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American Morning

Shakeup at Top of AOL-Time Warner

Aired July 19, 2002 - 07:32   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.
JACK CAFFERTY, CNN CORRESPONDENT: Now, for the shakeup at the top of AOL Time Warner, the parent company of this network. Bob Pittman is out as chief operating officer. In a statement he said, and we quote here, "Having worked so hard to build the AOL service and brand and after then going through the merger in the last 18 months, it's time to take a break."

Speaking of having it tough, if you own AOL's stock you know the value of the stock has plummeted since the merger, losing about 60 percent of its value this year alone, down from a high up near $70 a share to, I think, 12 bucks and change.

The total market capitalization or the value of the company has declined by only $150 billion in the couple of years since AOL and Time Warner became one.

Joining us to talk about this and where the company goes now, Jim Surweicki of the "New Yorker," Keith Kelly of the "New York Post."

Gentlemen, nice to have you with us.

KEITH KELLY, "NEW YORK POST": Good morning. Good to be here.

CAFFERTY: Does anything strike you about the timing of the announcement of Pittman's exit yesterday?

KELLY: Just that it was time to go. He was under pressure. He was widely unpopular. He was seen as arrogant and he was kind of the new guard that just wasn't working.

CAFFERTY: How much blame for the failure, at least up to this point, of this merger does Bob Pittman deserve? He's going to get some, but how much of it does he deserve?

JIM SURWEICKI, "THE NEW YORKER": I think the only part of it that he really deserves is that Pittman was one of the real leaders in terms of over promising, which is one of the things that I think has really hurt AOL Time Warner since the merger.

CAFFERTY: He drove expectations, particularly on Wall Street, too high?

SURWEICKI: Exactly. Way too high. And, you know, continued to cling to those even after it became pretty clear that they weren't going to be able to live up to them.

CAFFERTY: Now, this was, you know, touted as a marriage made in heaven. Conceptually, it's the perfect blend of content and delivery system, AOL and Time Warner. And yet according to what I've read, Bob Pittman couldn't get the guys in Time Warner to agree that this was a really neat idea and perhaps therein were some of the seeds of his eventual demise.

KELLY: Well, that's true. Synergy never really works. Jack, if you do a book, do you want to sell it to Warner Brothers for a low price because you have the same corporate parent? No. You want to sell it to the highest bidder. So at the basic roots it doesn't work. You don't want to work for somebody else for free. And consumers don't want higher cable. Yes, they might want faster service, but they don't really want to double their cable bill. So there was not a consumer -- they weren't really getting down to the grassroots. They had their own reasons, grand reasons for why they wanted to do it.

Two lines from that first press conference, Jerry Levin saying we believe the new media valuations are real and we've become a company of hugs and high fives.

CAFFERTY: Yes. I mean, yes...

KELLY: I'll always remember them.

CAFFERTY: Yes.

KELLY: And neither one of them are true. And he and Case, they're going to be the...

CAFFERTY: And two years later declining stock prices, right?

KELLY: Yes, Levin and Case are the two culprits. The deal was driven by fear and greed.

CAFFERTY: What is, what's next for Steve Case? I mean where does he come out in all of this?

SURWEICKI: Well, the fascinating thing is that he's somehow been able to kind of evade a lot of the blame for this as chairman and, you know, he's sort of above the big picture. I think he's probably going to continue to play that role there. I mean the truth is right now AOL is not a bad business. As a part of a bigger company, AOL works perfectly well.

The problem is just that Time Warner paid, you know, whatever it was, basically it amounted to $120 billion for an asset that's worth just far less than that.

CAFFERTY: Sure. Now, you mentioned Steve Case and you think he'll continue to probably survive as chairman and maybe be able to dodge the bullets. They've reorganized the company, though, in terms of trying to go forward and do some business.

