Show Time for AOL Time Warner
Bob Pittman's job is to implement the biggest merger in U.S. history. That's a tall order
It's a decade ago. Warner Communications and Time Inc. are merging, and wicked-smart CEO Steven J. Ross brings back his former protege, 36-year-old Robert W. Pittman, one of the creators of MTV, in a risky effort to fire up the combo's creative juices. Pittman's mission improbable: to launch a host of new businesses by exploiting synergies between the fiercely independent magazine, movie, and cable-TV units. If the division chieftains don't cooperate, Pittman has the green light to forge ahead without them. It's a dicey proposition, since the execs have "their knives out" for Pittman, says Henry R. Silverman, a Ross associate who now heads Cendant Corp.
Yet barely a drop of blood is shed while Pittman promotes one new venture after another--including the new cable channel Court TV, the hit TV sitcom Fresh Prince of Bel Air, and the revitalization of the Six Flags amusement parks. The biggest twist of all, though, is how Pittman manages it. By turns charming and steely, he convinces proud and powerful business-unit executives that they'll win more battles by playing ball than by balking. It doesn't hurt that he gives them much of the credit. "I try to be gracious to people," says Pittman.
Today, the 47-year-old son of a Mississippi preacher and his stone-simple management philosophy are being put to the ultimate test. His task is to help make a success of the $97 billion merger of Internet powerhouse America Online Inc. and old-line media kingpin Time Warner Inc. The deal is expected to close any day, after getting approval from the Federal Communications Commission. While AOL's Stephen M. Case will be chairman and Time Warner's Gerald M. Levin will be CEO, the two have turned to Pittman to exploit synergies between their diverse properties--from Web sites and e-commerce to movie studios and book publishers. As co-chief operating officer, Pittman now has the formidable task of melding the yin and the yang of Old and New Media, breaking down barriers and getting people to work together on everything from ad and subscription sales to online music.
The goal is to take full advantage of the Internet. In spite of the crash of the dot-coms, Pittman believes the Net will ultimately transform business and social life every bit as profoundly as electricity did a century ago. "With all its copyrights, Time Warner is in a marvelous position to take advantage of the Net and not be frightened by it," he says. "AOL's mind-set, assets, and expertise help them in that path."
This is the long-awaited convergence of the analog present and the digital future. But, like two galaxies coming together, AOL's and Time Warner's brightest stars could be pulled into new orbits, releasing vast energies, or, if things go horribly wrong, they could be smashed in a collision. At a time when it appears that hybrids of old-line and Net-style companies have the best chance of thriving in a softening economy, all eyes are on this merger--and on Pittman.
Already, there are troubling signs. Early last year, the company predicted 12% to 15% annual revenue increases and $1 billion in combined cost savings and new revenues in the first year. Those targets seemed doable at the time, given AOL's 37% revenue growth last year and Time Warner's 6% growth over the same period. Now they're beginning to look like a stretch. On Dec. 18, Time Warner announced that it will have slower-than-expected fiscal year 2000 growth, caused primarily by the box-office flop of Little Nicky and weakening cable-network ad sales. Those two factors could knock $100 million off the top line, says First Union Securities. Merrill Lynch & Co. analyst Henry Blodget figures the new company will pull in $41 billion in revenue this year, up just 11%, while losses could top $5 billion, thanks to merger write-offs.
Other analysts are more worried. "Any big deal is difficult, but it's particularly challenging against the backdrop of a slowing macroeconomic environment," says CIBC World Market analyst John Corcoran, who believes the company will have to cut its targets early this year. First hit will be advertising revenues. The company relies on ad sales for about 20% of its revenues, and according to media buying firm Universal McCann, overall advertising expenditures are expected to slow to a 6% growth rate this year, down from 10% last year. If AOL Time Warner is hard hit by this, it could slow revenue growth. Another potential trouble spot: Time Warner has traditionally used EBITA--operating income before amortization of intangible assets--when it sizes up its profitability. Investors may be less tolerant of that practice in a tougher economy.
