by Kara Swisher
When Turner announced his desire to make a bid for NBC, Levin and others used their voting power to block the move. Turner was outraged, believing Levin was acting not in the best interests of TBS, but because he wanted Time Warner to buy the network. While it was a fair enough reason to be angry, the way Turner expressed it, in his speech at the National Press Club, was downright bizarre. Despite his medication and newly contented lifestyle, the “Mouth of the South” was clearly still capable of uttering things that were both deeply shocking and patently offensive.
During his 1994 National Press Club speech, Turner had begun talking about the “barbaric mutilation” of clitorectomies—a custom, practiced in many parts of the world, in which young girls have parts of their genitals removed to prevent them from enjoying sex. Turner was, he declared, outraged by the practice. Then he made a peculiar segue, comparing the practice to his own business experience. “I’m being clitorized by Time Warner and the women are being clitorized by—that’s exactly right,” he said. “And I don’t like it any more than they do.”
Nearly a decade after Turner uttered these words, Levin told me his opinion of it. “To compare a brutal practice like that to his business life,” he said, “was just beyond the pale of even Ted.” He later added that it was the only one of Turner’s tirades that still made him furious.
And Levin had many such harangues to choose from, as Turner was soon habitually aiming them at him. Turner began calling Levin “The Administrator,” deriding him as someone who stayed holed up in his office, reading papers and exerting influence via information control rather than talent. It was meant as an insult, but, in fact, Levin often described himself in pretty much the same terms. “I was an information junkie,” he told me. “I always thought the guy who owns the information is the guy on the way up.”
Turner’s name-calling would get much, much worse. But despite their differences, he and Levin papered over their feud less than a year after the notorious Press Club appearance, when Turner agreed to sell the rest of TBS to Time Warner. The acquisition of TBS, which Levin had won partly because Turner didn’t want to have to sell to News Corp.’s Rupert Murdoch, was the second deal that “chief strategist” Levin had advised for Time Inc. back in the late 1980s. And now it was coming to fruition.
Where a year before there had been acrimony and talk of mutilation, now there was nothing but love between Jerry Levin and Ted Turner. In fact, at the August 25, 1995, announcement of the deal, Levin proudly introduced Turner by calling him “my colleague, best friend, and new partner, Ted Turner!”
“Best friends” definitely seemed like a stretch; it’s amusing to imagine these two men having anything to talk about beyond stock deals and cable television. Nonetheless, after raising his eyebrows in surprised amusement, Turner flashed his trademark gap-toothed grin, stepped to the podium, and proclaimed himself pleased at this turn of events.
As was typical for Turner, he would later express irritation and say he’d felt forced to do the deal. He’d also, in the midst of the AOL Time Warner fallout, poke sarcastic fun at Levin’s friendship remark.
But at the time, he was all smiles. The $7.5 billion stock deal, approved in 1996, further solidified Time Warner’s position as the world’s largest multimedia company and it made Turner the company’s biggest shareholder with holdings of about 10 percent. He was also named vice chairman of the company. With that, Jerry and Ted’s not-so-excellent adventure had truly begun—with the pair presiding over an ever-growing media powerhouse that had limitless possibilities.
Meanwhile, Steve Case was struggling through the summer of 1996 with subscriber churn, a dubious Wall Street, and consumer anger over technological snafus. Incredibly, it would be less than four years before he would determine the fates of both Levin and Turner.
Pathloser
By 1995, the year Time Warner announced it was buying TBS, the company had had nearly five years to digest its first “transforming transaction”—the Warner merger. Not surprisingly, things had been very bumpy for the first few years. But after that, the company had settled comfortably into the structure that would become its defining trait.
Rather than pushing to fully integrate Time and Warner, Levin presided over executives who ran the divisions almost as separate entities. Each was responsible for hitting its own numbers and, to a large extent, charting its own course. Within Time Warner there existed independent “fiefdoms,” and for the most part, nobody messed with anybody else’s turf.
Mostly, it was because Levin had little choice over the matter—unable to truly influence his divisions without taking drastic measures such as firings. While he was adept at that—dumping HBO’s Michael Fuchs and a raft of other top executives over the years—the power of Time Warner was dispersed. That contrasted sharply to the command-and-control structure that would soon characterize AOL under Bob Pittman, when he arrived at the online company in 1996, after years at big media companies like Time Warner.
Indeed, this has long been the standard cliché about Time Warner, where the company is more about the power of its warlords than about pulling together as a whole. While some have criticized this structure, many of the division heads—both past and present—liked it. “We were allowed to operate and we did very well between us, when it was right,” one former division head told me. “No one had to or didn’t have to cooperate—which was a good thing, I think, for the individual businesses.” At times, however, this “fiefdom” structure resulted in absurd intracompany fights. Divisions tended to keep to themselves and were loath to get involved in each other’s business. And not only did they not work together, much of the time they continued to negotiate and battle each other as competitors.
