHT HERE

QUICK: ALRIGHT, WELCOME BACK EVERYONE. WE CONTINUE OUR EXCLUSIVE CONVERSATION WITH GERRY LEVIN, FORMER CEO OF AOL TIME WARNER. ALSO, OUR GUEST HOST TODAY STEVE CASE WHO IS THE CO-FOUNDER OF AOL HE'S ALSO THE CHAIRMAN AND CEO OF REVOLUTION. AND GENTLEMEN WE'VE TALKED AN AWFUL LOT ABOUT AOL TIME WARNER, WHAT HAPPENED AND WHAT WENT WRONG, BUT WHY DON'T WE TALK ABOUT WHERE THINGS ARE HEADED NOW. WHERE YOU SEE BUSINESS HEADED, WHERE YOU SEE THE INTERNET HEADED AND GERRY WHY DON'T WE START THINGS OFF WITH YOU.

LEVIN: I THINK THE INTERNET CONTINUES TO RUMBLE THROUGH ALL THESE BUSINESS BUT SOMEBODY IS GOING TO GET A HANDLE ON IT. THE COMPANIES I THINK ARE DOING A GOOD JOB ONE IS AMAZON AND YOU KNOW I DON'T THINK IT IS UNREALISTIC TO TALK ABOUT AMAZON AND WALMART IN THE SAME BREATH BECAUSE WE JUST SAW WHAT HAPPENED OVER THE HOLIDAY WEEKEND AND YOU KNOW JEFF HAS GOT THE KINDLE WHICH IS PROBABLY THE NUMBER ONE PRODUCT ON AMAZON. AND I THINK I SAW SOMEWHERE THAT 48 PERCENT OF BOOK PURCHASES ARE NOW KINDLE VERSION ON AMAZON WHICH IS -- YOU NEVER WOULD HAVE THOUGHT THAT WOULD HAPPEN. SO THE IDEA THAT HE'S GOT A DEDICATED DEVICE FOR READING KIND OF IS CONTRARY TO WHAT YOU WOULD HAVE THOUGHT. I THINK APPLE, WHAT STEVE HAS DONE WITH ITUNES AND NOW TRYING TO EXPAND THAT SO THE QUESTION IS HOW DO YOU GET PEOPLE TO PAY DIRECTLY FOR CONTENT. WHAT'S CLEAR IS THERE IS NOT ENOUGH ADVERTISING REVENUE TO GO AROUND AND THAT'S WHY FOX AND TIME WARNER CABLE ARE BATTLING. THAT'S WHY CABLEVISION AND DOLAN ARE BATTLING HD. THAT IS ONLY GOING TO GET RESOLVED IF YOU CAN FIND A WAY FOR THE CONSUMER TO PAY FOR THINGS. THERE JUST ISN'T ENOUGH ADVERTISING AND WE ARE GOING TO SEE A LOT BUSINESSES NOW CHANGING. I WOULD WANT TO BE RIGHT ON THE FOREFRONT OF THE INTERNET SOMEWHERE AND NOT JUST HOLDING AN OLD MEDIA BAG.

QUINTANILLA: IS IT GOING TO TAKE SOMEBODY BIG TAKING THAT -- A MURDOCH, TAKING THAT FIRST STEP OF PAY-FOR-CONTENT?

LEVIN: I DON'T THINK -- I MEAN I THINK INTELLECTUALLY ITS A GOOD THING TO GET OUT THERE, BUT TO WITHDRAW FROM GOOGLE AND THINK THAT YOU HAVE CONTENT THAT IS SO INVALUABLE IN THE INTERNET CULTURE WHICH IS I CAN GET ANYTHING AND I CAN SEARCH IT AND I CAN GET IF FOR FREE, I THINK THAT'S A LOSING GAME ON RUPERT'S PART.

QUINTANILLA: HOW DOES THE CONSUMER DYNAMIC CHANGE THEN? HOW DO WE RETRAIN THEM?

