Can Time Warner's Fixer Find Vision?


By Tom Lowry Ever since he became CEO of Time Warner (TWX) in 2002, Richard Parsons has acted like a technician, working his way down a to-do list of things needed to repair the media empire crippled by its disastrous 2001 merger with AOL:

1. Reduce a $25 billion debt load. Put a check mark next to that one. He sold a bunch of businesses, including Warner Music Group, in March, 2004, for $2.6 billion.

2. America Online? Sell it or spin it off? For now, Parsons has decided to give AOL one more chance to become a growth engine. Check.

3. Settle two federal investigations into accounting practices at AOL. Check. Earlier this year, Time Warner paid more than $500 million in settlement charges.

And then on Aug. 3, as part of reporting second-quarter earnings, Parsons announced he was putting aside $3 billion to settle private shareholder suits related to AOL. This latest move was seen by many as erasing the last dark vestiges of the AOL merger and creating a clean slate.

STANDING APART FROM RIVALS. It's been hard to argue with Parsons' methodical approach so far. When Parsons took the reins three years ago, influential media investor Gordon Crawford declared him the right executive at the right time for the troubled company.

Crawford's reasoning: Time Warner needed a nuts-and-bolts operator and fixer who could also lift the morale of his workers -- and Parsons fit the bill. After all, Parsons, a lawyer, had helped pull the Dime Savings Bank out of a nosedive years earlier. And his skills as a negotiator certainly were in demand at a company facing intense scrutiny from regulators and shareholders.

But now that Parsons has worked his way down his to-do list, perhaps it's time for him to articulate a broader vision for the company, especially since he'll have to further distinguish it from rivals in today's hypercompetitive, technology-driven media world.

A B+ GRADE. Up to this point, Parsons hasn't wanted to extol a grand future for Time Warner -- with good reason, given the grandiose visions that former AOL boss Stephen Case and Parsons' predecessor, Gerald M. Levin, espoused when the two companies merged. Their blathering only served to tarnish Time Warner's credibility when it proved untrue.

But now Wall Street needs some new reason to believe again. Time Warner shares were at about $19 when the board made Parsons CEO in May, 2002. Today, they are stuck at around $17 and traded flat on Aug. 3 after Time Warner announced the company's latest quarterly earnings, which missed Street estimates.

"I give Parsons a B+ so far," says Morris Mark, owner of Mark Asset Management, a Time Warner shareholder, after the conference call with analysts. "But whoever is running Time Warner now needs to make the case that it has really special assets that uniquely position it as a company for the future. I'm not saying Parsons can't do that."

CABLE SETUP. It's not as if Parsons, who added "chairman" to his title in 2003, isn't continuing to look ahead. All signs point to a planned public offering of the cable company in the first quarter of 2006.

Indeed, in what went relatively unnoticed just days before the Aug. 3 news, the parent company announced it was dispatching two of Parsons' top executives to Time Warner Cable. John Martin, Time Warner's head of investor relations, will now serve as the cable unit's chief financial officer, and Robert Marcus, Time Warner's top exec for mergers and acquisitions, will become a senior vice-president at the outfit.

Who better to sell a cable offering to the Street than an investor relations specialist like Martin? And since the intent of creating a separate public company is to have its own share currency to do deals, Marcus seems like the right guy for the senior team at cable. Fresh from negotiating the recent acquisition of systems from Adelphia Communications, Marcus could play a key role if Time Warner were to finally make a run at Cablevision (CVC) or possibly at systems owned by Paul Allen's Charter Communications (CHTR).

BETTER NUMBERS NEEDED. It could also be that Parsons' desire to continue to keep his head down and focus on quarter-to-quarter results stems from his belief that he still has one big task left on his list -- proving that AOL is a winner. "That is the swing factor" for the company, says Fulcrum Partners analyst Richard Greenfield. "[Parsons] needs to visibly show that AOL is a sustainable growth business."

Greenfield believes Time Warner's stock will trade above $20 a share if Parsons can deliver on a new vision of growth. But he'll have to improve on numbers like those that Time Warner turned in Aug. 3: Second-quarter revenues were down 4%, to $2.1 billion, and AOL lost an additional 917,000 subscribers from the first quarter.

To-do lists are good to keep, but Parsons may now want to make another entry: Find that vision thing. Lowry is a senior writer for BusinessWeek in New York


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