Analysts: New leadership unlikely to rock AOLTW's boat

ITworld.com –

When Richard Parsons officially takes over the reins of AOL Time Warner Inc. (AOLTW) at the company's annual shareholder meeting in New York Thursday, all eyes will be on the new leader, in an effort to discern if the media mammoth has finally stumbled onto solid ground. Parsons, who up until now has held the position of co-chief operating officer, alongside Bob Pittman, is taking over for retiring Chief Executive Officer (CEO) Gerald Levin.

It's been a rough-and-tumble start for AOLTW. In 2001, the company's first year as the biggest media conglomerate in the world, the lumbering Cyclops had to face down one of the most monstrous advertising markets in recent history, sparked by an acute economic downturn.

Meanwhile, it's struggled to strike a balance with its numerous media properties, while somehow trying to fit them all on one neat and tidy balance sheet that investors and analysts will approve of. It hasn't been easy. The company's stock price has dropped nearly 66 percent since Time Warner Inc. and America Online Inc. (AOL) officially merged in January 2001. What's more, the company has undertaken a game of executive musical chairs, as it shifts around its personnel in an effort to find the right people for the right posts.

Parsons is a veteran of Time Warner, and some analysts have taken his ascendence to mean that the old media side of AOLTW is winning out over the new media forces. While AOLTW's strategy from the start has been to leverage its various TV, film, radio, magazine, cable and Internet assets against one another, industry pundits have also predicted that one side of the business would dictate the company's management style. With financial prudence high in the company's priorities, it looks as though the old media mindset, spearheaded by Parsons, may take the lead.

"I think what more people are realizing is that Its just another portfolio company with media assets, and they can't expect synergies," said Paul Kim, an analyst with Kaufman Bros. LP in New York.

Since the merger, AOLTW execs have been promising a lot of cross-pollination between of the company's disparate business ventures, boasting, for example, that a Warner Brothers Inc. (WB) film could be advertised across the company's magazine properties, encouraging readers to go online and buy advance tickets on AOL where they could then enter contests related to the film.

But according to Kim, this kind of asset leveraging in media doesn't make all that much of a difference.

"Seeing a WB film advertised on AOL doesn't blow my mind," said Kim.

Other analysts believe that there is potential for the company to create synergies among its diverse holdings, however.

"The end game is going to be balance. It's not just going to be a question of running diverse business units because the Internet is a channel as well as a platform," said Jupiter Media Metrix Inc. Research Director Michael Gartenberg said.

Still, Kim believes that the company has been ignoring its core businesses, and expects that it will begin to concentrate on these sidelined growth markets like high-speed cable access.

What this could mean for the company's AOL Internet division is still unclear. The Internet unit has recently shown signs of instability marked by a number of executive shakeups, including the departure of AOL CEO Barry Schuler. Schuler announced last month that he was stepping down to head a new digital division of AOLTW, leaving co-COO Pittman in charge of his duties.

And Wednesday two new AOL appointments were announced. James Bankoff was named executive vice president of operations in AOL Interactive Services. Bankoff previously served as president of AOL's Web Properties Group. David Gang, the unit's senior vice president for strategic development, was named AOL executive vice president of product marketing.

Kim predicts that over the next five to 10 years AOL will become primarily a service-driven business that's not as focused on gaining more Internet access subscriptions. This way the company can take advantage of its broad subscription base to deliver the company's traditional media assets. At last count AOL had some 34 million members, according to the company.

Indeed, during a conference call for AOLTW's latest quarterly earnings, executives played up expectations for the company's cable divisions, but gave little air time to the company's Internet strategy.

"At the time of the merger it was sort of viewed of as 'Why is AOL, this hot Internet company, picking up all this useless old media,' and now the fortune's kind of shifted in reverse," Gartenberg said.

In fact, bright Internet expectations led by new media initiatives such as digital music subscription services have begun to wane. Online music services such as MusicNet, which is backed by AOLTW, Bertelsmann AG, EMI Group PLC and RealNetworks Inc., have had to wrestle with the fact that most digital music can still be found online for free.

But because AOLTW has so many assets at its disposal, stockholders are eager to see the company's seeds bear fruit. The company is under additional pressure given that it has announced a series of lowered earnings expectations recently, one for a US$40 billion to $60 billion merger-related charge it said it planned to take in the first quarter of this year.

What course Parsons will choose to lay out when he takes the podium at 10 a.m. EST Thursday remains to be seen. But although its unclear where the media giant intends to tread, industry watchers are sure of one thing -- that its footsteps will be heard.

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