Struggling America Online on Thursday announced a long-awaited corporate revamp that gives new chairman Jon Miller tight oversight of key divisions. The posts of chief operating officer and president will be scrapped and the controversial business affairs department shuttered.
Staffers at the freewheeling business affairs division, which had become a lightning rod for criticism inside and outside AOL Time Warner, will be reassigned to the business units they support. Its former head, David Colburn, left the company in August.
Business affairs, which oversaw advertising and commerce contracts, may have been overly aggressive in accounting for revenue from deals with partners, prompting investigations by the Securities & Exchange Commission and Dept. of Justice. AOL TW has acknowledged that it improperly booked $49 million in revenue.
AOL chief operating officer J. Michael Kelly will become CEO of loss-making AOL Intl. Kelly had been chief financial officer of the merged AOL TW but was punted back to the Netco after some run-ins with Wall Street.
AOL prexy Ray Ogelthorpe will retire and Jan Brandt, vice chair and chief marketing officer, will step down to become a part-time senior adviser.
AOL TW chief financial officer Joseph Ripp will become vice chairman in charge of AOL’s network infrastructure and technology operations. AOL is seeking a new CFO. Vice chair Ted Leonsis will head committees overseeing brand, product, and technology strategy.
James de Castro, prexy of AOL interactive services, will join Ripp, Leonsis and Kelly in a senior strategy group, working with Miller and former Time Inc. topper Don Logan, who was recently anointed chairman of AOL Time Warner’s media and communications businesses. Logan was paired with HBO chief Jeff Bewkes, who now runs all of AOL TW’s entertainment and networks holdings.
Logan insisted that America Online, which thus far has mostly served to hobble its parent company’s stock, “is a crucial driver of AOL Time Warner’s long-term growth,” and said the new structure will “clarify roles and lead to AOL’s being more nimble, its operating units more accountable, and its organization simplified and clearer.” It also will lead to greater stability at AOL, so the company “can get down to business.”
AOL has been grappling with weak subscriber growth and a soft ad market. Wall Street has also been worried by the slow rollout of its high-speed service — concerns that were partly assuaged by a recent, but pricey, carriage pact with giant cable operator AT&T-Comcast.
Miller, a former exec at Barry Diller’s USA Networks, was appointed in early August, replaced former AOL TW chief operating officer Bob Pittman. Miller promised to energize the company with “exciting, relevant and distinctive new products and content.”
The market was unimpressed. AOL TW shares sank 5.66% to close at $12.50, partly under the weight of a report by Goldman Sachs analyst Richard Greenfield, who cut his full-year cash-flow estimate on weak advertising and lack of a defined strategy at AOL, despite the management shifts.
“The continued decline in AOL’s ad revenues and the lack of signs of a recovery in the broader online ad market are two factors that contribute to our view that the overall issues at the AOL division are not fully recognized,” Greenfield wrote. “We believe that the unresolved issue at AOL will continue to hold back the stock and mute the performance of the Time Warner businesses.”
On Monday, AOL Time Warner lowered its previous revenue and cash-flow forecasts for 2002 due to weak advertising at AOL.