annals of communications
The New Yorker - October 29, 2001
How much bigger can AOL Time Warner get?
At AOL Time Warner, as everywhere else, life has been altered dramatically since September 11th. The company has donated hundreds of wireless mobile communicators to law-enforcement personnel, produced fund-raising concerts, contributed more than five million dollars to the recovery effort, and persuaded AOL subscribers to donate more than fifteen million dollars. The company also lost considerable income (the company claims not to know these costs) as movie and magazine schedules have been disrupted and costs at the Cable News Network and Time have risen sharply. Nevertheless, the world's largest and most powerful communications company has not lost sight of its primary goal--to encircle and seduce consumers. The resources of the company have been marshalled for the November launch of its movie "Harry Potter and the Sorcerer's Stone." Richard D. Parsons, the co-chief operating officer of AOL Time Warner, told me this summer, "You're not going to be able to go anywhere without knowing about it. This could be a bigger franchise than 'Star Wars.'"
That may not be an extravagant boast. The Harry Potter books have already sold about a hundred and twenty million copies worldwide, and AOL Time Warner is poised to capitalize on that beginning. America Online connects half of all American Internet users from their homes, and its subscribers--they number thirty-one million--will be led to various links, including those to Harry Potter merchandise that the company licenses and sells. Moviefone, which AOL Time Warner owns, will promote and sell tickets. The magazine division, with more than a hundred and sixty titles, among them Time, People, Entertainment Weekly, Fortune, and Sports Illustrated, will feature ads and contests and innumerable cover stories. Warner Bros. studio, which made the movie, will advertise on Time Warner cable systems, which reach about twenty per cent of American homes wired with cable television, and on Turner Broadcasting, which owns four of the top ten cable networks, and will air promotions for the movie. Warner Music Group will produce the soundtrack and sell the CDs and tapes. The company's ad-sales people sold the exclusive global rights to promote the film (and its sequel) to Coca-Cola, for a hundred and fifty million dollars. And AOL members, who last year spent twenty billion dollars in online purchases, will have the opportunity to buy merchandise ranging from toothbrushes to T-shirts. In all, AOL Time Warner's hundred and thirty-seven million subscribers--twice the combined total of its two nearest non-telephone-company competitors, News Corp. and Vivendi--will find it impossible to avoid that bespectacled lad Harry Potter.
The Potter offensive--like all the company's plans to lure customers--was orchestrated at what is called the C.E.O. meeting, on the thirty-fourth floor of Rockefeller Center's Time Life Building. The company has nine divisions, and twice a month C.E.O.s from these divisions meet with fourteen other senior executives for a discussion that usually lasts three to four hours. A seat at one end of the twenty-two-foot-long table is reserved for Gerald Levin, the C.E.O. of the entire company; at the other end, at the corners, are the two co-chief operating officers, Parsons and Robert W. Pittman. A voice-amplification system insures that everyone is heard. Noises from outside are muted by a gray fabric that covers the walls. Motorized window shades slide down if too much sun streams into the windows facing the Hudson River, to the west. Most of the executives wear the new-media uniform of open-necked shirts and no jackets.
Many people once thought that Levin was miscast as a C.E.O. He has a high-pitched voice, a lofty manner, slightly dishevelled short, sandy hair, and a chin that sinks into his neck. When it was announced, in January of 2000, that AOL was acquiring Time Warner, he was widely judged to be a brilliant apparatchik who would soon be gone. Now, Barry Diller, the C.E.O. of USA Networks, says, "He's the only one in the picture. He is, without any question or qualification, the single most powerful person in media and communications."
No communications company touches as many consumers, or controls so many interlocking pieces. AOL delivers twice as much mail as the United States Postal Service. Time Inc. is the world's largest magazine publisher, selling a quarter of all consumer-magazine advertising. Time Warner Cable is the nation's second-largest cable company, and its Roadrunner provides more high-speed access to the Internet than any competitor. Warner Bros. is one of the seven major movie studios, and has a library of seven thousand feature films, thirty-two thousand TV programs, and thirteen thousand animated features. Turner Broadcasting generates more revenue than any other cable network, and CNN reaches about a billion viewers around the world. HBO pioneered pay television, and now ranks No. 1, with hits like "The Sopranos" and "Sex and the City." The company is also one of five music giants, owning more than a million music copyrights.
Levin and Steve Case, the chairman, have publicly stated their mission to make AOL Time Warner "the premier growth company" and "the most valued and respected company in the world"--worth more than Exxon, General Electric, or General Motors. If they succeed, AOL Time Warner will become a global corporate superpower, richer than Microsoft. Diller sees Microsoft and AOL Time Warner as "the two world powers of interconnectivity."
AOL Time Warner has a simple way of measuring its success: growth and profit. "We're running the company through the financial function," Levin told Wall Street analysts in July. Earlier in the year, the company had announced a year-end goal of eleven billion dollars in earnings before interest, taxes, depreciation, and amortization--a growth of thirty per cent. This would mean a doubling in size every three years or so. Levin and his associates also anticipated profit margins of thirty per cent, and they predicted revenues that would top forty billion dollars. The company monitors these targets at the C.E.O. meetings, where the chief financial officer, J. Michael Kelly, reviews each division's quarterly performance. The reason for the aggressive growth targets, Kelly says, is that "we needed to put some financial goals out there so people could get their heads around us. It was a way of filling in the education process as we go along." Levin, although he has often derided short-term Wall Street thinking, concedes, "I'm a hawk on margins."
