by Kara Swisher
Well, I thought, when I heard he’d declared peace: That solves that, Dick! The remark was a year late, but it was still necessary, since AOL needed all the help it could get from the rest of the company if it wanted to right itself and keep from dragging everyone else down with it. And on December 3, the company unveiled its strategy for how that would happen at a presentation to analysts at a Sheraton hotel in midtown Manhattan.
As several hundred analysts, investors, and reporters sat in the hotel’s darkened ballroom, Dick Parsons and Don Logan took turns offering up general platitudes about “working together” and having a “new start.” Then Logan introduced AOL CEO Jon Miller with a joking nod to the additional hours he’d been spending holed up in Dulles. “He’s been working between 80 and 200 hours a week,” declared Logan in his warm Southern drawl, adding that the company had gotten “a year in four months of work, or, conversely, he’s been working for minimum wage.”
Spouting numbers and facts in a stiff, robotic manner, Miller looked like a schoolkid who’d been drilled all summer on spelling words and was now operating on autopilot at the big spelling bee. His prepared shtick was a recitation of each thing AOL had been doing wrong, followed by the phrase: “That . . . ends . . . NOW!”
In a tense monotone, Miller declared: “For many years, we’ve thought about our business in one way—how many people we brought in the front door. That . . . ends . . . NOW! We missed the first wave of broadband because we were too focused on connectivity, and too timid about pushing our product. That . . . ends . . . NOW!” And so on, through a list of about 10 sins AOL had been committing. Miller’s main message was to be contrite about the past, insisting that kind of behavior was all over now, in favor of the more promising future.
The rest of the presentation laid out how AOL was going to achieve its new goals. Ted Leonsis took the stage and waxed poetic on his favorite topics: The love affair with members and AOL content. “We want our members to love us and need us once again,” he said. “We want to delight them. . . . We are putting a much greater emphasis than ever on content, programming, and navigation.”
That was all well and good, but it was debatable whether great content would really lure anyone new to AOL. The real issue was that legions of Internet users were switching to broadband connections—a race in which AOL had fallen far behind in the last three years. New AOL President of Broadband Lisa Hook, a Time Warner veteran, took the stage to describe AOL’s new efforts in that arena. The major initiative was a “Bring Your Own Access” offering. AOL hoped to lure users who were already paying $40 or $50 per month for high-speed connections to pay an extra $14.95 per month for AOL’s supposed cornucopia of valuable fare.
And AOL presumably hoped to accomplish all this with AOL Time Warner teamwork. Parsons made sure he had the right visual for the occasion, with all the division heads in the front row at the presentation—everyone across the united company now ready to lend a hand. He’d need that happy family picture, since any plans for the future seemed destined to be quickly overwhelmed by concerns of the present.
Along with the new strategies, the company announced more surprises that day—including expectations for even larger declines at the online division. Ad and commerce revenues for 2003 were expected to dive 42 percent, while cash flow would plummet up to 25 percent for the year. Miller noted that this was the year AOL would “bottom out,” and he predicted double-digit growth for 2004.
So instead of focusing on AOL’s new plan, most news accounts the next day dwelled on the online ad fallout that was still dragging the online division—and AOL Time Warner along with it. Attempting to look to the future, the quiet and diffident new AOL CEO, Jon Miller, had been roundly upstaged by the past.
Good-Bye to All That
And it was the past that would finally catch up with Steve Case, too, as hard as he tried to outrun it.
After his disastrous meeting with Crawford, Case reinserted himself in the process of trying to fix AOL, a process that went on through the late summer and early fall of 2002. Case started coming in more regularly to the Dulles headquarters, freely adding his typically provocative opinions about the direction of the service via emails and in meetings.
Case reached out to Dick Parsons, as well as to Don Logan and Jeff Bewkes, in an attempt to create stronger ties with the new executives running the company. In doing so, he hoped to position himself as the one who looked out for the longer-term interests of AOL Time Warner. To Case, the combined company was still operating like Europe, tugging back and forth with no central idea to inspire it. He still hoped to play the role of the strategic visionary who hovered placidly over the scene.
But there’d be only more turbulence for Case, as his critics soon grew louder. This critical free-for-all had really gotten its start back in the springtime of 2002, during a now-legendary management meeting. At that meeting, Jeff Bewkes, who was then head of HBO, questioned Case in front of everyone, expressing disdain for Case’s constant harping on convergence while AOL was suffering.
Bewkes had, in fact, been conducting a long-running and friendly intellectual debate with Case for a while before the spring meeting, where strategies about how to run the company were being discussed. There, Bewkes pushed for more recognition that AOL Time Warner was a business that straddled multiple industries, instead of harping on the fact that it was one company. In Bewkes’s assessment, some of the businesses were closely related, while others were not. But Case had a different take, noting that everything should be considered through the prism of convergence. He thought each piece should be subservient to the needs of the whole, much as AOL had been run. But, Bewkes correctly countered, AOL was actually the one with the major problems and so he was not sure why they should use its ideas, since it had the most screwed-up situation. While Bewkes had been polite in his arguments, once the account of the clash got play in a Wall Street Journal article by Martin Peers, it was open season on Case.
