The Third Wave: An Entrepreneur's Vision of the Future (14 page)

But even after such a drastic market correction, we were still positioned well. Would it have been better for AOL Time Warner had the Internet had a few more years of boom? Sure. Do I think it would have made a difference? Absolutely. A rising stock price might have convinced the media (and more of our executives) that the merger was a good idea, or at least given us the time and the credibility to better integrate the two companies.

By the same token, I’m skeptical that more time would have produced a meaningfully different result. In the end, what did us
in was that we were trying to join two companies that were incompatible in structure, in culture, and in mission. From an organizational perspective, Time Warner operated like a portfolio of independent companies—with Turner Broadcasting, Time Inc., HBO, Warner Brothers, New Line Cinema, Warner Music, and Time Warner Cable all operating largely autonomously. The result was rule by fiefdom. Rupert Murdoch once told me that it was easier for News Corp to get a deal with Time Warner Cable than it was for HBO. And they were part of the same company! And because the individual businesses that made up Time Warner functioned independently, AOL wasn’t really merging with Time Warner—it was engaged in nearly a dozen different mergers
simultaneously.

From a cultural perspective, there was an enormous and fundamental disconnect between AOL and much of Time Warner about the potential of the Internet. Several top executives who had been at Time Warner for decades believed the Internet to be overhyped and had a large constituency within the company who agreed.

The
Wall Street Journal
quoted Time Warner executives as saying I was too focused on “shaky theories about convergence of technology and entertainment.” What they thought was unlikely, we knew was inevitable—and coming soon. Once speeds were fast enough, there was no reason why HBO’s shows, for example, needed to be limited to one platform. But back then, the idea of a streaming HBO GO app would have seemed downright ludicrous to many of the executives at HBO.

In May 2000, Jerry announced a new management structure, and it sent shock waves through the company. When I’d first talked to Ted Turner about the idea of the merger, he had loved it. He thought that Time Warner was too bureaucratic and slow-moving, and he was convinced that the merger would shake things up. But in May, Jerry decided that Ted should remain vice chairman but should no longer have a day-to-day-operational role at the Turner Broadcasting division. Ted was out—and he was angry. He viewed the decision as an affront to his self-worth. When the stock plunged and he started losing billions, he boiled over. His temper exploded frequently at board meetings, and he used whatever opportunity he could to direct venom and vitriol our way. He wanted Jerry gone (and would soon want me gone, too), and he wasn’t shy about it.

Disagreement generated discord, not just between Ted and Jerry but throughout the company. The environment became toxic. To this day, I am still surprised by what people did out of embarrassment or anger, how petty the situation became. Instead of discussing how we could work together to put properties like
Time
on a path of sustained success in a digital future, people were more interested in bitter debates over whether or not
Time
reporters should use AOL’s email service. At times it seemed that no matter where you turned in the company, you’d find contentious arguments and needless sniping over little disagreements, resulting in near-total neglect of the bigger picture.

I was hopeful that Jerry would be effective as CEO in
bringing people together to execute our vision. But as smart as Jerry is, he couldn’t sell the idea throughout the company, and I underestimated how much mistrust there already was within Time Warner. People from the various divisions of the company just weren’t coming together. The companies were so isolated from one another that AOL never even got access to Time Warner’s broadband infrastructure, the easiest deliverable of the entire merger. AOL had the biggest Internet brand in the world, but the executives at Time Warner Cable wanted to continue doing things their own way, on their own.

I grew increasingly frustrated that Jerry wasn’t making enough of an effort to deliver broadband to AOL, or to push the other key strategic initiatives made possible by the merger. But things really boiled over when I learned that he was starting to pursue another acquisition, this time of AT&T’s broadband system. We hadn’t even figured out how to manage what we already had, and Jerry was looking to add more complexity.

It was aggravating. “If we’re not doing any of the things that the merger was supposed to do, why the hell did we do it to begin with?” I asked him.

“You know what, Steve,” he shouted back, “I ask myself that question every single day.”