Since January, AOL Time Warner has cut about eight thousand jobs. But more than cost-cutting will be required if the company is to grow by nearly a third each year. It must also invent new businesses, or new ways of managing old businesses, and that is why the focus of the C.E.O. meetings is on synergy and teamwork. Each division of the company becomes, in part, a promotional and sales vehicle--a shill--for the others. Harry Potter T-shirts can be promoted on AOL, then sold at the AOL online store. Advertising can be sold by combining television and print and cable into a single sales package. Magazine subscriptions can be sold by using AOL. Madonna CDs can be sold through AOL contests and through a People feature story that becomes a CNN special. HBO subscriptions are promoted when its shows are put on magazine covers. Because AOL Time Warner has what Levin described to Wall Street analysts as "leverage points," it has considerable sway over artists, producers, competitors, advertisers, and consumers.
The unspoken assumption of leverage--this new business arithmetic--is that one plus one equals four; that the resources of the company will permit it to use technology to create new businesses. "If I look at AOL today at twenty-four dollars per household, ten years from now that could be seventy or one hundred dollars, when you think that you won't have to buy CDs or rent from the video store or go to the telephone company and AOL will service your wireless devices," Barry Schuler, the C.E.O. of the AOL division, says. AOL Time Warner hopes in that way to become the Wal-Mart of the information age, a one-stop-shopping company.
Driving this new math are Bob Pittman and Dick Parsons, both of whom occupy offices on the twenty-ninth floor of 75 Rockefeller Center. In May of 2000, the company was divided into two basic groupings: subscriptions (AOL, the magazines, the cable systems and networks), under Pittman; and content (movies, music, books, and some staff functions), under Parsons. Although the merger is less than a year old, there is constant discussion about how one division may help another. For instance, the magazine division is already recruiting, through AOL, a hundred thousand new subscribers per month, charging subscriptions to the same credit cards that consumers used for their AOL subscriptions. "The subscriptions from AOL are evergreen," Parsons said. "It keeps coming until you order it to stop." The magazines avoid expensive mailings, and customers may not be aware that they have become perpetual subscribers.
The effectiveness of this cross-promotion was demonstrated in January of 2000, when the WB television network launched the show "Popstars," in which young women competed to form a new pop group. Roger Ames, the C.E.O. of the music group, offered to award a Warner Music contract to the winner, and AOL's Schuler promised to create "buzz" by featuring the program on the AOLwelcome screen and in ads that asked the audience to come up with a name for the group; Don Logan, the C.E.O. of Time Inc., offered a full-page ad and a sweepstakes contest in Entertainment Weekly, plus promotions on Time Inc. Web sites. The numbers were impressive: the CD of the new band, called Eden's Crush, debuted at No. 6 on Billboard's two hundred chart; and its single, "Get Over Yourself," was the No. 1 single in America. "They became a phenomenon," Parsons said. "A manufactured phenomenon."
For Aurora Wallace, an instructor in New York University's Department of Culture and Communication, the company's constant cross-promotion and selling "empties content of anything but a consumption message. If every part of the company has to serve every other part of the company, there's no incentive to talk about anything else," she told me. "It's not evil. It's logical, according to corporate logic. The problem is that we expect the media to do other things. To inform us. To provide social glue. If that glue is only about consumption, we are missing something. It creates a grand illusion of choice."
AOL Time Warner, meanwhile, hopes for profits from various sources--including services such as AOLTV, which combines the television and the Internet. Apart from the commercial possibilities of AOL itself, the company hopes to increase sales of telephone service over the cable wires and of software from its Netscape subsidiary, and also to charge other companies for access to its high-speed Internet connection. These multiple sources of revenue are what sets AOL Time Warner apart. "This is not a media company anymore, it's not an Internet company," Levin told investors last January. "It truly is a one-of-a-kind company."
That is precisely what makes critics uneasy. "Since AOL Time Warner has power over the infrastructure through its cable wire and its TV-set-top cable box and its AOL Internet access, it has control," Lawrence Lessig, a professor of law at Stanford, said. "My fear is not because it's big. I fear its opposition to the next best thing, since that threatens the company."Lessig continued, "Every dinosaur would like to stop evolution. Nature didn't give dinosaurs that opportunity. But technology could give AOL Time Warner that opportunity to stop evolution."
The merger of AOL and Time Warner might not have occurred if Gerald Levin's son, Jonathan, a high-school teacher in a tough Bronx neighborhood, had not been murdered, in 1997, by a former student. Fay Vincent, a director of the company and a friend of Levin, recalls, "I don't think I ever saw a guy so devastated. He couldn't walk at the funeral. It was a defining moment." Levin told Vincent and Parsons that he was thinking of quitting, and for the next two months he stayed away from the office. Then, he says, he had something like a revelation. When I asked him about Jonathan's death, Levin sipped some bottled water and at first did not reply. His eyes moistened, and he said, "That's why I'm on a mission. I've obviously been an idealist my whole life, and I guess it always bothered me--I didn't want to be a C.E.O., I didn't want to be a corporate type. But, the way it worked out, I was always satisfied to live through my son. What he was doing was the highlight of my life.... I thought at the time I wasn't going to return to the company. And then I decided, 'Let's see if I can make happen through my position some pretty important things, and carry on in that way.'" He went on, "Maybe that's why nothing can affect me. So I'm more fearless, more of a missionary. There's nothing anyone can say to me, do to me, write about me, that can affect me. I used to care somewhat because it affected the stock price. Now it's his view that I care about." Levin has established the Jonathan Levin Fund, to benefit Taft High School, where Jonathan taught. The fund has already paid for a new athletic field with state-of-the-art facilities, a media center, and college scholarships.
