Over the last week, I’ve seen a bunch of stories to the effect that AOL is plotting to take over the world.
Actually, nothing could be further from the truth. AOL is only plotting to take over Time Warner.
Let me explain. While the AOL-Time Warner merger was accounted for as an acquisition by AOL, it was, in fact, a merger of equals. The only thing unequal about it was the appointment of AOL President Bob Pittman as COO.
While many analysts saw the Time Warner-AOL battle as one between New York suits and Virginia V-necks, they forgot that Pittman was hired from Viacom’s MTV, and Steve Case’s brother ran Hambrecht & Quist. These boys know bureaucracy, and this takeover is their masterwork.
Since the deal closed, Pittman has been putting AOL executives (or appointees) in every job he can find, while promising the Street that the company — unlike every other Wall Street entity — will achieve its estimated earnings results.
How will he do it? By playing hardball and squeezing.
AOL is playing hardball with its advertisers by pushing them onto other Time Warner properties, propping up those results (and avoiding makegoods on its online ads). Meanwhile, it has grabbed all the “house ad” space Time Warner and CNN have to run AOL ads at no cost.
AOL has played hardball by destroying Turner Broadcasting as an operating entity, cutting staff, and bringing in Time Warner executives. Atlantans know what’s what because the Braves did nothing in free agency, while the Thrashers traded away their best forward over a small difference in his contract extension. That couldn’t have happened if Ted Turner were still around — in a business sense, he’s exiled himself to Russia.
If AOL seems to have trouble meeting its numbers, it can still raise its rates, and most of the 28 million members will, at least in the short term, go along. AOL previously hosed its members by forcing them to renew their privacy preferences (or be inundated with spam) every year — most have responded not by canceling the service but by spending their AOL time off AOL.
AOL’s “music channel” and online music service wouldn’t be worth bothering with were it not for the fact that Time Warner owns one of the world’s biggest music publishers and cable operators. This guarantees circulation.
How does Pittman get away with this? By throwing big money at key Time Warner executives, including Chairman Gerald Levin, who got $152 million last year, according to SEC documents.
If Pittman can keep these balls up in the air for just a few more months, he’ll have his people everywhere and control of the board as well. Only then, I predict, will the other shoes (losses) drop.
If it sounds like I’m angry over any of this, I’m not. I don’t work there, I don’t own the stock, and I don’t spend money there. (OK, I do have a Sports Illustrated subscription.) As a long-term business strategy, it’s Clueless, but as a short-term bureaucratic strategy, ya gotta love it.
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