Less than a year after the merger’s approval, it was clear to me that to save it, we needed a change in leadership and direction.
In truth, the fault did not lie solely with Jerry or the Time Warner executives. There was a swagger and arrogance to some of the AOL executives that created problems. And I wasn’t as engaged as I needed to be. I made the calculation that it was better not to spend too much time with the management and the divisions so as to avoid creating confusion about who was in charge. But in the end, that distance only crystallized a view that I was arrogant and uninterested.

I needed to make a decision. We needed to replace Jerry. But removing him would require the votes of three-fourths of the board, which meant I would need a consensus candidate to replace him. I knew I couldn’t be a candidate myself. I wasn’t sure I was up to the challenge, but it didn’t matter either way. I knew there was no way I could rally Time Warner executives and board members to support a CEO coming from AOL, and even if we could, Bob Pittman would have been the likeliest option, and that made me uncomfortable. Bob, a media pioneer, had been president and COO of AOL before the merger. He was very numbers-driven, very focused on execution. He’d helped us tighten up our operation, making us more profitable more quickly, which contributed in a very significant way to our skyrocketing stock price. He deserves a lot of credit for that.

At the same time, he was predominantly focused on the short term, sometimes at the expense of the longer view. He was reluctant to do more acquisitions, or make many strategic investments. There was even a time in 1996 when we had the
chance to take a 5 percent equity stake in Amazon, a year after it first came online. But Bob refused, pushing through a deal with Barnes & Noble instead—an exclusive with AOL in exchange for tens of millions of dollars up front. It was a classic case of sacrificing long-term strategic value creation for short-term profitability. And so, years later, as I considered how to proceed with Time Warner, I knew that Bob as CEO was a nonstarter. There was only one person who I could imagine getting enough board votes to replace Jerry: Dick Parsons.

Dick had been the president of Time Warner since 1995 and on the board since 1991. He was involved in the merger negotiations and became co-COO with Bob Pittman afterward. Dick was well respected as a manager. Before Time Warner, he’d spent time in government working for Governor and then Vice President Nelson Rockefeller, and he was the president of Dime Savings Bank. He was accomplished, trusted, and well liked, and in many ways, he was already being groomed as Jerry’s successor.

From the beginning, I wondered if Dick was the right person to lead the company. He was smart, and he had a great way with people. But he was old-school. He didn’t handle his own emails, let alone use a computer—and it’s tough to understand technology if you don’t engage with it. Dick knew this—by his own admission, he wasn’t a “vision” guy, particularly when it came to the Internet. He was there to craft partnerships, comfort regulators, and settle disagreements among strong-willed executives. He was political—a diplomat, not a disruptor. His
preference was to settle things down rather than shake them up—even as the world changed all around him. Given the lack of options, however, I felt that whether or not Dick was the right person was somewhat immaterial. The status quo was unworkable, and we needed a different direction. Dick was the only person who could muster the requisite support. And I was confident I could partner with Dick; I could take the lead on the strategy, and he could drive the day-to-day execution.

It was settled. Over a weekend in early December 2001, I reached out to Dick to convey my growing concerns about Jerry’s leadership and to let him know I planned to talk to board members about removing Jerry as CEO and promoting Dick to fill the role. I told Dick that I would be much more engaged, working hand in hand with him to get things back on track. He understood and was supportive. He and I made dozens of calls to various directors over a single weekend in an effort to secure the votes. By the time Jerry learned of our efforts, it was too late. He knew what was coming. A few days later, he announced his retirement. He was gone by May. And it wasn’t long before I missed him.

A few months after Dick was named CEO, I set up a dinner with the two of us and Lou Gerstner, then the CEO of IBM. I was pushing Dick to be more strategic and drive more integration throughout the company, and I thought that Lou, who had done the same at IBM, would be a helpful voice in that conversation.

We met at an Italian restaurant in New York’s West Village.
After about an hour, Dick excused himself from the table to use the restroom. As soon as he was gone, Lou turned to me and whispered, “Boy, Steve, you sure have your work cut out for you with Dick.” He was shocked by how little Dick seemed to understand about technology.

“Why do you think I set up this dinner?” I replied. “I feel like we need an intervention.”