Levin told me that reading Albert Camus had changed his life. One day, he quoted a passage from "The Stranger," in which the protagonist watches himself as if from outside his body. "Fortunately, or unfortunately, that's what I've always felt," Levin said. "That I'm here, but I'm actually on the outside looking at it, analyzing it, thinking about it, and when I look for deeper meaning I can't find meaning attached to the connection of events." With Jonathan's death, Levin was able to connect the two opposing strands of Camus. "One finds meaning only if there is a larger purpose," he said.
Levin's grandparents came to America from Eastern Europe and opened a butter-and-egg store in Philadelphia, which his father ran. His mother was a piano teacher. It was an Orthodox Jewish home, and Jerry, the youngest of three children, read Hebrew. In high school, he won public-speaking contests and starred in school plays. He had a prodigious memory, and dazzled friends by reciting batting averages and Academy Award winners going back many years. At Haverford College, he studied Biblical literature and philosophy but soon gravitated toward English; he wanted to be a professor. One of his happiest moments at Haverford occured in an English honors class, when he, two other students, and the professor sat under a tree and read aloud their short stories. However, when he was chosen as the college's valedictorian and honored for his senior thesis, Levin announced that he was rejecting the honor and burning the paper.
"I'm not saying that I don't have an ego, but I'm a pretty strange person," Levin told me. "I really don't care that much about what people think of me. That's why I always thought I'd be a professor. I'm much more interested in analyzing things. As a kid, I always challenged questions.... The definition of change is that you don't accept anything as a given. You kind of challenge everything. The personality type that can handle that has to be very comfortable in his skin. I'm quite a risk-taker. I'm willing to put everything at risk."
After graduation, Levin toyed with the idea of becoming a novelist and thought that being a lawyer would support this endeavor. He graduated from the University of Pennsylvania Law School in 1963. He then began practicing antitrust law in New York with Simpson Thacher & Bartlett. He moved in 1967 to an international investment-and-management company established by David Lilienthal, the former chairman of the Atomic Energy Commission and the Tennessee Valley Authority. The experience helped to convince Levin that business was his proper calling. He joined Time Inc. in 1972 to help develop a new pay-cable service called Home Box Office.
It was at HBO that, in 1975, Levin, as C.E.O., decided to distribute programs nationally by satellite--in some ways, this signified the birth of the modern cable industry. He also tried to persuade his superiors to start a cable news service--not unlike the venture that Ted Turner launched in 1980. In 1984, when Levin became the company's principal strategic planner, he pushed Time Inc. to seek out various merger partners, and he looked for a merger that could transform the company. He focussed on Warner Communications, with its cable systems, movie and television studios, and music company. In 1989, Time Inc.'s C.E.O., Richard Munro, and his Warner counterpart, Steve Ross, announced that the companies would merge into Time Warner.
Within two years, Ross, who was ailing from prostate cancer, joined Levin to remove his co-C.E.O., Nicholas Nicholas; when Ross died, in December of 1992, Levin became the sole C.E.O. of Time Warner. Over the next decade, he insisted on broadening the company's cable investments, and thus its huge corporate debt, at a time when the market and members of his board were opposed to this strategy. He lost more than a hundred million dollars on a pioneering interactive-television experiment in Orlando, Florida; he lost an estimated forty million dollars on Pathfinder, an early interactive computer service not unlike AOL's; he watched the stock price plunge as he fired a succession of able executives; he watched the stock rise on reports that the Bronfman family would soon replace him. Even when he outwitted competitors and bought Turner Broadcasting, in 1995, it was supposed that Ted Turner would help engineer Levin's ouster. From the start, there were complaints that the company was too decentralized and that Levin was too weak to confront the executives who ran the movie, music, magazine, cable, and television divisions. He was seen as a drone by the entertainment world, a dreamy visionary by Wall Street, and something of a schemer inside the company. Few saw him as he saw himself: an outsider who dared to be bold.
Levin began holding merger talks with Steve Case, the chairman of AOL, in the fall of 1999. Case recalls that he knew Levin was "a believer" in interactivity via television or the Web, and that "the social issues"--statements of corporate values, "the public trust," and corporate philanthropy--were important to Levin, who was searching for what he unabashedly calls "a pulpit." There was one other vital thing Case knew, according to Kenneth Novack, who has been AOL's longtime lawyer and is now the vice-chairman of the merged companies: "We believed that the only basis on which Time Warner would be prepared to do a merger with us was if Jerry was the C.E.O. and it was perceived as a merger of equals."
In an appearance at the 92nd Street Y in the fall of 2000, Levin spoke about the talks and about a decisive phone call he had received in November from Case. "There's a kind of mating dance, and then there are all these profound questions, like who is going to run the company, which shouldn't be the first question, but unfortunately it is," Levin said. In this initial conversation, Case said that if they could merge the companies Levin should be C.E.O. and Case would be chairman. "I work better at this sort of strategic level," Case remembers telling him. Each saw a good fit. For AOL, Time Warner provided access to rich content, and could offer a distribution system (the cable). For Time Warner, AOL solved the Internet puzzle it had been unable to master. In merging new media with old, the deal could infuse both companies with high-voltage energy. Consulting only with Parsons and with a former chief financial officer, Richard Bressler, and also with a few directors like Fay Vincent, Levin and Case reached an agreement in less than two months to exchange stock that was then valued at a hundred and forty-seven billion dollars.