LEVIN: WE RETRAIN THEM TO GO ALONG WITH, THE KINDLE IS RETRAINING PEOPLE, THE HAND HELD APPS ARE RETRAINING PEOPLE. THERE ARE SMALL PURCHASES FOR CERTAIN SUBSCRIPTIONS OR INDIVIDUAL PURCHASES. IF YOU CAN CO-EVOLVE WITH THE TECHNOLOGY AND THE INDIVIDUAL AND WITH SOME KIND OF NEW FORMAT, BUT IT IS NOT THE OLD CBS IT IS NOT THE OLD FORMAT.

CASE: THE KEY WITH ALL OF THESE THINGS IS TO KEEP AN EYE ON WHERE THE CONSUMER TRENDS ARE GOING AND ULTIMATELY ALL THE SUCCESS WILL BE APPLE, OR AMAZON OR GOOGLE, WHAT HAVE YOU, ARE VERY PRODUCT DRIVEN ITS ABOUT THE INNOVATION ON THE PRODUCT SIDE IN TERMS OF HOW YOU CAN IMPROVE CONSUMER'S LIVES. AND IF THEY ARE ABLE TO DO THAT, THEY ARE ABLE TO ATTRACT A BIG AUDIENCE, ONE WAY OR ANOTHER THEY ARE USUALLY ABLE TO FIND A BUSINESS MODEL. I AGREE WITH GERRY THAT ADVERTISING MARKET IS GOING TO CHANGE AND THERE WILL BE A LOT OF SHIFTING BUSINESS MODELS AND HAVING A BLEND OF REVENUE STREAMS IS GOING TO BECOME MORE AND MORE IMPORTANT. BUT MOST IMPORTANT IS TO KEEP INNOVATING AND MAKE SURE THE CONSUMER REALLY SEES VALUE IN THAT YOU ARE DOING. IF YOU ARE ABLE TO DO THAT, EVERYTHING ELSE WILL FALL INTO PLACE. IF YOU ARE NOT ABLE TO DO THAT YOU ARE STILL FOCUSED ON MEETING CERTAIN FINANCIAL TARGETS OR TRYING TO MAKE SURE YOUR PROTECTING WHAT'S THERE THEN YOUR GONG TO MISS THE BALL. I THINK THAT'S A BROADER ISSUE NOT JUST WITH THE INTERNET. I THINK A LOT OF MAJOR COMPANIES NOW, THE FORTUNE 500 PROBABLY BECAUSE OF THE ECONOMIC ISSUES, PROBABLY BECAUSE OF THE GOVERNMENT REGULATORY ISSUES ARE MORE FOCUSED ON PLAYING DEFENSE TRYING TO PROTECT WHAT THEY'VE GOT AND FEND OFF REGULATION OR FEND OFF THE COMPETITION AND NOT REALLY FOCUS AS MUCH ON INNOVATING. THAT'S GOING TO CREATE ENORMOUS OPPORTUNITY I THINK OVER THE NEXT TEN YEARS FOR ENTREPRENEURIST TO DISRUPT MAJOR INDUSTRIES. THEY ARE COMING IN PLAYING OFFENSE, THEY HAVE NOTHING TO LOSE AND EVERYTHING TO GAIN BY CHANGING THE DYNAMIC AND THIS TENSION BETWEEN THE GUYS TRYING TO PROTECT THE CORE MODEL TODAY AND OTHERS TRYING TO BREAK THROUGH AND INNOVATE AND DISRUPT THOSE MODELS IS GOING TO HAPPEN NOT JUST ON THE MEDIA SIDE BUT ALSO ON TRANSPORTATION, WE ARE SEEING THAT IN THE CAR BUSINESS. ITS AMAZING HOW MANY CAR STARTUPS THERE ARE NOW, JUST IN THE LAST FIVE YEARS. WE ARE SEEING IT IN FINANCIAL SERVICES, REALLY SEEING IT ACROSS THE BOARD AND I THINK IT COULD END UP BEING THE NEXT DECADE SORT OF A GREAT DECADE FOR ENTREPRENEURSHIP.

