Some executives face one or two major challenges to their businesses a year. Since taking over as CEO of Time Warner (TWX) -- then AOL Time Warner -- in May, 2002, Richard D. Parsons has faced a perfect storm of corporate crises. The disappointment of an overhyped merger left shareholders bitter and resentful. Economic woes squeezed the advertising revenues on which Time Warner is heavily reliant. Mounting debt required drastic action and difficult decisions about what businesses to keep and which ones to sell. And Time Warner wasn't immune to the accounting scandals that swept through Corporate America. The Securities & Exchange Commission and the Justice Dept. launched probes into questionable revenue reporting at America Online.
Nevertheless, the 55-year-old Parsons has been managing to run his company with grace. He has won kudos for getting Time Warner back on track by lowering debt, articulating a stronger message to Wall Street, and boosting morale among dispirited employees. In mid-December, a day after returning from Germany, where he hosted a premiere of Lord of the Rings: The Return of the King, Parsons spoke to BusinessWeek Media Editor Tom Lowry about the past year, next year, and "schmuck insurance." Edited excerpts of their conversation follow:
Q: What factors will have the biggest impact on media in the new year?
A: We're seeing real signs of improvement in the economy. And the health of the economy has a tremendous effect on advertising, an important source of revenues for us.
If the economy keeps going like this, the big beneficiary will be our publishing business [Time Inc.], where we could see strong double-digit revenue growth. But the biggest beneficiary could be America Online, since we've begun to see some real strength in the online ad market.
Q: You recently announced you were selling off your recorded music business. Like the rest of the industry, you saw your music sales hurt by piracy. How comfortable are you with your efforts to combat piracy in your TV and movie businesses?
A: The music industry is beginning to get its arms around piracy, but can we do the same in the movie business? We need to get out in front of file-sharing, in one way by deploying legitimate ways to access content online. In the long run, the pirates never win. They're underfunded and undercapitalized.
Q: If the music business is beginning to get its arms around piracy, why sell Warner Music?
A: In the next three to five years, the lower returns from music don't make sense for us totally. We have an option to buy back a piece of the business. I like to call it schmuck insurance. In case the music industry starts to go like gangbusters, we won't look like schmucks for selling.
Q: What do you see in terms of mergers and acquisitions in the media business in the new year?
A: You'll see some action in cable. Because satellite has the large national footprint [which allows providers] to sell to advertisers aggressively, there's more pressure on cable operators to get bigger. As Adelphia works out its problems, you might see something there. Or with Charter (CHTR) -- or Cablevision (CVC), for that matter. You're definitely going to see an urge to merge. Companies want the bigger footprint for technology and scale.
Q: For a while last year, it seemed like every week somebody was calling for you to sell the America Online unit. Are you still committed to that business?
A: We're in the process of getting the business turned around and on a growth track. We're still not 100% sure though what the model looks like going forward. If it's content-heavy, that's something we do. The business is where it belongs. If it's more about functionality and services, more software-heavy, then that will be something to think about.
Q: What are the three biggest challenges for Time Warner in 2004?
A: Getting AOL back on the growth track, a sustainable track. We need to have a successful rollout of our voice-over-Internet protocol [using Net technology to send phone calls] services for our cable business, particularly since it gives us such an advantage in competing with satellite. And we need to resolve our regulatory issues related to accounting at America Online. We have cooperated fully, but at this point it's not in our control. It's a day-to-day thing.
Q: In some recent press accounts, you have been given high grades for your performance. How would you rate your performance in 2003?
A: It's important to remember not to believe everything you read when the press is negative. It's more important not to believe it when it's positive. I say we did O.K.