Although they called it a merger of equals, the "new media" company had a higher market valuation and was in fact the acquirer. (Today, after the dot-com bust, Time Warner would no doubt be the acquirer.) As usually happens in a merger, "cultural issues" ensnared the companies at the start. "At first, the AOL people acted like they had acquired us," one senior Time Warner executive says. AOL was a young business whose revenues and profits were growing at an exponential rate; many of Time Warner's divisions were mature businesses. In May of 2000, four months after the merger announcement, Levin and Case decided that the competition and the technology were changing so swiftly that they could not afford to wait for federal approval to impose centralized oversight; Dick Parsons and Bob Pittman were put in charge of the company's two main divisions.
Opposition to the merger was at times ferocious. Corporations, such as Disney, and consumer groups worried that AOL Time Warner could try to trap consumers in what is called "a walled garden" of its own content, shutting out competitors and nonprofit community groups. "AOL Time Warner will be like an air-traffic controller, deciding who gets landing rights and who gets gates," said Jeffrey Chester, the executive director of the nonprofit Center for Digital Democracy, one of the consumer groups questioning the merger. "They can make sure that their services and content get preferential treatment."
When Steve Case was asked about his putative walled garden, he said, "The point people are making is partially accurate, but the intended takeaway is not. I do believe consumers want diversity, they want choice. But they also want simplicity." Case's assumption is that consumers want to be free to drive where they wish but don't mind if someone else negotiates through traffic. Levin sounds unconcerned about the issue, because he believes that his company will heed "a code of honor" and, no matter its size or power, police itself.
The size and power of the new AOLTime Warner appealed in any case to investors, who saw that the company's 2000 revenues, of thirty-six billion dollars, far exceeded those of Disney, the No. 2 communications company (nearly twenty-six billion), Viacom (twenty billion), Vivendi/Universal (almost eighteen billion), Bertelsmann (almost sixteen billion), and News Corp. (fourteen billion). Consumer groups and competitors, however, petitioned the government to either block the merger or impose conditions to insure diversity. Opponents worried, as well, about privacy--about all the information on its subscribers that the company was collecting. When the merger was approved, on January 11th of this year, the chairman of the Federal Communications Commission, William Kennard, announced a few conditions to insure that some competing Internet service providers would have access to the cable that AOLTime Warner monopolizes in many markets. That still does not satisfy critics like Lawrence Lessig, who continues to worry about AOL Time Warner's ability to favor its own content and to control access to the Internet.
Together or separately, Bob Pittman and Dick Parsons are expected to succeed Gerald Levin; and, together or separately, both believe that, for their new company, big is good and bigger is better. Pittman, who is forty-seven, is unapolegetically devoted to profits, and is a firm believer that the company's divisions ought to cooeperate with--and promote--each other. He is the younger of two sons, and was born in rural Mississippi. His father was a Methodist pastor who became a district superintendent of the church. His mother was a schoolteacher who later worked in her husband's ministry.
One Thanksgiving when Bob was in the fifth grade, a horse on his grandparents' farm threw him and stepped on his face, and he lost the sight in his right eye. "As a kid, the last thing you want to be is different," Pittman told me. "If you have an artificial eye, you're different. The dream of every kid is to fit in and be like all the other kids." Tom Pittman, who is three years older than his brother, is the editor and publisher of the DeSoto Times Today, a Mississippi daily. After the accident, he said, his brother "wanted to be accepted. So he had to figure out how to be accepted."
The following year, a family friend took him up in a two-seater plane. Pittman recalls, "It changed my life. I couldn't imagine anything greater." He was determined to fly, even though he was told that with only one eye he was unlikely to have the depth perception to pass a pilot's test. He wanted to take flying lessons, and his parents told him he would have to get a job to pay for them. At fifteen, he became a disk jockey, playing rock and country music and Top 40 records at a daytime radio station, WCHJ-AM, in Brookhaven, Mississippi. "I even did the swap shop on the air. Where you go"--his voice rises as he recalls the pitch he once used--"'O.K., we got someone here who's got two pigs and we'll trade them for a bicycle. Here's the phone number if you want to call.'" His parents worried that he was spending too much time at the radio station. Bob took flying lessons, and moved to better stations. He played the music that he and his friends liked. "I thought this was the most wonderful career," Pittman says. "Girls called the request line. The hormones kicked in." He was a freshman at Millsaps College and a d.j. on the night shift of a Top 40 market station. He wanted more of it.
He mailed his resume, and a Milwaukee station offered him a job. He packed up a Dodge Dart and, with his mother sobbing, left Mississippi; he never returned to college. He went from Milwaukee to Detroit to Pittsburgh. He saw that radio listeners were young, and he pressed his program directors to do more consumer research. He often made survey calls himself. "I learned an important lesson," he said. "Don't play what I like, but play what people like."