The most famous example of this was the fight between the company’s online and studio divisions over the use of the Road Runner name. The online team wanted to name its new high-speed Internet service (which was originally dubbed Excalibur) after the sprightly cartoon character. Isaacson and his team had picked out the name, thinking it would be easy to get since it was from a sister division. The difficulties of getting this seemingly simple deal done have gone down in legend, often being pointed to as the perfect example of the internecine nature of Time Warner.
As in most things, the real story was a lot more complex and much less dramatic. “I thought, ‘Hey, great, we own [the Road Runner name],’ ” remembered Isaacson, who wanted the name immediately for the cable service. But since the Warner Bros. studio was the real owner of the cartoon icon, it naturally wanted hefty licensing fees for the use of the character. On the surface at least, the studio’s reasons seemed like good ones. The cable service had other partners outside of Time Warner, for example, who had no right to share in the Road Runner copyright for free.
To the fast-moving Internet division, such niceties seemed ridiculous given a successful high-speed service would, in turn, help the movie studio, which was known for its internal hardball tactics. In any case, getting the deal done required plenty of footwork, starting with a trip Isaacson and Time Warner president Dick Parsons took to Los Angeles to convince Warner Bros. coheads Terry Semel and Bob Daly of the value of the cable service. This was the beginning of multiple negotiations at the top of the company that would be required before the Road Runner name finally was set free.
But cooperation was not a celebrated idea within the core of Time Warner. When the magazine division tried a spate of cross-marketing strategies, for example, they resulted in little more than discounted ad prices. And forcing the various units to do business together was often financially onerous to each division, since better deals were often struck with outside partners. If they worked independently, the divisions could often do better, even if the whole company suffered. Synergy, that mystical goal of both the Warner and Turner mergers, was elusive.
This was most apparent at Time Warner New Media, the online ventures division, which would need support from the whole company to truly succeed. But instead of support, it was, b
y late 1995, getting little more than resentment (for the money and public attention it got), and skepticism (for its results) from most parts of Time Warner. And, within the online unit itself, executives began to war with each other. Walter Isaacson, the head of new media and the presumed leader of Time Warner’s charge to the future, fled back to the “dead-tree” side of the company, becoming the editor of Time magazine in 1996. So much for the future being digital.
Before he left, Isaacson sent his replacement, Paul Sagan, a strategy memo. “It now seems to me less likely that [customers] will pay one flat fee for a disparate conglomeration rather than pay for their particular interests,” he wrote. “Especially when there is neither a clear coherence about what is in the conglomeration nor an established sense that various elements of that conglomeration might have a fee of their own.” Good luck, he might as well have added, and see you later!
So, how could Pathfinder make money? Isaacson had a parting idea: “For us to make money in new media,” he wrote, “we have to develop a few core, branded services we can charge for. I think these services should be based on core brands and content that Time Inc. owns.” This would lead to Pathfinder Personal Edition, a “premium” service costing $4.95 per month.
But Personal Edition fell flat from the outset. And Pathfinder continued to struggle, with no realistic plan on the horizon of how to make any real money, despite the fact that its page views grew at one point to number more than one billion per month. Those kinds of traffic numbers would soon put multibillion-dollar valuations on a spate of independent Internet companies—including AOL, Netscape, and Yahoo—but Pathfinder was trapped inside Time Warner and unable to escape.
In these times, numerous Web companies were celebrated despite their inability to make money. Not so Pathfinder, however, which made it into the Internet Hall of Shame in November of 1995, in a now-famous comment by Time Inc. Chairman and CEO Don Logan. A Southerner with an advanced mathematics degree and a reputation for speaking his mind, Logan responded to a reporter’s query about Pathfinder’s financial performance by snapping, “It gives new meaning to the term ‘black hole.’ ”
Those who know Logan say his comment has been unfairly interpreted to mean that he hated the Web. “I think he was realistically ambivalent—disgusted with the hype, but very interested in the Internet’s potential,” said Linda McCutcheon, who became Pathfinder’s last top executive. “I mean, he was a mathematician, and it didn’t add up for him yet.”
Unfortunately, nothing about Time Warner’s technological forays was adding up. Down in Orlando, the Full Service Network was all but dead. In a half-hearted attempt at spin, the company finally began characterizing the venture as an “experiment” and as a lesson-learning experience. That was true enough; FSN had yielded some interesting data and technology that the company would later use in digitizing its cable unit. But it was a terribly expensive tutorial.
By the beginning of 1997, it was clear Time Warner would have to shut down FSN. The announcement in April drew caustic press comments. The most stinging came from one of the company’s own publications. FSN, Time magazine declared, “might have been the most expensive pizza-delivery system ever invented.” With FSN losses estimated at more than $100 million and Pathfinder flailing toward its own death throes (it would sputter its last breath in the summer of 1999, after eating up tens of millions more), Time Warner’s early and ambitious foray into cyberspace looked like a bust, despite the massive effort put into it.
