The resignation of Steve Case as chairman of AOL Time Warner comes just as the online unit braces for massive job layoffs and tries to execute a turnaround of its operating strategy. It’s unclear who will take over as chairman, but Case’s departure means that the AOL name will almost certainly be dropped from the title of the world’s largest media conglomerate.
AOL TIME WARNER’S stock price climbed just over 1 percent Monday in the wake of Case’s resignation, but analysts and AOL watchers greeted the news as positive. In an interview with CNBC, Case himself described the decision as the “best thing for the company” and most seemed to agree.
“He was too much the focus of investors who looked too much at the AOL part of the business and less at the rest of the company,” said Joseph Stocke, managing director of Stoneridge Investment Partners, a Malvern, Pa., firm that holds about 1 million AOL Time Warner shares.
The AOL unit boasts 35 million subscribers worldwide, but is mired in stagnating growth. Advertising revenues plummeted to $1.6 billion in 2002, down from $2.7 billion the year before.
As long as Case remained at the top of the media company, analysts and investors have largely overlooked the strong performances at the cable, movie and television divisions. AOL Time Warner’s vast holdings include Warner Bros., the Time Inc. magazine group, HBO and Warner Music Entertainment.
Case will remain on the AOL Time Warner board, but will give up his chairman position before the company’s annual shareholders meeting in May, a year after former Time Warner chief executive Gerald Levin resigned.
WHO WILL TAKE OVER?
With Case out of the way, the question becomes, who will take over the media giant?
Some say it could signal the return of Ted Turner, the non-executive vice chairman and founder of the Turner cable empire, including CNN. Turner is the largest individual shareholder of AOL Time Warner with a 3.6 percent stake in the company. However, senior executives at Time Warner are said to consider Turner — whose blunt public remarks routinely rile everyone from religious groups to southwestern cattle ranchers — to be too volatile, according to sources close to the company.
Chief executive Richard Parsons could take on the additional responsibilities, although as Stoneridge’s Stocke sees it, “it would be nice to have two different people in those roles.”
Other suggested candidates include Gordon Crawford, the influential institutional money manager of Capital Research Group, which is AOL’s largest shareholder with 10 percent of the company’s stock. Because Crawford is not an operating officer of the company, he’s considered a long shot.
“Turner’s the pretty obvious choice, but it boils down to either Turner or Parsons,” said David Joyce, who follows AOL for Guzman & Co. in Miami.
NAME CHANGE LIKELY
Analysts also say it’s almost inevitable that a name change is in the cards, despite Case’s insistence to CNBC on Monday that AOL would likely remain in the title.
“The company is still full of AOL-haters,” said longtime AOL watcher John Motavalli, author of “Bamboozled at the Revolution: How Big Media Lost Billions in the Battle for the Internet.” “As soon as Case is out of the way, they will scale down AOL and reduce its importance to the company.”
“The AOL name is symbolic at this point,” said Joyce. “AOL is just another operating division at the company.”
Indeed, Case’s move aside paves the way for massive cost-cuts and job layoffs within the troubled AOL unit. At a conference sponsored by Salomon Smith Barney late last week, AOL chief financial officer Wayne Pace called 2003 a “reset” year for AOL, saying that the online unit would undergo massive cost-cutting this year, slashing its 18,000 person payroll. And the company which stuffed U.S. mailboxes with promotional sign-up disks plans to chop $1 billion out of marketing expenses this year.
Talk of a spin-off of the AOL unit is premature, analysts say, as company executives focus on executing the online division’s turnaround strategy detailed last month.
In the meantime, Time Warner executives are preoccupied with preparing the cable division for an initial public offering. CFO Pace confirmed last week that the media giant would spin off an estimated 25 percent to 30 percent stake of the cable division. The $6 billion raised could help pay down some of the company’s $26 billion in debt.
The key factor in the online unit’s turnaround will be the growth of its broadband subscriber base. Online executives hope they can convince users to pay $15 a month for a high-speed version of AOL, on top of whatever subscribers are paying to their broadband Internet providers. In exchange, users will get access to proprietary content from AOL’s magazine, TV, movie and music divisions.
But it’s possible that AOL’s newfound broadband religion is 2 years too late, said Denise Garcia, media analyst with research firm Gartner G2.
“It’s a bit late; this is something they should have been wrestling with when the merger happened,” she said. “They have to implement it as quickly as they can and try to continue with their narrowband business and still satisfy customers who want to go broadband without alienating customers who want to go narrowband.”
Reuters contributed to this story.