WMAQ-AM, an NBC-owned station in Chicago, hired Pittman in 1974. The ratings climbed, and, when NBC's president, Herbert Schlosser, visited the station, he was impressed by the young man with an announcer's voice. In 1977, Pittman was offered a job in New York, as the program manager of the network's flagship station, WNBC-AM, and the host of a weekly video-music TV show, "Album Tracks," which went on after "Saturday Night Live." He was twenty-three, and in radio circles was known as "the boy wonder." Pittman had long hair and a mustache that curved down at the ends, and he wore shimmering shirts with long, pointed collars. But at NBC, Schlosser remembers, "Some people were wary of his success." Two years later, after Schlosser left NBC, Pittman accepted an offer from Warner Amex Satellite Entertainment to enter the cable business; he became chief programmer for the Movie Channel. The executive vice-president there, John Lack, who recruited Pittman, had thought of creating an all-music channel. Pittman, with others, refined this idea, proposing that music videos produced by record companies should be played on television just as records were on the radio. When the company resisted the idea, Pittman appealed directly to the C.E.O.s of the two parent companies, Steve Ross, of Warner, and James Robinson, of American Express. Music Television (MTV) was launched in 1981; Pittman was made chief operating officer in 1982, and C.E.O. the following year. "I never dreamed I'd be a business guy," Pittman told me recently, sounding like Gerald Levin. "I thought I was a creative guy." So did his immediate superiors, who thought he was too headstrong by insisting that they start other cable networks, including Nickelodeon, for children, and VH1, for mature music fans.
Pittman believed in forging emotional bonds with consumers on the basis of generational solidarity and adolescent rebellion. He recognized that MTV could build its own brand. "This was saying, 'We're going to be a home base for teen-agers,'" says Geraldine Laybourne, a former teacher whom Pittman promoted to head Nickelodeon. "He got under teen-agers' skin. He figured out how to talk to them and make them feel 'This is my network. This is not normal TV.'"
In 1979, Pittman married Sandy Hill. The pair appeared regularly in gossip columns, and in 1983 had a son. Two years later, Warner and Amex sold their share of MTV to Viacom, and the following year Pittman left for less glamorous television ventures, including the "The Morton Downey Jr. Show," an insult-the-guest talk program that he invented and produced. By 1989, Pittman was back at Warner, working as a senior adviser to Steve Ross. After Warner and Time Inc. merged, Pittman was named C.E.O. of TimeWarner Enterprises, with a mandate to find and incubate new ventures. One such venture was Court TV; its founder, Steve Brill, had enticed Ross to invest, and Ross turned the project over to Pittman and to Pittman's deputy, Mayo Stuntz. Another venture was Six Flags, a financially troubled group of amusement parks that Pittman restored to health.
In 1995, three years after Ross's death, Henry Silverman, an old friend of Ross's and the C.E.O. of the Cendant conglomerate, recruited Pittman to run the group's nationwide real-estate franchiser, Century 21. Pittman approached real estate as he did everything: he tried to make it easy for consumers to understand. Why not, he thought, take the real-estate business online? It would be an inexpensive way to market real estate and home loans to people who had to relocate--and it would improve communication within the company. The online service that most appealed to Pittman was AOL, which had begun in 1985 and was, he thought, relatively easy to use. He told Steve Case that Century 21 would become one of AOL's first advertisers--and, at a million dollars per year, its most important one. Of AOL, Pittman recalls, "I was spending one-thirtieth of what I spent on TV and I was getting five times the number of real-estate leads." When Pittman began at Century 21, the company was breaking even; after his first year, it earned twenty-five million dollars, Silverman says. In two years, it earned a hundred million dollars.
In 1996, with Silverman's reluctant acquiescence, Pittman left real estate and became the president of AOL Networks. Although he recruited some familiar members of his own team, the most important personnel decision he made was to rely on the team that Case had assembled. At meetings, Case and Pittman sometimes had intense arguments. Ken Novack likened the partnership to two dancers who were "learning to dance with each other. Inevitably, they sometimes stepped on each other's toes." Yet, in the end, Case and Pittman together helped to steady AOL, which had gone through some difficult years. By 2000, AOL's stock was worth fifteen times what it had been in 1995. Pittman, meanwhile, had divorced, and married Veronique Choa, a graphic designer. They have a son and a daughter.
At AOL Time Warner, Pittman is respected, if not loved; he is all business. His meetings have agendas and his speeches are scripted. For years, as Barry Schuler recounts, ad agencies have insisted that "they can do better, more creative ads. Our commercials have consistently said one thing: 'Easy.' If you did research, seventy per cent of the respondents would say, 'AOL is easy.' Consumers hate technology. Bob sits with the ad people and simplifies. The ads are not designed to win awards or be funny. They're designed to deliver a simple message."
Richard Parsons, who is fifty-three, is the third member of the AOL Time Warner troika. He has a scruffy beard and a relaxed demeanor; he is nearly as focussed on profits and growth as Pittman and Levin are. Parsons is the first son and the second of five children raised in Brooklyn's Bedford-Stuyvesant section. His father, Lorenzo, was an electronics technician with the Sperry Rand Corporation; his mother, Isabelle, was a homemaker. When Richard was six, the family moved to South Jamaica, Queens. Parsons recalls, "I thought of it as a move to the country, a foreign country"--not because they were the only black family but because he was pulled away from friends and they now owned a home and could see trees. He was not self-conscious then, nor is he now, about his race. The only racial "incident" he ever experienced as a young man, he remembers, was on a summer family trip to Virginia, where he encountered separate drinking fountains for whites and blacks. "There is something to this notion of self-fulfilling prophecy," he told me. "If you go into a situation convinced people will treat you a certain way, you will perceive that they do. Second, to have a perception that I'm black almost inevitably creates barriers in your own mind. I think a lot of black people do that.... It never occurred to me I couldn't do anything." He attended public schools and was popular and a good athlete in baseball, basketball, and football. He was also smart, and skipped two grades.
