The subtext of the AOL Time Warner revolution: The “old media” has triumphed over the “new media.”
And just in the nick of time, as a stream of questions about the conglom’s accounting gathers gale force, Don Logan, 58, the ultimate “old media” mega-manager from within the fusty Time Inc. fold, will ride herd on AOL.
Jeffrey Bewkes, 50, who’s staked his HBO rise on quality programming, will oversee movies, TV and music as well as his old cable fiefdom.
And Bob Pittman is history.
The revamp essentially demotes Pittman’s America Online to just another division of the conglom, one of the least profitable and most maligned.
On July 18 the conglom officially adopted a new operating structure, upping Logan to chairman of the new Media & Communications Group comprising America Online, Time Inc., cable systems, books and interactive video, and Bewkes to chairman of the Entertainment and Networks Group, comprising HBO, New Line, the WB, Turner Networks, Warner Bros. and Warner Music.
Bewkes and Logan, both well-regarded, low-key execs, will essentially split oversight of the conglom’s content and subscription businesses. They will try where others have failed: to get the media empire’s disparate fiefdoms working in tandem.
“This is a very large company. We don’t look at it as dividing the businesses. We want to work together to bring some coordination,” Bewkes told Variety.
“We have the world’s greatest movie and TV company,” he added. “Warner Bros. and New Line are very important busineses in their own right and key to the health of HBO and the Turner Networks. And giant Time Warner Cable is a core partner with the rollout of video on demand.”
The message is clear: It’s time to work together. Pittman tried, banging divisional heads together on both coasts to get cooperation, with little to show for it. His abrasive style didn’t help, nor did the plunge in the stock price that TW folks blame squarely on AOL.
“If Pittman walked onto the Warner Bros. lot right now, I don’t think he’d get out of there alive,” hazarded one industryite.
Bewkes and Logan will report directly to company CEO Richard Parsons, who clearly felt he needed to take dramatic action to stem the unabatedly negative press and plunging investor confidence.
“He had no choice,” confided one TW insider. “He’s standing on the shore and the breakers are crashing around him.”
Not coincidentally, two major newspapers last week broke exposes on AOL TW: The Washington Post focussed on its imaginative accounting while the Wall St. Journal pointed up its bogus promises about cross-divisional advertising synergies.
Both papers pinpointed the dysfunction which plagues the merged conglom — and fingered Pittman as the main culprit in vastly overstating what moneys would be coming into the coffers.
The company, in short, is facing intense financial scrutiny which many fear could open yet another painful chapter for one of media’s most troubled mergers in recent history.
Not surprisingly, the reaction to the restructure in the corridors of Warner Bros., especially to the ascension of a creative type like Bewkes, was jubilant.
“We’d be breaking out the champagne — if we could afford it,” said one insider, joking about the sorry state of the company’s finances.
In the rest of Hollywood there were equally favorable reactions to the revamp.
William Morris prexy and co-CEO Jim Wiatt said the appointment was “a reminder that sometimes nice guys finish first. Bewkes is a great executive who understands the entertainment industry.”
Meanwhile, filling the void at HBO and at Time Inc are two seasoned execs who will immediately step into Bewkes’ and Logan’s shoes.
Chris Albrecht, prexy of HBO Original Programming, will take over at powerhouse cable net HBO as chairman and CEO. Time Inc. exec VP Ann Moore, who launched such successful glossies as “InStyle” and “Real Simple,” will assume the reins, and the same two titles, at the prolific publisher.
Hard-charging Pittman, once regarded as AOL’s savior and a front runner for the top job at AOL TW, resigned under a cloud. Since the merger, AOL’s ad revenue evaporated, subscriber growth slowed and synergies between old and new media proved elusive.
And, in a climate where corporations are imploding right and left, some think AOL’s aggressive accounting will come to haunt the conglom, which is scheduled to report first-half financial results July 24.
“There’s a high probability that something was going on there,” said one fund manager. “There’s a narrow line between what’s aggressive and what’s illegal. If you’ve got 50 forensic SEC accountants sniffing around, they’ll turn up something.”
Federal Reserve chief Alan Greenspan predicted earlier last week that a large number of U.S. corporations will restate earnings downward in coming months.
AOL TW is a likely candiate for such revisions. It’s unclear at this point if any other showbiz congloms will end up with similar problems.
Just about all Internet companies were known for particularly aggressive accounting, “but there just aren’t that many of them left in business,” said one Wall Streeter.
Ironically, Hollywood studios, which have long been derided for fuzzy numbers, are booming along with the box office and may come out smelling like roses compared with the Internet, telecom or energy sectors.
The investigation of AOL TW by the Washington Post suggested that Pittman presided over a host of questionable practices as chief operating officer of the conglom that inflated revenue figures as the company was orchestrating its merger with Time Warner.
They included shifting revenue from one division to another; selling ads on behalf of other dot-coms like eBay and booking the sale as AOL’s own revenue; recording barter deals as ad and commerce revenues; and renegotiating long-term ad contracts with distressed Internet companies in order to avoid losing short-term gains that pumped up quarterly sales figures.
AOL TW shares dropped more than 5% July 18 to close at $12.45. They fell to an all-time low of $11.75 during the session — a far cry from $50 a year ago.
In a statement, both Parsons and AOL TW chairman Steve Case both wished Pittman well.
Pittman, who was dispatched six months ago to turn AOL around, said, “It’s time to take a break.” He was said in recent weeks to have wearied of being blamed for all the negativity surrounding the company.
Logan said the search for a new CEO for AOL continues and that it’s too early to discuss layoffs or cost cuts at the unit.
Dulles, Va..-based AOL has already laid off hundreds of staffers, but insiders doubt the housecleaning is over.
“I think they are going to throw out the entire team that’s been running AOL,” said one industry player.
Casualties could include Mike Kelly, who was shifted from chief financial officer of AOL TW to chief operating officer of America Online early this year after run-ins with Wall Street and flack for the company’s overly optimistic earnings projections.
Former AOL CEO Barry Schuler was put in charge of new media projects at AOL. And the portfolio of Pittman ally Kenneth Lehrer, who used to oversee corporate communications and investors relations for the conglom, was recently rerouted.
Meanwhile, the role of conglom chairman and AOL founder Steve Case is becoming increasingly nebulous as Time Warner managers now have full run of the executive suite.
“Case was going to run the most admired company in the world. He said it many times. Obviously, it hasn’t happened,” said one irate investor.
(Meredith Amdur contributed to this story.)