Already, investors are skeptical--at least for the short run. Since the deal was announced last Jan. 10, AOL's stock has dropped from $73 a share to $37.50, down 48%. That's got some observers clucking their tongues at Levin for selling his company at a time when AOL stock was soaring--and not building in safeguards to adjust the price in the event of a stock market swoon. The premium to Time Warner shareholders the day the deal was announced last January was 70%. But with AOL's sagging stock price, the premium has evaporated. Sure, many Internet stocks have fallen even more: AOL rival Yahoo! has plummeted 89%, while e-tailer Amazon.com is down 87%. Of course, the Net upstarts don't boast the multibillion-dollar revenue streams that AOL Time Warner does--nor the management burden of blending two cultures. "The odds are against them," says John H. Bogush, a managing director at KPMG LLP. "The biggest challenge Pittman will have is to redefine the corporate culture." According to a November study by KPMG, 83% of the 700 largest corporate mergers from 1996 to 1998 failed to boost the stock price because of poor execution. And AOL Time Warner carries extra baggage: continual governmental antitrust oversight by a special monitor. To convince Wall Street that the deal is working, Pittman needs to deliver results that boost the stock to $90 within 18 months, says Blodget.HOT SEAT. Pittman concedes he's on the hot seat. "The company must hit the numbers expected of it," he says. If not, "I'll be responsible." Despite concerns about doom and gloom, the company says it will stick to its financial targets and that its diversified revenue streams and opportunities for cost-cutting will keep it humming. "We're standing by those forecasts. There are lots of dials and levers in achieving our results," says Michael Kelly, the new company's CFO. Pittman argues that in bad times, advertisers will spend their money on the top ad venues, like AOL and Time Warner properties. Indeed, AOL Time Warner has some distinct advantages even over its top competitors. No other U.S. media powerhouse, such as Walt Disney Co., can boast as strong an Internet partner as the world's leading online service, AOL. And Net archrival Yahoo lacks a close partnership with an old-line media company and the broadband cable distribution that Time Warner will provide.
Pittman figures his ticket to success is creating valuable synergies between AOL and Time Warner. Over the next two years, he plans to dish up powerful new consumer services. First, the company will deliver AOL's Internet access and content to homes over Time Warner Cable wires--and to people wherever they may be through wireless mobile devices. In Year Two, expect liftoff of the company's online music business, where subscriptions to music from Time Warner artists and others will be offered on the AOL site. Ditto interactive-TV services, perhaps offering such features as Warner Bros. and New Line Cinema videos to consumers, on demand, via AOL's Web sites. "Everything," says Pittman, "must be a series of interlocking teams."
While Pittman is a dedicated team player, he's also coolly calculating. He sizes up a situation, figures out the best way to proceed, and then carefully maneuvers like a sapper through a minefield. "He personifies Southern charm, but when it comes to business, he switches to a different DNA. He's cold-blooded," says NBC Nightly News Anchor Tom Brokaw, a Pittman pal. His detractors go even further. "He has found great parades and hopped in front," says a former colleague at AOL.
Anticipating that he'll persevere once again, Pittman's fans have anointed him the heir apparent when AOL Time Warner CEO Levin's contract expires in 2003. He's already clearly the first-among-equals with co-COO Richard D. Parsons, the former Time Warner president, who is a candidate for a job in the Bush Administration (page 63). Insiders say Pittman will take over Parsons' duties if he jumps ship.
The top brass won't commit to promoting Pittman to CEO some day, but they lavish him with praise. "Bob Pittman blends the realism of a top-flight executive with the creative vision of an entrepreneur," says Levin. While Levin and Case do best as visionaries up in the corner office, Pittman makes things happen down in the trenches. "Bob has an operational zeal," says Case.
Now that the merging begins in earnest, Pittman will need all of the esprit de corps he can muster. Even Time Warner execs who are in sync with the strategy say it won't be easy to get all of the new company's businesses marching in lockstep. "Managing Time Warner is like herding cats," says Time CEO Don Logan. Making matters worse, there's a huge cultural gap between AOL's twentysomethings and Time Warner's graybeards. When it comes to making deals or launching new ventures, they move at two speeds. It's "Let's do lunch" vs. "Let's skip lunch." "AOL would say we're as entrepreneurial as a couple of 90-year-olds," Logan says.
The trick is getting people to work together. While Pittman is known for his diplomatic skills, he also can be intimidating. Once, when he ran independent TV-production house Quantum Media Inc., he summarily fired Morton Downey Jr. after the loudmouth talk-show host asked for permission to tone down his on-air style. "His strength is he's unyielding, and his weakness is he's unyielding," says Downey, who was later rehired. At MTV, Pittman occasionally sent handwritten notes to the veejays critiquing their performances. "It was scary," says former veejay Alan Hunter. "He was saying, `I'm watching you."'POWER SHARING. As AOL and Time Warner come together, Pittman's first task is mastering the intricacies of a power-sharing arrangement with Parsons. Pittman and Parsons say they have a collegial relationship. They had lunch together every six months or so after Pittman left Time Warner in 1995, and today they work together on many of the same charities, such as the Fresh Air Fund. So far, there's no sign that Parsons or other Time Warner execs are looking for a fight with Pittman. "We're all going to play nice in the sandbox," Parsons says.