QUICK: IS IT EASIER TO DO IT WITHOUT VENTURE CAPITAL FUNDING THESE DAYS BECAUSE OF THE INTERNET?

CASE: WELL IT IS ON THE INTERNET SIDE. IT HAS CHANGED DRAMATICALLY IN THE LAST TEN YEARS. BEFORE WHEN WE WENT IN THE 90s STARTING AN INTERNET COMPANY TOOK SOME EFFORT AND TOOK SIGNIFICANT CAPITAL. NOW ITS VERY INEXPENSIVE TO BE ABLE TO START A COMPANY. AS A RESULT EVERY BODY IS STARTING COMPANIES AND THAT CUTS BOTH WAYS. IT MAKES THE ENTRY LOWER, THERE'S A LOT OF NEW STARTUP, THE COST OF ENTRY IS LOWER, BUT THE COMPETITION IS HIGHER. ITS ACTUALLY BECOME LIKE THE ENTERTAINMENT BUSINESS, ITS A HITS BUSINESS. THERE ARE THOUSANDS OF BANDS WHO TRY TO GET THEIR FIRST RECORD A FEW OF THEM HAVE A HIT, EVEN FEWER STILL BUILD DURABLE FRANCHISE. A U2, ROLLING STONES KIND OF FRANCHISE. THERE IS THIS WINNOWING PROCESS AND THAT'S A SENSE OF THAT THE INTERNET HAS BECOME, ITS BECOME A HITS BUSINESS WHERE THERE'S RIGHT NOW HUNDREDS OF COMPANIES FOCUSED ON MOBILITY AND LOCATION FOR EXAMPLE OF WHICH THREE PROBABLY WILL SURVIVE AND ONE WILL BE DOMINANT. AND THEY'LL GET BOUGHT BY GOOGLE OR MICROSOFT OR SOMETHING, SO THERE'S THE BARRIERS FOR ENTRY ARE SO LOW, THE LEVEL OF COMPETITION IS INTENSE. WHICH IS GREAT IN TERMS OF CONSUMER AND IN TERMS INNOVATION BUT THERE ARE GOING TO BE A LOT OF COMPANIES THAT FALL BY THE WAY SIDE.

LEVIN: IT IS SOMEWHAT LIKE THE MOVIE BUSINESS. NOBODY KNOWS ANYTHING BUT THAT'S ESSENTIALLY WHAT HAS HAPPENED. I HAPPEN FOR SOME REASON TO LOOK AT A TIME COVER STORY IN 1994 ABOUT THE INTERNET. IT WAS ABOUT THIS COLOSSAL, CHAOTIC THING WITH NO CENTRALIZED CONTROL, EVERYTHING IS FOR FREE AND NO ONE CAN GET A HANDLE ON IT. IT SEEMED TO ME TO BE SO IRONIC AND PRESCIENT AT THE SAME TIME AND YOU KNOW ESSENTIALLY THAT IS WHAT IS HAPPENING NOW THAT WE ARE SO CONSTRAINED BY OUR VESTED INTEREST IN THE WAY WE ARE DONG BUSINESS THAT THE OTHER THING I WOULD SAY IS MAYBE THE NEW PARADIGM IS GOING TO HAVE LESS TO DO WITH CONSUMER PURCHASES AND MORE TO DO WITH CONSUMER EXPERIENCE. AND THE REASON WHY I DONT THINK THE CONSUMER IS COMING BACK WITH A ROAR IN 2010 -- ALL THESE OTHER FACTORS, UNEMPLOYMENT, UNDEREMPLOYMENT AND THE HOUSING MARKET AND THE COMMERCIAL REAL ESTATE MARKET ARE STILL GOING TO GO UNDER AND YOU HAVE DEFICITS ACROSS GOVERNMENTS, INCLUDING CITIES AND STATES, AND YOU HAVE THE THREAD OF DISRUPTION TO OUR UTILITIES TRANSPORTATION SYSTEM, SO ALL THAT PSYCHOLOGY, BUT WHAT HAS CHANGED IN THE LAST YEAR WHEN PEOPLE DID NOT HAVE A LOT OF MONEY AND WHERE REALLY SCARED, THEY STARTED TO DO THINGS AND GET EXPERIENCE AND GO PLACES AND THATS WHY YOUR VIDEO GAMES ARE UP, THATS WHY AVATAR JUST WENT OVER A BILLION DOLLARS. SO IF YOU CAN FIND THE HANDLE ON THE LOW COST EXPERIENCE AND COMBINE IT WITH THE INTERNET BECAUSE EVERYBODY IS CARRYING AN APP NOW. ITS JUST SO UNIVERSAL IT IS THE LIBRARY AT ALEXANDRIA, WHICH IS WHAT WE THOUGHT MAYBE TWENTY OR THIRTY YEARS AGO AND THE YOUNG MAN OVER THERE WITH THE GREY HAIR THOUGHT OF IT ALSO.

