New York— Though federal investigations of its America Online unit hover "like dark clouds in the sky," AOL Time Warner Inc. CEO Richard Parsons told investors and analysts at an industry conference last week that overall the company is delivering on its promises.
Speaking at the UBS Warburg Media Conference last Tuesday, Parsons gave investors and analysts a status report on his first seven months at the helm of the media giant, adding that AOL TW has made headway on the five-point plan he initiated back in May, when he assumed the CEO role.
Those five points were: Restoring investor confidence, fixing the AOL online service-provider unit, simplifying the structure of the company, protecting the balance sheet and improving employee morale.
With those initiatives underway, Parsons added three more to-do items for the next 12 months: Running the business as well or better than it has been run in the past; avoiding transforming transactions that would take the business in the wrong direction; and continuing to focus on the balance sheet.
All about managing
While Parsons admitted that running the business is a bit of a given, he said that staying away from transforming transactions doesn't mean the company is no longer in the deal market. But he said AOL Time Warner will be smarter about any future purchases.
While the 1990s were the decade of mergers and acquisitions, said Parsons, the current decade will be more focused on managing assets.
"In the first decade of the 21st century, there will be much more of a focus on how we manage the things we've created," Parsons said.
And while AOL Time Warner has made progress on his first five initiatives, Parsons said, there is still work to be done.
"I think it's one of the most important things we can do as a management team is to at least create a bond of confidence and trust and straight talk," he said. "We're trying and we've made a reasonably decent start of providing a lot more visibility, more transparency, more information and less hype and conjecture."
Regarding his plan to fix AOL, which has been plagued by declining advertising revenue and subscriber growth, Parsons pointed to the restructuring plan for AOL mapped out during the company's analyst day on Dec. 3. That plan to focus on moving narrowband subscribers to a broadband service in conjunction with cable operators and digital subscriber line carriers for $14.95 per month is a big step for AOL, he said.
AOL-HBO analogy
"We will be moving away from the notion of broadband as being a necessary evil to something to be embraced," Parsons said. He added that the company already has a high-speed data deal with Comcast Corp. and that similar agreements with other MSOs could be reached before the end of the year.
"It's a big challenge, lots of risk, but I like what I see in terms of the business dynamics," Parsons said, comparing AOL's situation with that of premium cable network Home Box Office in the 1980s.
At the time, HBO had been losing subscribers because its bread and butter — recent theatrical movies — was undermined by VCRs and films shown on other premium services and basic cable channels. HBO fought off that competition by focusing on original programming, which revitalized the business.
"HBO reinvented itself and AOL is in precisely the same position," Parsons said. "It [AOL] is the market leader, it has scale, it has financial depth and has expertise that nobody else has in terms of creating things that will be available in the broadband world that no one else can create."
AOL Time Warner has made more progress on other points, specifically simplifying its business structure. Earlier this year the company, unwound the partnership between Time Warner Entertainment and Advance/Newhouse. A/N received about 2.1 million subscribers in Central Florida; Birmingham, Ala.; Detroit and Indianapolis in exchange for its one-third interest in the partnership.
In August, the company also untangled the Time Warner Entertainment LP partnership with AT&T Broadband (now Comcast Corp.), paying $3.6 billion in cash and stock and agreeing to spin off its Time Warner Cable properties in an initial public offering next year.
Comcast will receive a 21-percent interest in that spin-off, which it has five years to sell. In return, AOL Time Warner received full control of HBO and the Warner Bros. film studio.
Working on morale
Regarding employee morale, Parsons said that while the merger of AOL and Time Warner in January 2001 had created a bit of a culture clash, the company is working to ease employee concerns.
Parsons said he visited with thousands of employees across the company since becoming CEO to address those concerns.
"The natives are sullen, but they're not mutinous," Parsons said. "But they were close to mutinous."
Parsons's objective was to let employees know the company understood the source of their concerns by opening up the lines of communication, as well as articulating a plan for the company that they could relate to, he added.
"One of the things that confounded us at the outset of the merger with AOL was that an awful lot of my colleagues didn't understand how what they did fit into the bigger picture," Parsons said. "That required some modification of what the bigger picture was, and laying out how what they do is important."