The two men have set up housekeeping near Levin's office in Time Warner's Manhattan headquarters. Pittman oversees the company's advertising and subscription-based businesses. With their combined 128 million subscribers, AOL, Time Inc., Turner Broadcasting, Time Warner Cable, Home Box Office, and the The WB Television Network are expected to contribute 60% to 70% of total revenues in 2001 and to reap the first rewards from the online revolution. Parsons will mind the studios at Warner Bros., New Line Cinema, and Warner Music Group. His businesses may take longer to find the right Internet model. Part of Pittman's mission is to build bridges between his units and Parsons'.
He has made a solid start. Using methods he honed as the president of AOL, he and Parsons have held meetings every two or three weeks since June with their division chiefs. It's the first attempt ever to gather the Time Warner bosses regularly. Together they have hammered out budgets and Web strategies and agreed on technologies. Since summer, Time Inc. magazines have sold 100,000 subscriptions a month via AOL. In turn, Time has promoted AOL by sending AOL disks with magazines reaching 40 million households. In late January, the company plans on launching a new personal-finance portal on AOL using content from Time Warner's CNNfn cable network and Fortune and Money magazines.
Pittman's methods are starting to cascade through AOL Time Warner. On Dec. 12 and 13, 50 top executives in charge of online stuff at all the divisions met at AOL's Netscape subsidiary offices in Mountain View, Calif., to carry out his mandate: creating an integrated Net strategy. The summit was the first time the entire group had met. Their coffee arrived late and the projector broke--but no matter. "What broke out was spontaneous collaboration," says Scott Davison, the AOL senior vice-president who called the meeting. They agreed to cross-promote their Web sites, hook consumers with AOL's instant messaging, and adopt the same technologies.
Pittman is pressing for more cross-pollination. He's heading the new company's so-called advertising council, which comes up with ways for making AOL, Time, and Turner ad sales forces work together more closely. That could bring in an extra $280 million next year from new ad sales, according to Merrill Lynch. For example, AOL Time Warner could sell Coca-Cola Co. a package of ads on cable TV and the AOL Web site, plus product placements in Warner Bros. movies. We "can look at opportunities together, instead of just pieces of the opportunity," says Pittman.SKIRMISHES. So far, the conflicts between Time Warner's cats and AOL's dogs are minor skirmishes. Pittman persuaded Time Warner execs to trade in their e-mail system for AOL's. Then he put all employee-benefit processing online to save the company tens of millions of dollars in paperwork. Both times, the Time Warner folks at first resisted--but gave in when Pittman explained the advantages for the company. They say serious infighting could still crop up, but for now, the open discussions help quell corporate intrigue. "The sunshine enables us to guess less" about each others' motives, says Turner President Steven J. Heyer. "It's about creating a safe environment of trust and an expected mode of behavior."
Pittman has pulled off this kind of management feat before. Consider AOL. The Dulles (Va.) company was in crisis when he arrived on Oct. 29, 1996. Investors were impatient with the company's fixation on growth at any cost. The stock had fallen to a low of $25, down from a high of $83 in February, 1994. Pittman began refocusing AOL on the bottom line--slashing costs, and building ad and e-commerce revenues. He retooled the culture, forging a team among AOL's aggressive, individualistic senior execs by holding biweekly operating committee meetings and forcing them to use the same in-house marketing, engineering, and deal-making teams. He encouraged vigorous debate, and got it. Execs even threw food at each other during these sessions. Chuckles Pittman: "It's more like Dodge City than polite society, but I try to maintain order."
There are lines, however, that can't be crossed. Pittman bars personal attacks. "He has zero tolerance for bad behavior," says Jan Brandt, president of AOL Marketing. Indeed, after he first arrived, Pittman chastised Brandt and others for name-calling. He is setting a similar tone now. And he applies the same rules to himself. "Just because I play the role of team leader doesn't give me the right to throw tantrums and rob people of their dignity," he says.
Pittman's greatest challenge at AOL may have been getting along with the boss. After running the company for 11 years, Case loosened his grip only gradually. "We had some differences," Case admits. Indeed, the pair clashed several times. In 1998, for instance, Case argued against Pittman's plan to raise AOL's monthly fee by 10%, to $21.95. Pittman prevailed, insisting that the brand would lose few customers. He was right. The April, 1998, price increase boosted profits, and AOL's subscribers rocketed from 11 million then to 29 million today. Case gives Pittman much of the credit for AOL's success. "He legitimized the medium and AOL in particular," says Case.