Before Parsons took his S.A.T.s, he was allowed to choose three schools to receive his test results. "I put in Princeton," he recalls. "I put in City College. And I was staring at this one free box.... It popped into my head: University of Hawaii"--in his junior year he had sat next to an attractive girl who was from Hawaii. When the University of Hawaii accepted him, he was thrilled. He was only sixteen, and felt liberated. "I went a little crazy, I think," he said. "I had a job"--parking cars--"so I had some money. I had no parents around me, and I had no sense. So whooping it up was my thing. I'm not sure I was mature enough." He was a basketball star, and the social chairman of his fraternity for two years. "My specialty was parties." He loved beer, bridge, shooting pool, and music. In his sophomore year, in English class, he met a student from Oklahoma named Laura Bush. "He used to cut classes and do no work," she recalled. "I was helping him get through English. We started dating." She was white and nearly a foot and a half shorter than Parsons, who is six-four. And, as he remembers, she was as "stable" and "rational" as his father and as straightforward as his mother.
Parsons didn't have a clue as to what he wanted to do after graduation, and Laura suggested law school. He lacked six credits to graduate from college, but he did well on the L.S.A.T.s and was accepted by the Albany Law School of Union University. He and Laura were married in 1968; her father was so troubled by the marriage that he did not attend their wedding.
The couple moved into a two-family house next door to a funeral home; on the floor above was a prostitute, Laura recalls, "who was helping service Albany legislators." Laura worked as a secretary; Dick worked as a janitor at the law school. Despite these pressures, Parsons graduated first in his class in 1971, and got the highest grade in the state on his bar exam. Governor Nelson A. Rockefeller's office had heard about him, and soon he was working as a junior lawyer for Rockefeller's counsel. He grew close to the entire family, becoming involved in its investment strategy, wills, and art purchases. Parsons moved with Rockefeller to Washington when Rockefeller became Vice-President under Gerald Ford, in 1974, and when Rockefeller was dropped from the ticket, in 1976, Parsons and Laura and their three children moved to Pocantico Hills, the Rockefeller family compound in northern Westchester County.
In 1977, Parsons was hired by the former federal judge Harold R. Tyler, Jr., and joined the firm of Patterson, Belknap, Webb & Tyler. He soon made partner, and became friendly with another partner, Rudolph Giuliani; in 1984, Parsons was appointed managing partner of the firm. But he was growing bored with the law, and in 1988, when Harry Albright, a member of the Rockefeller "old-boy network," came forth with an irresistible proposition, Parsons grabbed it. Albright was preparing to retire as chairman and C.E.O. of the Dime Savings Bank, and approached Parsons about becoming president of the bank. A year later, during the savings-and-loan crisis, Parsons showed a sure hand. And it was the Rockefeller network that brought him to Time Inc.--in particular, to Time Inc.'s chairman, Andrew Heiskill, who, in 1990, introduced Parsons to Nick Nicholas. Nicholas subsequently recommended him to Steve Ross as a Time Warner director.
Parsons, meanwhile, had briefly involved himself in politics, and in 1993 served as the chairman of Giuliani's mayoral transition team. When he was asked to serve as a deputy mayor, however, he declined, and he also had no interest in seeking the Republican nomination for governor in 1994. (It eventually went to George Pataki.) "He has become increasingly discouraged by the quality of people in government," Laura Parsons says, as well as by the lack of privacy and by the ideological rigidity of "all these single-issue people." There was another reason for avoiding politics, a friend of Parsons told me: "He really doesn't like controversy if he can avoid it."
In late 1994, Levin, without consulting anyone, offered Parsons the presidency of Time Warner. "I'm not a big consultant of boards," Levin said. According to Parsons, in those days Levin "was operating as a one-man gang. If anything, he was looking for a partner."
After the merger with AOL was announced, there was speculation that Parsons would be the odd man out. Some thought that he didn't throw himself into company presentations with the gusto others did, that he wasn't an intensely focussed manager like Pittman. Unlike Levin, he relaxed and shut out work at his weekend home on Block Island, listening to jazz and barbecuing and shooting pool. He liked to spend time in Tuscany, where he and Laura owned a house and vineyard. Some people thought that perhaps he would accept a Cabinet position in the new Bush Administration. But those who assumed that Case and Pittman would take charge and that Parsons would leave did not reckon with Case's desire to cede power and Levin's to assume it. Nor did they factor in Parsons' guile.
Although Parsons rarely reads movie scripts or listens to demo tapes from recording artists or reads book manuscripts or proposals, he courts talent, and, of course, he controls the money that AOL Time Warner spends for talent. "What I do do is get involved in asset allocation," he said. Above all, people like him--Parsons is the one inside the company whom talented, vain executives want to deal with. "My job is to move around and cool out the younger horses," Parsons said. "I'm the pony horse."
Levin regards him as more than that: "If you wanted someone to go down to the F.C.C. or the F.T.C., there is no one better than Dick. And he makes these people feel good afterward. That's why I gave him the content business and people development in the company. Pittman got all the press. But what could be more important than people development in a company?"