Writer and entrepreneur Michael Wolff, who had been brought on as a consultant to Time Warner’s online efforts, would later recall that he had seen it coming all along. Wolff was an acid-tongued iconoclast with a prickly wit, a keen eye for detail, and a biting writing talent—all of which he’d unleash on Time Warner (and AOL, too) in his 1998 book, Burn Rate, about the early days of the commercial Internet. I would often find myself wrangling with him about the true meaning of the Internet and its prospects—he thought the Web was a complete scam and I did not—but he was spot on about Time Warner being woefully out of sync with the Internet wave.
“Even with my scant knowledge, I knew that a mess of plans were being made on the basis of assumptions about technology that were comically haphazard,” Wolff wrote in Burn Rate. “It was often a cascade of misunderstandings or knowledge synapses: A wonderful, patrician, 1950s-style Time editor having a weighty discussion with the salesman from WAIS, the search software company, and throughout the discussion helplessly confusing the client-server relationship; a determined Isaacson acolyte insisting to a programmer that while something may not be possible now, it would surely be possible in the next 12 months or so (‘Wouldn’t it?’). They treated technology like a service arm of what they were trying to do.”
In fairness, as I always argued with Wolff, Time Warner might have been clueless, but just about everyone else was, too. At the birth of the commercial Internet, it really didn’t matter what you didn’t know; everyone was just making things up as they went along. Not only were there no rules, but also it seemed entirely possible that whoever took the initiative could simply make up the rules themselves, and everyone else would be forced to follow along.
Yet, as so often happens, those who are first are not necessarily the best. That was certainly the case for Time Warner; today, one rarely sees a reference to the company’s fledgling online efforts without the accompanying word fiasco. FSN and Pathfinder were simply too early for their time, not to mention way too much like old media to satisfy those who were flocking to new media. As services, they were cumbersome, confusing, and spoke down from the top in a medium that thrived on bubbling up from the bottom.
Pages referred to other pages in Time Warner, rather than out to the Web, just as users were embracing the idea of limitless choice. It was graphics heavy, making it slow to download, more like a magazine paradigm than the less fussy Web. And it disdained community, a critical element of all successful Internet sites. Like all traditional media companies, it talked while consumers were supposed to listen. That was problematic, since on the Web everybody talked. Finally and perhaps most damning, the site was too costly for a company that Wall Street counted on to make dependable profits (and was punished when it did not).
Many other media companies made similar mistakes—including News Corp., Walt Disney, and Viacom—but Pathfinder still remains the model of how little the old media companies understood the Web at its commercial infancy. Worse, it gave Time Warner the reputation of being a digital loser. It was an image that would stick with the company and have a major impact on its later decision to merge with AOL.
By 1997, it appeared as if Jerry Levin was clueless about the one thing he seemed to care most about. In just three years, he’d gone from being at the leading edge of new technology and a visionary among the lumbering media pack to potentially falling out of the race altogether. AOL, on the other hand, had begun an amazing upward trajectory, aided by a new push by Pittman to goose AOL’s revenues by focusing in on ad deals by taking advantage of the massive amounts of capital about to be pumped into Silicon Valley dot-com startups.
It was a frustrating position to be in, but as Levin watched the Internet whirlwind start spinning even faster, he was still determined to get in the center of it. At high-level executive management meetings, he became what one division head described to me as “increasingly desperate and obsessed with the Internet killing Time Warner.” His fervor grew, the executive said, as a spate of startup companies—including a number that Time Warner had turned down as investment opportunities—went public at astonishing valuations and rose even further.
More important, he fretted that as those market valuations rose, they would give enormous power over the future development of media and entertainment to companies that he had ignored to his peril. According to many, Levin was worried that companies, especially AOL as the largest online player, could easily contemplate a takeover of his company if their stock rose even further. “I think he, like a l
ot of us, could not quite believe it,” said cable pioneer John Malone, who was also a large Time Warner shareholder. “And it scared him more as it got more and more possible.” Levin told me he doubted this would happen, but it made him nervous the possibility existed.
Levin decided then that he needed to double down rather then cut back on Internet plans. But not everyone at Time Warner thought a big bet was needed. Most divisional executives wanted to pursue a longer-term strategy, with limited losses and minimal risk, especially since the prices of Internet firms Time Warner might consider buying were getting steadily higher. Time Inc.’s Don Logan was feeling especially cautious, given that he was the first to get burned in the Internet space with Pathfinder. “We all wanted to dip our toes in the water, especially after we saw what happened to Logan,” said one executive. “He stuck a whole leg in and it got bitten off, so we were cautious about losing another one.”
But Levin was adamant that the company should think big, since after Pathfinder the media were always asking where Time Warner’s Internet strategy was going. “He always said, ‘Let’s be the leading media company to embrace the Net,’ ” recalled Warner Bros. cohead Terry Semel, who would later take over the helm at Yahoo. “But after our experience, we found it was too expensive and it put our earnings at risk, so more of the same made us fearful. We wanted to do things more slowly and not lose money at it.”
Semel understood the urge to make bold digital moves at Time Warner. But he, like others, wanted to move in a way that wouldn’t damage Time Warner’s old media assets. Levin, on the other hand, felt that times were changing too fast to act tentatively. “Jerry was frustrated trying to find an interactive opportunity and was reaching a point of no return,” said Semel.