Where does Pittman's drive come from? Since the day he lost his right eye in a fall off a horse at his grandparents' farm at age 6, he has been obsessed with overcoming hurdles. As a kid, he learned to compensate for his lack of depth perception by mastering fly-fishing-- casting repeatedly into a bucket. At 15, he talked his way into a disk-jockey job to pay for airplane flying lessons. And at 27, he turned the pop music world upside down when he helped launch MTV. "He triumphed over everything," says Pittman's cousin, Lanier Hurdle.
Becoming a leader in the digital world has taken Pittman a long way from his roots in small-town Mississippi. But the seeds for a media maven were planted in childhood. After his riding accident, he spent hours watching television--and has even said that TV shaped him more than his parents did. He believes TV changed his generation's method of processing information--an insight that helped him craft MTV. "TV babies sense impressions, mood, emotion, and images as a message," he says. "My parents were more focused on what the words said."
These years also shaped Pittman's diplomacy skills. The family led a nomadic life as the father moved from church to church in a succession of towns. That life taught the then undersize Pittman how to overcome being an outsider. "When you have one eye and you're the smallest kid in the class, you've got to figure out how to get along with people, as opposed to bludgeoning your way in," he says."HIPPIE FROM MISSISSIPPI." The comfortable family in which Pittman grew up helped incubate his ambitions. His parents, Warren and Lanita, both University of Southern Mississippi graduates, instilled the value of education in their two sons, the elder Tom and the younger Bob. "In my household, there was no yelling, screaming, or pounding of fists. Just unconditional love," says the younger Pittman. Dinner-table conversation revolved around school-day activities and current events, such as the civil rights movement, which his family supported.
The Pittman boys had two distinct styles. Tom turned out to be the model eldest son, following in his father's footsteps to become an ordained Methodist minister. Now, however, he is a newspaper publisher in DeSoto, Miss. Bob was the family rebel. He listened to rock 'n' roll and grew his hair long: He was sent home from high school in Brookhaven, Miss., one day because his hair hung below his earlobes. "Fortunately, my dad backed me up," arguing that the school's dress code was irrelevant to the goals of education, says Pittman. He started getting A's only after his father began paying him 50 cents for each, according to brother Tom. Pittman was cocky, too. "He was one of these kids that drove his parents and teachers crazy because nobody else knew as much as he did," says W.L. Roach, Brookhaven High's retired principal. Pittman's explanation: He was just bored with small-town life.
That maverick streak ultimately drove Pittman out of Mississippi. He was ashamed of the way blacks were treated and, as a teen, vowed, "I'm getting the hell out of here," he recalls. At 15, Pittman found the exit by accident while looking for a job to pay for flying lessons. After being rejected by the local Piggly Wiggly supermarket for a bagging job, he took a post as a deejay at Brookhaven radio station WCHJ-AM.
After he was graduated from high school, he moved quickly from one radio station to another, hopping to Pittsburgh, Detroit, Chicago, and, finally, New York. He took a few college courses here and there but never graduated. Known in the industry as the "hippie from Mississippi," he wore a beard and long hair. While his brother has said Pittman's big ambition was always to be rich and famous, Pittman says: "What I really wanted to do was something fun. And if I could make money doing it, that would be great."
At first, Pittman was content to spin records, but he quickly switched to management. Turns out he was good at it. He was one of the pioneers of calling listeners to find out their musical preferences. He had learned that lesson firsthand when, during his first deejay job, he had tried unsuccessfully to force his own taste--progressive rock--down the throats of rural listeners. That almost got him fired.
The young Pittman always had an edge. A practical jokester, "he liked to scare people a little," says Jim Ryan, who worked with Pittman at a rock station in Pittsburgh. He got a package in the mail when Pittman was wooing him to join WMAQ in Chicago. In the package were tapes of the station's music, along with a fake glass eye and a note: "You need to change your eye." The radio star wasn't above sticking his fake eye in other people's mashed potatoes either, recalls Charlie Lake, now operating manager at Infinity Broadcasting Co. in Columbus, Ohio. Says Pittman: "Having an extra eye in my pocket was always a lot of fun."
Mainly, though, he focused on his career. His big break came in 1979 with Warner AmEx Satellite Entertainment Co., a joint venture of Warner Communications and American Express set up to create programming for cable TV. Pittman persuaded skeptical Warner CEO Ross and Amex CEO James D. Robinson III to back the creation of an all-music-video cable channel. "People had grown up with rock 'n' roll and with TV, but the two had never been put together successfully," says Pittman, who launched MTV on Aug. 1, 1981.