As the September board meeting approached, the press began to predict that Case would be thrown out as chairman. These reports were inexplicable, since, according to the terms of the merger, Case couldn’t be removed before the end of 2003 without a supermajority vote—three-quarters of the board. Case clearly had more than enough votes to stay on, including those of his close and deeply loyal associates, AOL’s Miles Gilburne and Ken Novack.
And, as he’d shown in stubbornly refusing Crawford’s request to resign, Case had no intention of going gently. “We’re going to shame him into quitting,” one big AOL investor told me at the time. Clearly, this person didn’t know much about Steve Case, who had always been notoriously indifferent to any kind of external judgment. Case was a man who was difficult—if not impossible—to shame.
Meanwhile, amid the speculation, Case’s position got even more complicated. The Wall Street Journal ran another story in late October outlining his growing frustration for AOL under the new Time Warner leadership, which Case felt might be “managed into oblivion.” Case, as was typical for him, had begun goading his Time Warner critics in meetings, telling them if they didn’t like what was happening with the AOL unit, they might consider spinning it off to him (or whomever). Ted Turner was apparently also advocating this idea. So while this kind of needling was merely Case’s usual method for provoking debate, many took him seriously. And they were furious at his presumption.
But Case wasn’t the only one floating spin-off scenarios. Possible buyout players such as Kohlberg Kravis Roberts, the Blackstone Group, and James Lee now seemed to be circling around AOL. Other big Internet players such as Barry Diller also hovered in the background, contemplating options for gaining control of AOL—which was still, despite its troubles, the biggest online service by far and worthy prey.
Case didn’t actually want to unwind the deal, as he still held fast to the dream of AOL Time Warner as one powerful entity. He continued trying to build support with Turner—who by now was publicly and loudly critical of Case—and even travele
d down to Georgia to have dinner with Turner at one of his buffalo-meat restaurants to listen to his gripes.
But Case’s efforts lost steam with a series of setbacks both large and small. With the ascent of Parsons’s Time Warner team, some began raising the question about excising the despised AOL from the company name, changing it back to simply Time Warner. And in November, attorneys filed more shareholder lawsuits against the company over AOL’s accounting issues, alleging illegal insider trading, revenue and income overstatements, fraudulent business deals, and sham transactions. It was also revealed in news reports that federal regulators were investigating the activities of David Colburn and other AOL Business Affairs staffers.
A few slights seemed silly, but they intensified the overall headache anyway. At the glittery September 2002 season premiere of HBO’s The Sopranos in Manhattan, Case was left sitting alone, with empty seats on either side of him—a supposed ticket snafu that many on his staff considered a purposeful snub. “What can I say?” said one Time Warner staffer in attendance. “No one wanted to sit next to him.”
Or acknowledge his existence, either. In November, the Washington Post reported that at a dinner thrown by Fortune magazine in Washington, D.C., Case’s hometown, Time Inc.’s new head, Ann Moore, accidentally introduced Dick Parsons as the chairman of AOL Time Warner. While Parsons suavely corrected her, according to the newspaper account, thanking her for the “promotion” and pointing out Case sitting nearby, it was a telling Freudian slip.
Still, Case pressed on, taking pains to link himself publicly with the changes taking place at AOL. At the December 3 strategic overview presentation, he was the final speaker, in an attempt to underscore his importance to the process. And he posted one of his old-style “Steve” letters to AOL members on the service’s welcome screen that day too—but it unfortunately came off like a ghostly reminder of a time gone by.
Case seemed determined to revive the old AOL spirit. But his efforts weren’t welcome, a fact that became publicly apparent on January 6, 2003, when the New York Times’s David Kirkpatrick took the temperature of the still hotheaded Time Warner troops, adding in new reporting on the growing displeasure with Case at AOL itself. The article painted a picture of discord between Logan and Case, noting that poor Jon Miller was now playing “a role something like that of a precocious child trying to salvage his parents’ strained marriage. . . . Both men meet frequently with Mr. Miller but as little as possible with each other, leaving Mr. Miller to shuttle between them.”
Noting that they had a “difference in style,” the normally press-shy Don Logan was practically garrulous in talking about his frustration with Case for the article. “I am a big believer that when you give someone responsibility, you have to give them authority and let them see if they can succeed,” Logan, in his typical blunt manner, told the Times about Miller. “That is not to say that we don’t listen to Steve—we value his opinion—but it is Jon who is calling the shots and he reports to me.”
In a devastating parting shot, Logan noted, “AOL has had enough, I think, of the high-profile visionary CEOs who were building the company.” Ouch. Except for Jim Kimsey’s early tenure before the company took off, Steve Case had been AOL’s CEO for the bulk of its history.
Logan’s problem with Case, in fact, was almost opposite the one he had with Bob Pittman. “If the issue with Pittman was that he could only focus on the next 30 seconds, the issue with Steve was that he only looked at the next 30 years. But at AOL, you have to think about today, tomorrow, and next year,” said a person familiar with Logan’s thinking. “When you boiled it down, he did not realize what the problems were. So he was not always helpful since there was no silver bullet and he had a very vocal style.”