Not long after the meeting, Dick decided to reorganize the company. His plan was to have half of the company report to Jeff Bewkes, CEO of HBO, and the other half report to Time Inc. CEO Don Logan. Under Dick’s plan, both AOL and Time Warner Cable would be part of Don’s portfolio.

I opposed this structure. It’s not that I didn’t respect Don. On the contrary, I thought that he was an excellent publishing executive. My problem was that Don didn’t have a deep understanding of digital technology, and he hated the Internet. He had referred to it as a “black hole”—as in, money goes in and it doesn’t come out. And he, along with Jeff, had been among the noisiest antagonists after the merger, angry that AOL had gotten the deal done, and seemingly eager to get retribution.

If Dick put AOL, the Internet’s premier platform of the decade, and Time Warner Cable, one of the company’s most tech-centric businesses, in the hands of someone who didn’t believe the Internet had much of a future, he could end up
destroying both. I made this very point to Dick, Jeff, and Don over dinner. I suggested some organizational alternatives. But it was clear that my opinion didn’t really matter.

We talked about changing the name of the company, but not about changing its culture. The perception was that it couldn’t be done. Maybe that was right, but the reality was, almost no one was interested in trying. Not that I didn’t make the effort. After Dick took over, I got an apartment in New York and started spending a lot more time at headquarters—and a lot more time with Dick. And I pushed to create a strategy committee, made up of leaders from each division, which I chaired. We made some progress, and outlined a handful of initiatives, but after six months it became clear that the committee members didn’t have the support of the executives above them—or of Dick as the new CEO. At one point, Jeff Bewkes blasted me during a strategy committee meeting. He panned AOL as being the division “most off its plan.” He directed his vitriol at me, even though he knew it had been more than a year since I’d had any direct authority over AOL. It was maddening; I was sidelined, watching my “baby” being weakened by fuzzy strategy and poor execution, yet I was the one being blamed for the predictably poor results.

Not surprisingly, the clash of culture wasn’t limited to the management team. There were heated discussions in board meetings. Half of the merged company’s board came from AOL and the other half from Time Warner, and they remained largely warring camps. Neither side seemed to really listen to
the other. We were often talking past each other, when we even talked at all.

As chairman of the board, I was accountable without having much authority, culpable without real control. I had gone from being the CEO of one of the hottest companies in the world, leading a board and a management team, to being something of a pariah with waning influence. And meanwhile, the company’s self-inflicted wounds kept accruing. There was a time, for example, when AOL wanted to add voice services to AIM, our instant messaging service. On the AOL side, we knew there was big market potential in doing so—a view confirmed a few years later when Skype launched in 2003. But Time Warner Cable was promoting a “Triple Play” digital package at the time, and they didn’t want anything to interfere with it. Eventually the cable guys succeeded in squashing AOL’s new services because they believed they could get a higher margin in the short term, in essence killing a new business to protect an existing one.

In February 2002, I attended the Grammys. Ahmet Ertegun, the legendary music executive who founded Atlantic Records (which, by then, was part of Warner Music), heard I was coming and asked for a private meeting with me. We sat in a corner of the Peninsula hotel in Beverly Hills and talked about the state of our businesses. He shared his frustration with Warner Music, his disappointment about no longer being consulted. He was a hero of mine—an icon of the music business (indeed, a member of the Rock and Roll Hall of Fame). It was sad to
hear. What was sadder, perhaps, was that I felt the exact same way. I was increasingly isolated, increasingly powerless, and yet shouldering much of the blame, both in private and public. I wanted to intervene to help Ahmet, but I had no real ability to do so by then.

In the midst of this turmoil, the merger was hit with some very bad press. In July 2002, our hometown paper, the
Washington Post
, ran a couple of very harsh and negative stories about AOL. They were about the culture—excesses in personality and behavior when AOL was the dominant Internet company of the late 1990s. But one, which ran under the headline “Unconventional Transactions Boosted Sales,” raised the claim that AOL had made errors in accounting. Coming at a time when the merged AOL Time Warner was foundering, and Time Warner legacy executives were looking to blame whatever they could on the AOL team, the stories provided an opportunity for many people inside and outside of the company to seize on these claims as evidence that Time Warner had been “hoodwinked” into merging with AOL.