Stealing Time: Steve Case, Jerry Levin, and the Collapse of AOL Time Warnerby Alec Klein
In January 2000, America Online and Time Warner announced the largest merger in U.S. history, a deal that would create the biggest media company in the world. It was celebrated as the marriage of new media and old media, a potent combination of the nation's No. 1 Internet company and the country's leading entertainment giant, the owner of such internationally renowned brands as Warner Bros., HBO, CNN, and Time magazine.
But only three years later, nearly all the top executives behind the merger had resigned, the company had lost tens of billions of dollars in market value, and the U.S. government had begun two investigations into its business dealings.
How did the deal of the century become an epic disaster?
Alec Klein has covered AOL Time Warner for The Washington Post since the merger. His reporting on the company led to investigations by the Justice Department and the Securities and Exchange Commission. In Stealing Time, he takes readers behind the scenes to show how a clash of cultures set the stage for a spectacular corporate collapse. AOL's Steve Case knew it was only a matter of time before the Internet bubble of the late 1990s would burst, grounding his high-flying company. His solution: Buy another company to keep his own aloft. Meanwhile, Time Warner's Jerry Levin was enamored of new technology but frustrated by his inability to push his far-flung media empire into the Internet age. AOL and Time Warner seemed like a perfect match.
But the government forced the two companies to make concessions, and during the yearlong negotiations technology stocks tumbled. AOL executives lorded it over their Time Warner counterparts, who felt they were being acquired by brash, young interlopers with inflated dollars. The AOL way was fast, loose, and aggressive, and Time Warner executives -- schooled in more genteel business practices -- rebelled. In the midst of clashing cultures and conflicting management styles, AOL's business slowed and then stalled. Worse yet, AOL came under government scrutiny, and when the company conducted its own internal investigation, it admitted that it had improperly booked at least $190 million in revenue. The Time Warner rebellion gathered momentum.
This is a riveting story of ambition, hubris, and greed set amid the boom-and-bust years of the technology bubble. It is filled with outsized personalities -- Steve Case, Jerry Levin, Bob Pittman, Ted Turner, and many more. Based on hundreds of confidential company documents and interviews with key players in this unfolding drama, Stealing Time is a fascinating tale of the swift rise and even swifter fall of AOL Time Warner.
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Read an Excerpt
Prologue: The Confrontation
Steve Case was blabbering on.
Or so thought some of the restless executives assembled in a conference room at 75 Rockefeller Plaza, the lofty Manhattan headquarters of the most powerful media company in the world.
It was the spring of 2002, and AOL Time Warner Inc. was descending into financial disarray. But Case, the company chairman, was still enamored of the unfulfilled promise of the $112 billion marriage of America Online and Time Warner, the largest merger in U.S. history.
The new company, barely a year old, boasted a staggering array of global brands on the newsstands, at the movie theaters, on television. Millions experienced the common denominator of life by reading its magazines, Time, People, and Sports Illustrated among them. Its movie studios regularly tossed off blockbusters like Harry Potter. From CNN to HBO, its cable programming extended across the far reaches of Earth, shaping public opinion and entrancing viewers. It even owned Mad magazine.
AOL Time Warner was an inescapable force: The Internet division, operating in seventeen countries in eight languages across Europe, Latin America, and Asia, counted more than thirty-four million on-line subscribers. Combined, AOL and Time Warner products and services reached consumers three billion times a month.
With all of this, Case argued, how could the company go awry?
Internet-driven America Online, the Virginia company he helped build two decades ago, would inject new life into seventy-nine-year-old Time Warner, the esteemed New York media and entertainment company he had taken over. The two companies would work together to forge a future when technology merged with media, creating unimagined consumer products, like television, only better. Convergence, he called it. One side of the corporate house would fuel the growth of the other. The buzzword: synergy. America Online would promote Warner Bros. movies. Time Inc. magazines would sell America Online subscriptions. AOL would tout new albums by Warner Music Group artists, like Madonna and Jewel. The potential for what he believed was the media company of the twenty-first century was limitless.
Except for one thing: Somebody forgot to tell Case the dance was over.
Jeff Bewkes, the HBO chairman and chief executive, could not contain himself any longer.
"I'm tired of this," he erupted, glaring at Case. "This is bullshit. The only division that's not performing is yours. Every one of us is growing, making the numbers. The only problem in this construct is AOL."
No one knew what to say -- not even Case. He sat there, poker-faced. The rest kept mum. It wasn't clear yet which side of the divided house would prevail in a roiling internal power struggle, America Online or Time Warner. AOL, though it had lost some of its luster, was still the overlord of Time Warner. Bewkes, however, had just uttered what some of his colleagues had been muttering about for months: The problem was America Online, not Time Warner! Yes, Case was still chairman of the combined company. But just look at the house he had built: America Online was a bloody mess. Revenue at the on-line division was stagnant in the just-ended first quarter, which was bad enough. But a key part of America Online's revenue, advertising and commerce, had taken a big hit. Meanwhile, the Time Warner businesses were humming along just fine. The cable division had reported a double-digit revenue increase. Even its music business, in the doldrums for months, appeared on the upswing, generating a modest rise in revenue. And though HBO's financial numbers weren't broken out publicly, everybody knew it was doing gangbusters. That was the company's real crown jewel! Not America Online! Whom did Case think he was talking to? How dare he lecture them!
Until then, executives had refrained from saying as much. This was, after all, polite society. But HBO's Bewkes could get away with challenging the chairman now. Bewkes had long been Time Warner's golden boy. An Ivy League grad who was being groomed for a bigger office in the executive suites, Bewkes had rattled off a string of successes at HBO, including original programming, like Sex and the City and The Sopranos, that made him virtually untouchable at Time Warner. What's more, Bewkes was holding an ace in the hole: He had been given the green light to read Case the riot act. The okay came from an ostensible Case ally: Dick Parsons, AOL Time Warner's new chief executive officer.
It was a seismic shift, a tangible manifestation of the transfer of power, tinged with a dose of irony. Case had played a key role in ditching Jerry Levin as the company's CEO in December 2001, clearing the path for the elevation of Parsons to the top job. Now, however, Parsons was taking the muzzle off his own people -- Time Warner loyalists like Bewkes -- who didn't want to take any more guff from America Online, the brash, young interlopers from the suburbs of Virginia. Parsons, ever the polished politician, didn't want to duke it out himself with Case. A proxy fight was more tactful.
"Dick had given him [Bewkes] the tacit nod," said a company official. "Maybe he [Parsons] couldn't do it, but Jeff could."
After the meeting broke, Time Warner executives approached Bewkes tentatively, quietly. There were some whispers: Atta boy. Way to go. Good for you.
It was a stunning reversal for Case, the erstwhile dot-com boy wonder who suddenly faced a monumental struggle for his own corporate survival in this, his personal denouement. What had begun as the triumph of the new economy over the old economy at the dawn of the new century had become a merger derided as an epic disaster. Bewkes had finally said it: The emperor had no clothes.
"It was," said a company official, "the dialogue that broke it open."
Meet the Author
Alec Klein is an award-winning reporter at The Washington Post. His previous book, Stealing Time: Steve Case, Jerry Levin, and the Collapse of AOL Time Warner, was a national bestseller that The New York Times called "a compelling parable of greed and power and hubris." He lives in Washington, D.C., with his wife and daughter.
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