Don Logan and Jeffrey Bewkes are the two new key players, and they're both from the content side, one from HBO and the other one from, will head up the media and communications group. Nobody any longer from the AOL side of this deal with a huge day to day responsibility for where this company goes from here. What's the message to the AOL people?

KELLY: I think AOL was really just a delivery vehicle all along. They didn't really make or do anything. They weren't even the highest techhie delivery service. They just had a good thing. It was, I likened it to the '50s, back in the days when everybody moved to suburbia, dad left with the one car and there were these mobile delivery guys that came in, the Duggan's delivery trucks and you could buy food and clothes and milk. All those things are gone.

AOL is the Duggans of the '90s.

CAFFERTY: That's a pretty good analogy.

Where does the company go now? What does AOL have to do to begin to regrow its business? They have sort of been above the fray when it comes to other cable businesses. But these other cable businesses eventually are going to be forced to take a look at AOL, are they not? Isn't there maybe now the time to start looking at deals for AOL with other cable companies around?

SURWEICKI: Deals in terms of broadband and things like that?

CAFFERTY: Exactly.

SURWEICKI: Yes, I think that's something that's going to go forward.

CAFFERTY: I mean AOL has got a quarter of the homes in this country wired right now.

SURWEICKI: Right. No, I think that's right. And I think that going forward that's going to be part of it. I think what Time Warner needs to do is just essentially regroup and say OK, we're going to go forward from here as one company and AOL will just be an important part of that, but not in any sense kind of, we're not an Internet company in any way anymore. And I think that that's kind of crucial to what they're going to do. KELLY: I think the guys that run it now are guys that just execute, say, you know, go do your, make your numbers, perform, do your job, come back with the numbers. Don't tell me how you get them, just get them, and that's it. They're not...

CAFFERTY: Which is kind of the way they run General Electric, right?

KELLY: Yes, so that's a good model.

CAFFERTY: I mean they have all these various businesses and the directive is you take care of your business.

KELLY: Be number one or two in your market or we'll sell you. And that's, that was... SURWEICKI: And stop promising, you know, I mean they've already started to do that, I think, but basically just scale back expectations. I mean one thing that was interesting about yesterday is that even with Pittman resigning and the accounting, there were some accounting scandals, sort of minor accounting scandal...

CAFFERTY: The "Washington Post" piece, right.

SURWEICKI: Right. The stock only fell five percent on a day in which the market as a whole fell three. So I think this is...

CAFFERTY: Dick Parsons did issue a memo, by the way, internally, saying that there is nothing improper in the accounting for the company, which may have taken some of the bloom off that that was in the "Washington Post."

SURWEICKI: Right. And I think most of the bad news is in the stock at this point. I mean it's hard to see how it can go down much further.

CAFFERTY: To what degree -- and this is strictly hypothetical -- but to what degree was this, was the collapse of this, or the demise of this due, in part, to the overall economic slowdown and in particular, the collapse of the advertising market? I mean it just, it went to hell in a hand basket fairly quickly...

KELLY: It happened at the worst possible time.

CAFFERTY: Right.

KELLY: But the merger was not a good merger anyway. I think that only exacerbated the real underlying problems. It was not a consumer driven merger. It was these guys wanted to be the biggest and the best and they merged. And it's really what the grassroots people want and need that's going to drive media companies.

SURWEICKI: The one thing about the advertising, I think, has made clear that AOL's business was not just this sort of subscription business, that actually advertising was crucial to it. And, you know, their advertising revenue fell like 30 percent the first year.

CAFFERTY: Fellows, we've got to stop there. I appreciate you coming in this morning, lending your thoughts on this to all of us.

Do you know who I talk to now about getting a raise? Have you...

UNIDENTIFIED MALE: You're getting a raise?

CAFFERTY: Well, I hope so.

Keith Kelly of the "New York Post," Jim Surweicki of the "New Yorker." Thanks for being with us.

KELLY: Thanks for having me. I enjoyed it.

SURWEICKI: Thanks. TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com