Within three days, another public smacking of Case was cued up: A CNBC show called The Big Heist: How AOL Took Time Warner. The cable network hyped its first primetime business documentary special as “a story of corporate intrigue, visions of grandeur, and ultimately personal failure. It’s the inside story of one of the most infamous mergers in modern American business.” Full of interviews with AOL Time Warner competitors gleeful at the chance to make fun of the merger, the program, not surprisingly, did not flatter Case, although Levin came off much more poignantly.
As more rounds of cuts and layoffs descended on the AOL unit, it was clear that the third anniversary of the merger’s announcement, on January 10, 2003, wouldn’t be quite the party Case might have imagined back at the turn of the new century. Case began to hear through backchannels that Crawford and other major investors planned to attack him publicly, both before and at the May annual meeting, by gathering a large parcel of shares in opposition to him. With enough momentum—helped in part by constant press attacks—this effort might just finish Case off. At the very least, it would be a huge embarrassment.
Crawford had been calling major investors since the late summer. Already, Crawford had Turner, Malone, and many others on his side, including some AOL Time Warner board members. He was not going away in his quest to unseat Case, and he probably held sway of at least one-third of AOL Time Warner shareholders. “Case was an irritant, especially in a managerial role,” Crawford said to me. “He hurt the esprit de corps—you can’t be the general when your troops want to shoot you in the back.”
Another person close to Crawford offered a more descriptive take on the media investor’s motivations. “He did not do it to embarrass Steve,” this source told me. “Steve was just a festering boil at AOL that needed to be cauterized and removed.”
But before Crawford could further push toward an ouster, Case took matters into his own hands. Over the second weekend of January, he went to his home in Virginia to decide what to do. He still felt he’d had very little authority in the combined company, but he knew he’d be held responsible for the merger’s failure anyway. And it was clear that no one at the company would allow him to have any influence anymore. Case knew he had become ineffective and that he had done his best to make his points. But no one was listening any longer. “At the time of the merger he went from being a genius to almost overnight becoming a fool,” said one person close to Case. “But Steve was not an idiot—it was time to go.”
After talking to his wife and longtime confidant Jean, Case called Parsons and others on the board on Saturday and told them he would step down. The next day, Sunday, January 12, he announced his decision to go—a move that surprised many. For a moment, at least, Steve Case had the upper hand, since he retained his board seat. For the moment, Crawford’s efforts to remove him totally from the company had been thwarted.
“Given that some shareholders continue to focus their disappointment with the company’s post-merger performance on me personally,” Case said in a statement, “I have now concluded that we should take steps now to avoid the possibility of that effort hindering our ability to pull together as a team and focus fully on our businesses.”
Steve Case had finally ended his battle. And, given his nature, I’d bet he’ll step down from the AOL Time Warner board within a year. Because amid the circus of analysis and coverage that followed, one fact stood out for those who cared to notice, which Case had downplayed. During 2002, while Case had waged his tumultuous business war, his older brother Dan had finally succumbed at age 44 after his long battle with brain cancer.
Ted Leonsis, for one, thought Case’s move was a good one in light of the more important personal issue. “His brother’s passing was sobering and certainly put any business losses into perspective,” said Leonsis. “I think he thought, ‘Who needs it?’ And anyway, who knows how the story ends?”
Who Robbed Ted Turner
For Dick Parsons, the story just kept going. Within days of Case’s announcement, the board voted unanimously for Parsons to succeed him as chairman. While some thought the chairman and CEO jobs should be filled by two people—a product of widespread concerns over corporate governance—most agreed that Parsons was a good salve for the wounded egos scattered througho
ut a company that remained in deep internal pain.
Yet new stories questioning Parsons’s leadership ability popped up almost immediately, along with unfounded Wall Street rumors that Viacom’s pugnacious president and COO, Mel Karmazin, was being courted for his job. And now that Parsons was the only major executive left from the original deal team, some openly wondered what culpability he should shoulder for the merger debacle.
I had expected Parsons to be next into the frying pan for this, but it was hard to make a case that he was responsible for the merger mess, considering his status as a clear subordinate to Levin. But while he was arguably not directly responsible, it was still true that he had done nothing to stop the merger. To me, that made him complicit, but probably not to blame.
In any case, Parsons, with his deep reserves of political goodwill and an amiable manner that would help calm the rage still coursing through the company, was the right kind of executive for this moment, at least—and perhaps for the longer run. After all, Time Inc. Editor-in-Chief Norm Pearlstine had pointed out to me in 2003, he’d already managed to unite the company more than Levin ever had. “I am a huge Dick Parsons fan. First of all, he knows what he does not know and relies on others who can help him figure it all out,” said Pearlstine. “In a lot of ways, Parsons has really brought together the company as never before and gotten a lot more done in a very short time and under difficult circumstances—settling the TWE ownership, readying the cable for an IPO, putting the two best division heads in charge of a much more centrally run operation.”
But if anyone thought Case’s departure would leaven the company’s stock, they needed to think again. Neither of these moves—Case out, Parsons in—really helped move AOL Time Warner shares in early 2003. In fact, the stock would soon take a new plunge downward with the incredible announcement that came at the end of January.