It was a fateful day, but MTV was no overnight success. That took years of relentless preaching by Pittman to consumers, advertisers, and cable operators. The message: MTV would change the way TV was made and watched. "He would say it and say it until it actually happened," says Geraldine Laybourne, a former MTV Networks exec, now CEO of New York cable-and-Web startup Oxygen Media Inc.
Throughout his Time Warner career, Pittman got plenty of advice from Ross. His mentor, who died in 1992, viewed the younger man as a kindred visionary and risk taker. "Steve Ross had probably one of the greatest impacts on my life," says Pittman. "He was a father figure in the business and really took me under his wing." One memorable lesson: When Pittman told Ross that MTV was about to make its first profit ever, instead of congratulating him, Ross waxed on about the next deal MTV could make. The message was clear. "Every accomplishment was a stepping-stone to another accomplishment," says Pittman.
That approach has guided Pittman ever since. When Warner sold its investment in MTV to Viacom in 1985, he left to build his own production company, Quantum Media Inc., and introduced The Morton Downey Jr. Show, where Pittman broke TV's mold again with an in-your-face talk format.
Then came the tumultuous return to Time Warner. After his successes with Court TV and Fresh Prince, Pittman got Time Warner to buy Six Flags Entertainment--then as CEO turned around the underperforming amusement parks. After Time Warner sold a controlling stake in the parks, Pittman started looking for a new job.
The last stop before AOL was a one-year stint as CEO of Century 21 Real Estate Corp. While some people wondered why the media star would go to a real estate brokerage firm, Pittman says: "It's not media I'm interested in. It's the consumer. It fit my criteria of a consumer product or service." During that spell, Pittman joined the board of America Online. From there it was an easy step into the AOL executive suite."I'M SANE." As his career soared, Pittman also remade his own image. During the height of MTV's success, Pittman and his glamorous first wife, Sandy, were dedicated social climbers--living the fast life in New York, Aspen, and St. Bart's with celebrities such as Rolling Stone publisher Jann Wenner, NBC's Brokaw, and musician Quincy Jones, who became godfather to their son, Bo. Jones recalls a big bash in the early 1990s on St. Bart's where he, Pittman, and music producer John "Jellybean" Benitez dressed up as the Supremes. "We were the Supremes that looked like the O'Jays," says Jones. In 1992, Pittman led a dozen friends on a well-publicized cross-country Harley ride from Manhattan to San Francisco's Golden Gate Bridge. "He can drive 15 people who don't want to be led," says Wenner, who took the ride.
Today, however, Pittman is a family man. He and Sandy divorced in the summer of 1997. That fall, he married Veronique Choa, a former Web-page designer. They have a 2-year-old son, Andrew, and a newborn daughter, Lucy. Pittman pilots his own jet, shuttling the family between homes in Manhattan, Great Falls, Va., Telluride, Colo., and Roundhill, Jamaica. He also flies himself to business meetings. And he hasn't forgotten Mississippi. At an Oct. 25 fund-raiser at his Virginia home, he raised $2.1 million to help connect the state's schools to the Web. Says Pittman of his more balanced lifestyle today: "It's more fun. I'm sane."
Given his full family life and a long career that started at 15, those who know Pittman are divided over whether he will stay around long enough to ascend to the top spot at AOL Time Warner. Some insiders say: "Don't count on it." After all, Levin may decide he wants to hang on for years, and in the past he has ousted executives who threatened his power. Pittman won't speculate on his future. "In my career, I have never planned what I do next," he says.
If Pittman does stick around, it could take a long time to make this deal pay off. It took Time Inc. and Warner Bros. five years to show the benefits of their 1990 merger. Because of the complexities of creating new online businesses with unproven business models, the merger of Time Warner and AOL could take even longer to bear fruit. Pittman says a lot of the newest stuff, such as interactive TV and video-on-demand, won't take hold for 7 to 10 years.
He seems to have the right skills for the long haul. Levin and Case had the guts to bet on new technologies they believe will transform consumers' lives, but Pittman is adept at delivering experiences consumers actually want. And he senses when a new business is set to take off. "He's got a great sniffer," says former HBO Chief Executive Michael Fuchs, now the chairman of Web startup MyTurn.com Inc. That instinct will be crucial if AOL and Time Warner are to deliver on their promise. But first, Pittman has to master the basics of making the two run like one.By Catherine Yang in Washington, with Ronald Grover in Los Angeles and Ann Therese Palmer in ChicagoReturn to top