There Must Be a Pony in Here Somewhere

by Kara Swisher

  Milk That Cow

  Incredibly, members did not leave and regulators did not hinder AOL’s progress in attracting millions of subscribers. Now, as many AOLers told me, it was time to milk the cow, a critical strategy once the lucrative hourly rates were history. Until then, AOL had been singularly focused on building membership at all costs. The benefits of this approach were obvious: More users meant more fees coming in. But it was clear that bigger numbers would yield even more benefits and AOL’s dominant position would open up other lucrative revenue streams.

  It was a many-pronged strategy, including focusing on original content, a push led by Ted Leonsis. He had already made AOL more like TV by adding channels and frequently extended that metaphor by claiming that the service’s true competition was the NBC comedy hit Seinfeld. I found that dubious given that one episode of a sitcom could draw 30 million viewers at once. And while its user base was growing, AOL subscribers quickly fanned out over the whole service. That made it not much of a mass medium, but a niche medium with masses of people. Users also did not seem to like being programmed at from the top down, the way it worked in television, as Time Warner was then finding out with its own failed Internet efforts.

  In fact, Time Warner and AOL had a long history in the content area. While Time magazine defected from AOL after getting a pricier offer from CompuServe, the pair had begun to cooperate on joint programming ventures, such as on a health site called Thrive and an entertainment offering called The Hub.

  Leonsis had long pushed for more and more programming, having earlier initiated a “Greenhouse” project that tried to seed new Web properties that AOL would own a piece of and also promote. He pulled in television luminaries such as legendary programmer Brandon Tartikoff to create for AOL, in hopes of launching money-spinning television and publishing franchises from content born online. He opened a Hollywood online studio called Entertainment Asylum.

  But Leonsis’s energetic efforts—and Leonsis himself—were losing favor at AOL when it became clear that such asset building was costly and took a long time. AOL needed a much quicker fix to get it off its addiction to hourly subscriber fees. That would only come by plunging deeply into the potentially profitable advertising market, which then only accounted for 10 percent of AOL’s revenues.

  The man who would first lead this new charge was Myer Berlow. An Armani-clad, slick-haired advertising man who dubbed himself the “Darth Vader of AOL,” Berlow had joined the company in 1995, after spending 25 years in the advertising business in New York, Los Angeles, and Mexico City. His mission was to sell the AOL service as an advertising medium, despite the fact that its ability to help sell products was completely unproven.

  Within AOL, the advertising idea was anathema at first. The “community” feel of AOL was not just an online phenomenon. For many of the young men and women who worked at company headquarters in the rolling fields of Dulles, Virginia, AOL felt like a safe community where the goal was both simple and idealistic: Help people get online and explore a whole new world. “I think every antibody in the company reacted when I got here,” Berlow told me in early 1996. “The idea of selling the service to advertisers had not been something very ingrained in the company ethos.”

  It was initially a hard sell outside of AOL, too. Most potential traditional advertisers with the big bucks wanted to create their own sites rather than buy ads on AOL. Berlow caustically warned them such money was wasted with the snarky retort: “Build it and they won’t come.” He pressed them to see how important the AOL audience would become. While he got some traction, it was still an uphill battle to get much cash in AOL’s coffers.

  But soon enough, under the guidance of Bob Pittman, AOL would be all about making money through its ad deals. So much money, in fact, that eventually everyone—even those who paid lip service to AOL’s homey roots, most especially Steve Case—would get on board.

  The ride began on February 25, 1997, when Pittman announced a deal with New Jersey–based Tel-Save Holdings, Inc., a dinky, then-unknown reseller of long-distance phone service. In exchange for being able to market its discount telephone offerings to AOL users, Tel-Save had agreed to pay the astonishing sum of $100 million as an advance on future commissions, a percentage of profits, and warrants to buy shares in the company.

  With this immense check in hand, AOL had another new lease on life that promised more riches and acclaim than ever. It had been a long and wearying journey to get there and now it appeared they had made it to the big time and were ready to fly higher than ever before. They had no idea then how high they’d get—capturing Time Warner within three years’ time. On the way, they’d continue to skirt the boundaries of propriety, amass enormous personal wealth, and gain a reputation for arrogance and hubris that would one day help bring down the unusual structure they’d built from nothing in only a decade.

  To Case and his band of misfits, it finally looked like AOL was winning. But they had no idea how much they all still had left to lose.

  It might look as if my hands were empty. Actually, I was sure of myself, sure about everything, far surer than he; sure of my present life and of the death that was coming. That, no doubt, was all I had; but at least that certainty was something I could get my teeth into—just as it had got its teeth into me.

  ALBERT CAMUS, The Stranger

  Chapter Three

  NOTHING LEFT TO LOSE EXCEPT EVERYTHING

  Good-Bye to All That

  Gerald Levin was in love.

  “Profound love,” he told me, saying it a second time, and then a third. I wrote it down in my notebook, underlined it, and then wrote it again.