The terrorist attacks of September 11th undoubtedly affected content at AOL Time Warner. Action movies like Arnold Schwarzenegger's "Collateral Damage," which features a bombed skyscraper, were postponed. Corporate cross-promotion campaigns, such as Warner Books' strategy to sell Jack Welch's business memoir, for which it paid seven million dollars, were slowed or stopped. CNN, after a long flirtation with Fox's cheaper, talk format (it even considered hiring the ultimate talking head, Rush Limbaugh), has returned, at least for now, to its roots as the foremost worldwide news network.
Before the attacks, Parsons and some executives from the pre-merger Time Warner worried that an emphasis on short-term profits could be harmful to the company over time. When I asked Parsons if the company was placing too much emphasis on its Wall Street audience, Parsons said yes. "This is a tension that as managers we have to deal with," Parsons said. "We're not a quarter horse. The quarter horse is the fastest animal in the world in a quarter of a mile. Because of lots of dynamics, increasingly the marketplace is demanding quarter-by-quarter performance that has the potential to undermine the long term." To build for the long term, he continued, the company must invest to expand overseas--investments that might take five years to succeed. He was not against pushing for aggressive targets. But since his responsibilities were mostly on content--movies, records, books--"I worry about it somewhat more than my colleagues," he said. "The content side is still a hit-driven business. If you're AOL or cable, you start the year with a set number of subscribers, and you can plan your growth. You've got a base. But, if you're Warner Bros. or Warner Music, every year you start with the till empty. Predictions are guesses."
Although Levin has become a true believer in managing by the numbers, the sense within the company is that the emphasis comes from the AOL side of the enterprise. Steve Case implicitly acknowledged this when I talked to him last summer in his office, where a portrait of glowering Henry Luce, the founder of Time, hangs on the wall. "A critique of the old Time Warner was that it was run almost as a holding company," Case said. "To some extent, this was true. It was a way to attract and keep strong managers who would each manage businesses independently. That was then. This is now. The markets are blurring and the technologies are converging, and now it is best to integrate the businesses. Now it's about building bridges and driving synergies, and these require a new culture that focusses on meeting the consumer's needs." To meet numerical targets "forces cooeperation," he said. "Do I worry that short-term concerns about the numbers will retard investments? Yes. But at this stage the benefits outweigh the risks."
Despite substantial online profit margins, in late August AOL demonstrated its commitment to financial targets by announcing the layoff of twelve hundred employees--ten per cent of its workforce. The magazine division had more reason to be unhappy. To meet its profit and growth targets, the company speeded its cost cutting. Time Inc. offered buyouts to more than five hundred editorial employees who were fifty or older and had been with the company at least fifteen years. A fund to subsidize the first-year salaries of seventy minority employees was eliminated. The historic Time Inc. research library was closed, eliminating three dozen positions.
Senior corporate officers insist that they stand for editorial integrity; they would never censor a report or allow an advertiser to influence coverage. But journalists (who recognize Levin's commitment to the profession) are worried that a preoccupation with budgets and ratings will compromise the quality of their journalism, and that their bosses won't know the difference. Daniel Okrent, who in his career at Time Inc. has been the managing editor of Life and the editor of New Media, thinks that the changes at Time Inc. are momentous: "What I fear is that Time Inc. will become just another company. That it won't be special anymore."
In August, I asked Jamie Kellner, the C.E.O. of Turner Broadcasting, what he envisioned for CNN. "Part of my goal is to create excitement for the CNN brand," he said. He wanted to make CNN look less "stodgy," not only to attract more "eyeballs" but to keep "them a longer period of time," and he hoped to appeal to younger viewers. These, of course, are business, not journalistic, challenges, and it is a novel form of convergence that the men running AOL Time Warner often conflate the two.
After September 11th, Levin and Case suggested that they put aside management-by-numbers. At a September 24th C.E.O. meeting, Mike Kelly, the chief financial officer, skipped many of his charts; later, Levin and Case announced that the company would fall about two billion dollars short of its forty-billion-dollar revenue goal for the year, meaning that its earnings would rise a still impressive twenty per cent. Levin and Case also declared that news was now paramount. "Whatever CNN or Time wants, CNN and Time will get," Levin told colleagues. More than a few journalists at AOLTime Warner are dubious.
Last May, at a strategic retreat for directors and senior executives held at the Rye Hilton, in Westchester County, key elements missing from the immense AOL Time Warner portfolio were noted: broadcast news (there is only CNN), a broadcast sports outlet such as ESPN, an MTV-like cable-music network, and radio stations. For years, Ted Turner had pushed Time Warner to buy NBC. Of such an acquisition, Turner's successor, Kellner, says, "I think it would be great. I think bigger is better in the world of media." To own a broadcast network like NBC in addition to its relatively small WB network would give the company more leverage, because NBC owns most of its programming. CBS, by the fall of 2000, owned eighty-six per cent of its programming, and Disney's ABC owned fifty-seven per cent.
One panel at the retreat discussed the competition between Microsoft and AOL Time Warner. It was estimated that by 2004 about forty-four million homes would have high-speed access to the Internet, with control over the home network made possible by this "broadband pipe." This home network, Levin said in a July speech to investors, was the "final battlefield," the Waterloo that determines whether companies like his or Microsoft win or lose. According to Laurence J. Kirshbaum, the C.E.O. of Time Warner Trade Publishing, "Ultimately, it's a battle for the eyeball and for the fingertip on the button"--the computer keyboard or the remote control. "That's what it all boils down to." Levin clearly believes that AOL Time Warner, with its combination of content and distribution, has an advantage.
