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AOL Time Warner sets course for post-Gerald Levin period

Dec 10, 2001  •  Post A Comment

As the dust settles on Gerald Levin’s stunning succession announcement, AOL Time Warner’s powerful constituents on Wall Street and Madison Avenue and in Hollywood are focusing on what will be left undone when he retires as CEO next May.
The recession has sliced more deeply into AOL Time Warner’s great girth of assets than top company officials expected. It has sheared off the top of their ambitious 2001 earnings and revenue targets, taken the edge off the excitement over promised post-merger synergies and slowed consumer and advertiser response to the cross-platform, interactive strategies that lie at the heart of all AOL Time Warner’s businesses.
Even with a six-month transition, the formidable challenges ahead lie squarely in the laps of Mr. Levin’s hand-picked successor CEO Richard Parsons, new sole chief operating officer Bob Pittman and AOL Time Warner Chairman Steve Case, who will assume a more active role.
Mr. Parsons told me last week they will work closely as a team to make headway on a number of critical fronts, including international expansion and advancing the broadband platforms needed to maximize the AOL service and Time Warner content.
He said his priorities reach beyond existing services to future businesses that can be developed now to take advantage of the economic recovery even before broadband is a mass-market reality. High on his list of 12-month priorities is developing the Internet as a premier means of communication that rivals the telephone and a next-stage interactive TV platform.
And Mr. Parsons wasted no time last week rallying the troops, promising sharper focus and putting people and mechanisms in place to get things done. Just as he successfully ran interference for Mr. Levin these past six years, with regulators, opponents, competitors, partners and even some of their own company executives, he will do it again and again.
And given his track record, he will succeed.
More growth needed
Clearly, one of Mr. Parsons’ first pressing matters is addressing the slowing growth in new AOL memberships and a decline in revenue generated per subscriber by extending AOL Time Warner’s access to a greater number of cable homes. It must reach beyond its 13 million cable customers to realize hyper-gains in subscriber-, advertising- and transaction-related income.
Acquiring control or ownership of AT&T Broadband or eventually even Cablevision Systems would more than double its cable subscriber reach and give AOL Time Warner a big enough broadband platform to assure sustained growth, even in tough economic times. It’s what Mr. Pittman calls “blurring the line between AOL and cable to offer more and more services to generate maximum revenues.”
Although Mr. Parsons would not confirm it last week, sources said AOL Time Warner made two proposals to AT&T Corp.: one to acquire outright, or to at least control and manage, its AT&T Broadband cable systems; and the other to acquire AT&T’s 25 percent stake in Time Warner Entertainment, valued at more than $10 billion, with AOL Time Warner stock or cash.
Those potential and long-in-the-works proposals are indicative of the creative and gently persistent hard negotiating that doesn’t lose Mr. Parsons many deals.
Outside the proverbial box
And AOL Time Warner may be in need of more creative thinking. Investors say AOL Time Warner has yet to concretely demonstrate the promised synergies between the new and traditional media assets of AOL and Time Warner that drove the merger a year ago. The company must go beyond signing up participating advertisers to actually proving that cross-platform advertising can be a consistent and substantial revenue hedge against economic downturns that devastate conventional advertising.
“There really is a structural disparity between big integrated media companies like AOL Time Warner and the advertising world, where it is in agencies’ and advertisers’ best interest to keep things [in] fragments,” observed Sanford Bernstein analyst Tom Wolzien.
Getting culturally different factions of the company to work on a never-before-tried hybrid platform in an economically strained environment continues to be a challenge for AOL Time Warner, sources said, and one that, if not properly curbed, could become a major liability down the road.
Mr. Parsons conceded that his charge is less about restructuring and more about growth-using what the company has or can create from what it has, everywhere it can. The goal is to have users multitask off the interactive AOL platform to their networked home, broadband communication and entertainment systems, and central transaction mechanism.
Future-building
With AOL Time Warner stock still depressed-like other media issues in a down market-and the advertising and marketing marketplace reticent to move too fast into new areas against a recessionary tide, the company will need to work harder to make strides past all the mighty promises to concrete, measurable accomplishments in 2002.
Mr. Parsons knows that he can’t do it alone and is wise enough to share that task not only with Mr. Pittman, who is a consummate operator and marketer, but with visionaries as disparate as Mr. Case and AOL TW Vice Chairman Ted Turner.
It’s an amazingly eclectic group, when you think about it. Mr. Parsons is the Brooklyn-born, Republican Party-bred lawyer with a courtly style to Mr. Turner’s outspoken Southern visionary. Mr. Pittman is the fire-and-brimstone-preaching son of a Mississippi pastor who went on to create MTV and put AOL on the map. At the top are laid-back Hawaii native and AOL creator Mr. Case and the somber Mr. Levin, a lawyer and Hebrew scholar who is one of the pioneers of cable programming.
Getting them all to row in the same direction long enough to get anywhere speaks to Mr. Parsons’ unique gifts. He is an ameliorating force, a diplomat and a commanding strategist, who will somehow make it all work out.
That said, AOL Time Warner, even with its bounding $200 billion market cap, will lose an irreplaceable chunk of value when Mr. Levin leaves the daily fray, because of the unique skill set and vision he takes with him despite the stellar management team he leaves behind.
The initial integration, transition and vision that have bound AOL Time Warner for the past two years will be Mr. Levin’s legacy. That, and the unheard of for any CEO: twice stepping down from his top perch-first, to sell Time Warner to AOL, and now to turn to more altruistic endeavors while leaving the merged company in the hands of second generation management whose first challenge will be dealing with AOL Time Warner’s substantial unfinished business.