  It was January of 2003, and I was sitting with Levin in his second-floor office at Time Warner headquarters at Rockefeller Center. I was interviewing him for the third time about the merger and its collapse, when he began telling me about the new woman in his life—a clinical psychologist and former Hollywood agent he’d met recently named Laurie Perlman. She had first approached him regarding business guidance for a plan to open a chain of holistic mental health centers. Later, they’d kindled a romantic relationship in a series of marathon phone conversations—she calling from Southern California, he from New York.

  The next month, the New York Times had gotten a bit giddy over this development, printing an article with a photo of Levin on the beach, looking uncharacteristically laid back as the sun set behind him over the Pacific. And the news had, of course, sent New York’s tabloids into their usual frenzy—especially the New York Post, which pondered openly whether Levin had gone crazy.

  Some of his friends wondered the same thing. Levin had been calling many of them from Hawaii, where he had gone with Perlman to get to know her better in person and where he’d quickly decided to marry her. In what many would describe to me as awkward conversations, Levin had waxed on about how his life was now perfect, offering personal details and unburdening himself emotionally. “I was very unhappy,” he said to one friend. “I had no idea how unhappy.” To his mostly dumbfounded listeners, this kind of opening up was unimaginable for a man who had kept mostly to himself for his entire career.

  The change was certainly dramatic. Levin was, after all, leaving his wife of more than three decades—who was apparently just as shocked as everyone else was by the news (“You’re the last person Jerry could fire,” Barbara Levin had been told by one friend). Even more surprising, Levin also declared that he was departing the powerful environs of Manhattan, planning to move across the country to the sunny shores of Marina del Rey to live the rest of his life in peace. “I used to hate California,” he told me. “Now, I can’t wait to get there.” For Levin it was like the title of an essay that Joan Didion wrote about leaving the soured life in New York for the jasmine scents of the West Coast: “Goodbye to All That.”

  This recent shift in Levin’s life was—there was no other word for it—transformational. But I didn’t want to suggest that word to Levin, because “transforming transaction” was precisely the mill
stone of a concept that had dragged his career from the pinnacle of power to the depths of ignominy.

  Perhaps, as one person close to him suggested, Levin’s newfound candor was born of the fact that he had nothing left to lose. Unlike Steve Case, who’d transformed himself from goat to genius in the years leading up to the deal, Levin had toppled from being the most powerful man in media to a virtual untouchable. The metaphorical fall he took was just as dramatic: Levin had been shunted from his aerie in the power corridors on the twenty-ninth floor to an outpost on the second floor, near the information technology staff. It looked like the same office—“It’s kind of a replication of my old one,” he told me on a short tour, as he pointed out photos and other mementos from his glory days. But it was clear he had been exiled here.

  And yet it appeared as if Levin could not care less. At a time when all had been lost in the deal he had personally architected, Levin seemed as if the weight of the world had been lifted off his perpetually hunched shoulders. Yes, he still looked a bit like a mortician, which had been my impression when I first met him in 1999, but the difference now was that he appeared to be a very happy one. In the margins of my notebook, near “profound love,” I scribbled, “fun-loving funeral director.”

  Gloomy metaphors had always seemed appropriate for describing Gerald Levin. Friends, foes, and the press universally described his manner in severe, vaguely mystical terms—rabbinical, monkish, inscrutable, cryptic—as if Levin occupied a different plane of existence. Levin himself had cultivated this persona, offering up obscure quotes and frequently referring to his love of French existentialism—particularly philosopher Albert Camus, whose greatest work was titled The Stranger.

  Not surprisingly in the backbiting world of media, Levin’s detractors had long thought of him as a poseur, a man who created a faux-philosopher façade to mask his true Machiavellian tendencies. But others believed his airy, visionary gazes were genuine, and that Levin was much more than your standard quarter-by-quarter CEO. In any case, he’d cultivated this professorial air and hangdog visage for so long that it was now the image that everyone thought of when they thought of Jerry Levin. And the persona was further etched in stone after the violent murder of Levin’s son in 1997, which lowered over him a perpetual shroud of grief that made him seem even more remote.

  This darker, more somber Levin was the man I encountered soon after the AOL Time Warner merger. In the spring of 2000, just as Levin was perched at the very peak of the media world, I’d met him in person for the first time at an event celebrating the debut of a new Time Warner magazine called eCompany Now.

  These were the last heady moments before the dot-com sector would begin to crumble, and the magazine had put together an opening party that befit the times, renting out San Francisco’s newly built Pacific Bell baseball stadium, offering free ballpark food and giveaways, and bringing in the Warner Music pop band Barenaked Ladies (as evidence of synergy, no doubt) as entertainment. On a sun-drenched San Francisco Bay boat ride that preceded the festivities, I stood chatting with Levin—or trying to, anyway, as it was hard to get him talking about anything much. Unlike the razor wit of entertainment mogul Barry Diller or the obstreperous opinionating of Disney’s Michael Eisner or the bossy imperiousness of Sumner Redstone of Viacom, Levin was almost comatose for a media mogul. In desperation, I brought up the issue of cable systems, since I’d heard this was his passion.