Although AOLTimeWarner may be the world's most powerful communications company, today only eighteen per cent of its revenues come from outside the United States. Parsons hopes to double that number in ten years, he told a European journalist in June, when he went to Paris to open a new overseas corporate headquarters. Dick and Laura Parsons had flown over that weekend on one of the company's four jets. He went from breakfast to the new office building, just outside Paris, where, from a ninth-floor roof balcony, six hundred employees have a panoramic view of the city.
There, at a lunch with twenty-four employees from the company's various divisions, he said that he was aware of the human cost of layoffs, adding,"You almost can't overdo it on the sensitivity side." Three out of four corporate mergers fail, he said, and they fail because not enough attention is paid to "people" issues. He talked about the advantages of the merger, before getting to the subject high on his agenda. For the company to meet its target of thirty-per-cent growth annually, Parsons said, "it's got to come from outside the U.S."
Time magazine's international-advertising manager, Isabelle Mollat Du Jourdin, noted that the market share for all Time Inc. magazines in Europe was only between three and five per cent. She said that ownership of indigenous magazines was needed.
Parsons mentioned that the company was engaged in negotiations to purchase England's IPC Media, which owns more than a hundred magazines. (In July, AOL Time Warner announced the deal.) He urged the employees to think about how AOL could do more to promote magazine subscriptions, but Stephane Treppoz, the C.E.O. of AOL France, cautioned that AOL had a market share of twenty per cent in France--and only nine per cent in all of Europe, company officials say.
Because the French government requires that fifty per cent of all television programming, including movies shown on TV, be French-owned, "either we collaborate with French producers or we acquire companies," Michel Le Court, a vice-president of Warner Bros. International Television Distribution, said. (The European Union has a similar requirement.) Later, Parsons visited the set of a French movie that AOL Time Warner was co-producing; he was accompanied by Andrew Kaslow, his senior vice-president of people development, who had been on a family holiday.
In a speech that evening, at the new headquarters, as young employees spilled over the balcony and up and down the marble staircase, chatting noisily and ordering drinks from an open bar, Parsons said that it was the view of Steve Case, Gerald Levin, Bob Pittman, and himself that "at the end of the day it's all about people. Our fate is in your hands." Few heard a word of this speech, and, similarly, remarks by Kaslow were ignored.
On the plane heading back to New York that night, Dick and Laura Parsons occupied the four seats facing each other in the middle of the cabin. A dinner of broiled sole, rice, carrots, and Burgundy was served by the flight attendant, and the Parsonses invited Kaslow and his wife, Diane, to join them for the meal. For the next couple of hours, they chatted and laughed and seemed to have an agreeable time. The plane landed just after midnight.
The next day, AOL Time Warner issued a press release announcing the appointment of Patricia Fili-Krushel as its executive vice-president of administration. It was a new position, one that allowed the addition of a seasoned executive to oversee human resources, employee development, compensation, benefits, and security, and one that added the first female to the biweekly C.E.O. meeting. Fili-Krushel would report directly to Parsons, which meant that Andrew Kaslow would not. Kaslow still had an important job, but he reported to her.
I later talked to Parsons about his timing. He admitted that he had deliberately invited the Kaslows to dine on the plane in order to soften the blow. "Andy is a good man," he said. "He's a friend. But you know the old expression: This is business. It's very hard not to get the two, business and friendship, confused. I don't make friends at work the way I used to, because part of my job is to assess what the organization needs and to be very gimlet-eyed about it. If you allow friendships to cloud your judgment, you're not doing your job."
Looking back on the trip to Paris, he concluded that it was "not a spectacular day, but a good day." Symbolically, by opening a joint office and meeting with representatives from each division, he felt he was "breaking down the silos, in the old Time Warner in particular." To succeed, however, he believed that people--not numbers--were key. On the plane back from Paris, Parsons stared out the window and said, "Are we building things in this world that are beyond the state of our management? I don't know the answer. We are a huge global company. Do we know how to manage these things? Time will tell. But it is not clear to me that we do."
Case and Levin understand that corporations may be subject to the weaknesses of the people who run them, and that they may fail. Yet such thoughts were far from Levin's mind this summer, in the days before September 11th. After enduring years of corporate intrigue and second-guessing, Levin is the C.E.O. in fact as well as in name. Steve Case, who works closely with Levin on strategy and oversees the agenda of the board and of a monthly executive meeting, insists that he has no interest in being C.E.O. "It is not my strong suit to be an operational guy," Case says. "We have a strong team, and they're all better at managing the company day to day than I am." Levin and Case both guess that either Parsons or Pittman will become C.E.O., though Levin cautions, "I believe this company can't be managed by one person." Levin and Case hope that Pittman and Parsons, because each has skills the other lacks, will remain a team, no matter who gets the C.E.O. title.
But, Levin hastens to add, there is "no defined timetable" for succession, and he has no plan to leave anytime soon. Some associates believe that Levin plans to stay well beyond the usual retirement age, of sixty-five, three years hence. If there is friction between him and Case, Levin does not betray it. "For me, personally, this is the best it's ever been," Levin says. "It's probably facilitated because I certainly have no personal agendas. I'm not running for office. I'm not looking for anybody's approbation." Levin has found his "larger purpose"; so, no doubt, have his colleagues--Pittman,Parsons, and, above all, Case, the chairman. What remains to be seen is whether their purposes--and AOLTime Warner's corporate goals--really correspond with society's best interests. (c)