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CNN Live Today

Interview with 'Forbes'' Penelope Patsuris

Aired July 19, 2002 - 12:13   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Stock in AOL Time Warner, parent company of this network, is down yet again after a shake-up in the top ranks. As many had expected, Chief Operating Officer Robert Pittman resigned, ending a brief return as interim leader of America Online. A pair of veteran Time Warner executives are moving into new, more powerful positions now, and the company continues to defend its accounting practices against a "Washington Post" report that so-called unconventional deals were used to pump up profits.

Penelope Patsuris is senior editor at Forbes.com, and she joins us from New York with her take on all this -- hi, Penelope.

PENELOPE PATSURIS, SENIOR EDITOR, FORBES.COM: Hi, Kyra.

PHILLIPS: Well, first of all, what is your take?

PATSURIS: Well, on which issue? We've got a lot of them here. I think -- I think it makes sense that the Time Warner folks are taking over, and I think, you know, it's not even really news. It's been a gradual shift that's been ongoing since, you know, last fall, frankly. We have seen a lot of the AOL guys, you know, come up through the ranks, and then basically get booted back down to the minors, and Pittman is just the most recent one in a series.

You had Michael Kelly, who was AOL's CFO. He, of course, then assumed the rank of AOL Time Warner CFO, only to get booted back down to AOL. You know, last November, the same thing happened to -- you know, something similar happened to Barry Schuller, and then the same thing just happened to Pittman, you know...

PHILLIPS: So this is not Pittman's fault.

PATSURIS: Well, I don't know about Pittman's fault. I mean, he wasn't alone in it. I mean, he and Jerry Levin were right there together, proclaiming those targets, those incredibly unreachable financial targets that -- you know, until the very bitter end. So I wouldn't say it's all Pittman's fault.

But, you know, the fact of the matter is he has become a real lightning rod within the company, just a total flash point for the ire between the two factions. You know, it was Pittman who wanted to sort of centralize the management, you know, take away the (UNINTELLIGIBLE) of the various Time Warner divisional chiefs, and that really, really made people mad. And making things even worse, the compensation issues were really a problem in the sense that Pittman shifted compensation from cash over to now worthless, you know, Time Warner stock options, you know, AOL Time Warner stock options. And people are really angry. I mean, they basically, you know, took pay cuts as a -- you know, in order to work for these guys who can't even pull their own business out of a nosedive.

PHILLIPS: Right.

PATSURIS: So you can see how it's a bit galling.

PHILLIPS: Well, and a lot of people, of course, with WorldCom and everything else that's been taking place, a lot of people are wondering, oh, my gosh, are we going to see corruption? Are we going to see secrets? Are we going to see memos surface?

PATSURIS: Yes.

PHILLIPS: What do you think?

PATSURIS: I think what you are going to see is a restatement of past financial results. I think that shouldn't even be surprising, given the fact, you know, that they definitely did some accounting. Nobody is saying it was illegal. Nobody is saying it was even wrong. Ernst & Young came out and reiterated its -- you know, its approval of these methods. But it was kind of, you know, the go-go dot-com years of accounting, where they booked, you know, advertising that they sold for eBay as their own revenue. They booked barter deals as revenue. They booked stock options that they were paid with by other dot-coms as revenue.

So I think you're going to see a restatement, if not next week when they report earnings, then sometime soon, if only because the August 14 deadline for chief executives to start signing off on their, you know, official financial results, you know, that's looming. And you know, given the fact that they have already had a $54 billion write-down, you know, it's probably not very surprising that you are going to -- you're going to sort of see them rethink how they have laid things out financially.

PHILLIPS: And there are a lot of employees around here wondering, OK, oh, boy, we've got 401(k), we've got stock, what's going to happen to CNN...

PATSURIS: I bet.

PHILLIPS: ... because this affects our news coverage. Are these fair concerns?

PATSURIS: Yes. I sure would say they are. I mean, from what I -- from what I hear from folks that are not, you know, here at CNN, but I mean, I hear that there is a lot of confusion on the inside. People have been moved around, they are not quite sure who to report to, they have got new duties, but they're not quite sure what they are. You know, conference calls are getting started and everybody -- you know, it's just a litany of people introducing themselves, explaining what they used to do, and explaining what they are doing now. And I mean, there is just a lot of tech-tonic plates shifting, and people are really unsettled.

So I hope that things do settle down within the top ranks, so that there can be some direction to come down to, you know, to everybody else and everyone can start to get more comfortable.

I think the stock will, you know, will pull back eventually, but they've got a long way to go. I mean, AOL has to start doing deals with other cable operators, you know, the 80 percent that Time Warner doesn't own in order to shift its dial-up service over to the high- speed Internet connections that consumers want. And they've got to do it carefully, so as not to cannibalize their current high-margin dial- up, but they've got to get on it, you know, sort of get with the program.

People are worried that, oh, well, you know, who is going to do a deal with Time Warner? Why would any -- why would any other cable operator do that? Well, the fact of the matter is right now, they are selling cable modems to their own customers, you know, for high-speed Internet's access, and they've got great growth. But in not too -- you know, not too long from now, they are going to hit a wall in those sales, and they are going to want to continue that growth. And they're going to look at the AOL -- 25 percent of U.S. households that AOL has, and that's going to start to look pretty good, and they're going to warm up to doing deals. So I think that will happen.

PHILLIPS: Penelope Patsuris, senior editor at Forbes.com, a little bit of good news in there.

PATSURIS: Yes.

PHILLIPS: Penelope, thank you very much.

PATSURIS: Thank you.

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