CASE: BUT WHAT WE ARE TALKING ABOUT, VENTURE CAPITAL IN THE ENTERTAINMENT BUSINESS AND HOW THEY ARE COLLIDING REMINDED ME OF, PROBABLY SEVEN OR EIGHT YEARS AGO WE HAD A DISCUSSION AT A BOARD MEETING AT TIME WARNER ABOUT INVESTING MORE IN NEW COMPANIES AND I WAS ARGUING MORE THAT WE SHOULD BE A VENTURE CAPITALIST TRYING FUND THESE NEXT GENERATION COMPANIES, WHICH IS SOMETHING THAT WE DID AT AOL, BUT THERE WAS REAL RESISTANCE FROM THIS SAYING WE DON'T REALLY DO VENTURE CAPITAL. BUT AT THE SAME TIME ON THE WARNER BROTHERS SIDE THEY SPENT A BILLION DOLLARS A YEAR FUNDING MOVIES, THEY BASICALLY SENT A BILLION DOLLARS TO HOLLYWOOD SAYING YOU PICK THE RIGHT SCRIPTS, WHICH IS ESSENTIALLY VENTURE CAPITAL. MOST OF THEM FAIL, A FEW OF THEM ARE SUCCESSFUL. SO THERE IS A HIGH DEGREE OF CONFIDENCE OR COMFORT IN FUNDING A BILLION DOLLARS VENTURE CAPITAL FOR THE MOVIE BUSINESS BUT NOT A HIGH DEGREE OF CONFIDENCE IN DOING A 100 MILLION IN TERMS OF INTERNET TECHNOLOGY. IT JUST SHOWS YOU THIS CULTURAL SHIFT IN WHAT GERRY WAS SAYING, IT SORT OF DEPENDS ON YOUR COMFORT ZONE. IF YOU COME FROM THIS SIDE OF THE BUSINESS AND THAT SEEMS LIKE A NATURAL SAFE BET AND THIS OTHER SIDE SEEMS KIND OF WACKY AND RISKY. IF YOU COME FROM THE OTHER SIDE AND SAY WHY WOULDN'T YOU INVEST IN THIS, THIS SEEMS LIKE IT HAS MORE GROWTH POTENTIAL, THATS THE ONE THAT SEEMS A LITTLE QUESTIONABLE. AND THAT IS THE DEBATE WE WERE HAVING CONSTANTLY.

LEVIN: EXCEPT WARNER BROTHERS IS ALWAYS SUCCEEDED.

QUICK: GERRY WE WOULD LIKE TO THANK YOU VERY MUCH FOR JOINING US TODAY. WE APPRECIATE YOUR TIME. STEVE CASE IS GOING TO BE WITH US FOR THE REST OF THE PROGRAM SO WE'VE GOT A LOT MORE TO TALK ABOUT.

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