Stealing Time

Abstract: The book "Stealing Time" describes the growth of America Online and the events leading up to, and immediately following, its merger with Time Warner. The personalities involved are also covered, and as in many other corporate fiascos, they are fascinating, if more than a trifle repellent.

 

About the Author: Alec Klein is an investigative business reporter for The Washington Post who covered AOL Time Warner for more than two years. He previously reported for the Virginian-Pilot (Norfolk), the Baltimore Sun, and The Wall Street journal. A Phi Beta Kappa graduate of Brown University, he is also a playwright.

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Gerald Manuel Levin, the CEO of Time Warner, was an "unprepossessing figure stalking the hallways of the great empire". He had ascended to the position of CEO by staging a coup against his boss and benefactor Nick Nicholas, while Nicholas was on a skiing vacation with his family. Levin was generally disliked by the countless people he had fired, passed over, or ignored in his climb to power. If the silent, stolid, Steve Case was called "The Wall", Levin was called Caligula. Though a master of the deft political maneuver, Levin's business acumen was also being questioned by investors. Levin was under pressure to find a way to ensure that Time Warner did not end up as road kill on the information superhighway. Case and Levin, with their distinctly different personalities, made for an unlikely partnership. owever, negotiations began between the two companies for a possible merger. After a series of hiccups where the point of disagreement was the price, the merger between AOL and Time Warner was announced in January 2000. Perhaps ironically, in the light of later developments, the proposed merger met with opposition from a wide range of individuals and companies, most of whom were worried about the monopoly powers that could be exercised by the merged entity.

This led to the proposal being examined by the Federal Trade Commission as well as the Federal Communications Commission, and the merger being delayed by several months. Problems with the regulatory authorities were exacerbated by the behavior of Case and Levin, who apparently managed to alienate most of the influential people on the two Commissions with their arrogance. However, all the roadblocks were eventually removed, and the merger finally took place on January 11, 2001, a year after it was announced. Case became the Chairman of the merged entity, while Levin was the CEO. During the period between the decision to merge and the actual merger, the Internet balloon was deflating. Most technology companies saw their share prices drop precipitously. Many of the advertisers, the dotcoms which had been put through the wringer by AOL's business development unit, began to go bankrupt, and advertising revenues dried up. All through this, the company maintained a façade of optimism, reassuring the world that all was well, and that revenues would continue to go up.

Behind the façade, though, things were not going well. The company had to resort to increasingly dubious accounting-sleight-of-hand to meet quarterly forecasts. These would eventually prove to be a millstone around Time Warner's neck for years to come. The much touted synergies from the merger never materialized. Turf remained sacrosanct. The fiefdoms of Time Warner, which even earlier had problems working together, closed ranks against the upstarts from AOL, and the AOL employees had only contempt for the suits from Time Warner. But, as the Internet hype died down, AOL's relevance and importance within the new structure came increasingly under question.

If Levin had had few friends before the merger, he had even fewer once the merger was completed and the real folly of his action became apparent. After being sidelined by Case, and under pressure from the board, Levin announced his retirement in December 2001. However, before leaving, he fired one last shot. He had Richard Parsons, a Time Warner veteran, appointed CEO in his place, instead of someone from the AOL side. The end of the story is actually given at the beginning of the book. At a meeting of company executives in the spring of 2002, Steve Case, as Chairman of AOL Time Warner, was expounding on the rosy future of the company. He was brought to an abrupt halt by Jeff Bewkes, the Chairman and Chief Executive of HBO, one of the divisions of the company. "I'm tired of this," Bewkes said. "This is bull---. The only division that's not performing is yours. Every one of us is growing, making the numbers. The only problem in this construct is AOL." That incident, more than any other, marked the end of the pretense that AOL was anything more than a division of AOL Time Warner.

In January 2003, Case announced that he would step down as Chairman effective from May of the same year. At that time, the company's shares had lost 80 percent of their value from the day the merger was announced. Even today, Time Warner appears to be paying the price for the ill-judged merger. The company is facing the threat of lawsuits from investors, in addition to probes by regulatory agencies for accounting irregularities. Much as it may like to put the merger behind it, the debacle is likely to haunt Time Warner for many years to come.