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Tuesday 21 January 2003

AOL Time Warner, Part II

An article in Sunday’s New York Times about AOL Time Warner contains an interesting passage:

Although America Online is still profitable and its margins are better than the parent company’s music and movie divisions, they are rapidly diminishing. America Online’s customers are increasingly shifting to high-speed Internet access, an area in which AOL faces much lower margins and much tougher competition.

So this is the “troubled” division? Monday’s New York Times — this is, remember, the newspaper that on Sunday pointed out that AOL is more profitable than two of AOLTW’s other flagship businesses — says “Stephen M. Case, the chairman who was widely blamed for many of the problems at the company’s America Online unit, finally resigned.”

What problems? That its revenues and margins have been falling in the early stages of a deflationary depression? That it’s going to have to change its business to continue to make money, unlike every other business in the world, which can go on making money forever without changing anything? Or that it wasn’t invented at Time Warner?

Actually, any of those is possible. Everyone wants to be seen to be outperforming the economy generally, and most people seem to be in serious denial about the condition of the economy. Time Warner, and its cohorts in the media businesses, are stubbornly focussed on not changing any of their business models to accomodate the reality of changing technology. And nearly all companies — except the most successful — have a strong bias again things Not Invented Here. The AOL - Time Warner merger has also resulted in remarkable bitterness among the Time Warner people at the failure of AOL to be the goose that laid the golden egg.

But the story on Sunday is one of the very, very few places you’ll be able to spot this incongruity in the major media. Almost all of the big-media accounts of the AOL Time Warner debacle place the blame squarely on the shoulders of Steve Case, and to portray him as an idiot. The recent trend has been to play up the fact that he worked for Pizza Hut in the 1980s:

The 44-year-old Mr. Case, a former Pizza Hut manager who brought e-mail and Web browsing to the heartland, plans to remain on the AOL Time Warner board.

To begin with, the Times is clearly attempting to portray Case as having worn a paper hat and made pizzas. In reality, he was in a management role with the Pizza Hut company — information that’s readily available in all sort of places. According to legend, he’s responsible for Pizza Hut offering pineapple as a topping.

Whatever he did at Pizza, Hut, what the hell does this matter? It doesn’t. But it makes Steve Case look like someone who stumbled into his situation through pure luck, rather than through ability — he’s just a pizza maker! By extension, it makes AOL look like a company that was just in the right place at the right time, rather than a company in the right place at the right time that managed to come to entirely dominate its industry by doing things differently.

What we’re seeing is a full-court media-industry press on a non-media company that tried to elbow its way in. And it seems that the media, normally an incredibly introspective industry, either can’t see this, or doesn’t want to.

Posted by tino at 22:20 21.01.03
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Another interesting thing to note about the coverage of AOL-Time-Warner is who is reporting that the companies merged and who is reporting that Time-Warner was aquired by AOL.

The ultimate problem with this combination of companies is that they have very different cultures and no forceful charismatic leader who has a vision for the combined company. Mr. Case might have been able to do more had he not been distracted (and rightfully so) by his brother’s illness.

In the end Time-Warner execs might win but in wining they will lose.

Posted by: Paul Johnson at January 22, 2003 09:24 PM

AOL Time Warner doesn’t necessarily need Steve Case, but it does need someone who has the vision to see that the media business is changing, the insight to understand that this change can’t be resisted but can be exploited for profit, and the authority to direct the company to, in fact, march into the future rather than clinging to the past.

Any big media company could be the first to make the shift to accepting rather than fighting the future, but AOLTW is (still!) best-positioned to take advantage of the new opportunities, while minimizing the loss of current revenue streams.

Up to now, the problems at AOL Time Warner have consisted almost exclusively of turf battles between AOL people and Time Warner people. Now that the AOL people in charge are almost entirely gone, turf battles should cease to be an issue. The question now is whether, beneath the turf battles, the Time Warner business plan was (is) still as resistant to change as are the plans of the rest of the media industry.

Posted by: Tino at January 22, 2003 11:09 PM