  It was only then that Levin dropped his distant affect and started talking in an animated way about how quickly high-speed Internet access would catch on with mainstream consumers. While he wasn’t awe-inspiring in his arguments, it was clear he was thinking many years down the line, to a future far beyond the next earnings announcement. The next time I saw him was at a conference, and once again, cable and its ability to jumpstart the next Internet age was his main topic.

  But the next time I saw him, in the fall of 2002, he had recently left AOL Time Warner under a cloud of scorn. He was considerably less remote then—but his mood was shot through with a bitterness that would eventually lead to what he called “opening up and finding my voice.” And as I discovered during my interviews with him then and later, it was a voice that would prove to be pretty direct.

  “I have no respect for them at all,” Levin told me in that meeting, when I asked how he felt about those who turned on him after his fall from power. At least you can say this about the man who described himself as “the personification of the stock decline”: He agreed to speak on the record. Most others who had similar responsibility for the merger mess did not.

  “I am not into self-justification and legacies,” he insisted, calling himself a “student of anthropology.” “I know how we got punished with the Time and Warner merger, and then with the Turner merger . . . [the AOL Time Warner merger] is a large transaction and it doesn’t matter how smart or well intentioned you are, it is always off the mark.

  “Until,” he added, “it shakes out into something right, which it will.”

  And, later, in the interview where he told me about his new love, he remained as defiant, despite even more bad news piling up about the merger. “I know what occurred over the last thirty years, and I’m not interested in setting the record straight for anyone,” he said.

  He was actually smiling quite pleasantly as he made this declaration of stubborn certainty against a chorus of detractors, part of Levin’s strong need to play the contrarian. Perhaps this was due to that “profound love” that was now allowing him to be even more philosophical than he’d ever been. Whether anyone thinks it’s merited or not, Levin’s attitude about the merger is clearly a good thing for him personally. Because no matter how he could look at the situation, Levin has had a very steep slide.

  Or, as he must have known from studying Camus’s The Stranger, “He seemed so certain about everything, didn’t he? And yet none of his certainties was worth one hair of a woman’s head.”

  Stumbling Upward

  Gerald Levin was an unlikely corporate climber. Growing up in Philadelphia, he studied Hebrew and loved to read books. His mother, who was of Romanian origin, was a piano teacher, and his father, whose parents were from Russia, ran a mom-and-pop store. Never a rebel, Levin studied hard and did well in school, eventually enrolling in Haverford College, a small liberal arts school founded by Quakers just outside Philadelphia.

  Levin enjoyed writing and planned to major in religion and minor in English. He loved the intellectual freedom and challenge of college, and he excelled in his studies, eventually being selected for membership in Phi Beta Kappa.

  He was an intense, idealistic young man, even going so far as to burn his papers after graduation in deference to the poet Virgil. “Since I had studied all kinds of philosophy, I had come to the conclusion that keeping papers was an assertion of ego that I had to rid myself of,” he explained to me, before adding, “Of course, I wish I had those papers now.”

  His dream for his life’s work was equally passionate—he wanted to write novels. But one doesn’t simply become a successful novelist, he knew, so he decided he needed to establish a career that would allow him to write on the side. With that in mind, he enrolled in University of Pennsylvania Law School in 1960. But his dream of writing soon took a backseat to the corporate life.

  Levin started his career as a lawyer with the white-shoe firm Simpson Thacher & Bartlett in Manhattan, but he spent only a few years there before moving on. He never intended to practice law for long, he said, because he wanted to involve himself in the world more. Soon enough, he’d wrangled himself a post working in a firm in New York run by the legendary David E. Lilienthal, who had chaired the Tennessee Valley Authority and later served as the first head of the Atomic Energy Commission. He was inspired by Lilienthal, especially by his 1967 book, Management: A Humanist Art. Levin told me he liked the idea of being able “to do something socially significant through economic development, while also making money.” When I visibly raised my eyebrows at this statement, Levin ins
isted his motives started off with some measure of idealism.

  In his job, Levin traveled to southern Iran to represent the Development and Resources Corporation on a dam project. It was there that he formulated his ideas on the importance of distribution, no matter the product. “In my mind, the transmission of water and power and later electrons were all the same thing,” he said, “You just had to be in a position of controlling the conduit.”

  He returned to New York in 1972 and took a job at the company where he would stay for 30 years: Time Inc. Levin found the company intriguing in part because he felt it was all about distribution. And he also liked the idea of working near journalists—“though you might not believe that today,” he added, referring to the media flaying he would get frequently over the course of his career. His first job at Time Inc. was working on the business plan for the company’s new cable channel, Home Box Office.

  There was no doubt in Levin’s mind that television was changing the way Americans spent their leisure time. Levin felt there were even bigger opportunities, including the novelty of pay television via cable. Time’s offering was HBO, test-launched on November 8, 1972. Levin himself introduced the first two programs—a Paul Newman movie called Sometimes a Great Notion and a New York Rangers hockey game. About 350 subscribers in the coal country town of Wilkes-Barre, Pennsylvania, tuned in.

  While HBO was at the forefront of the new cable industry, it still wasn’t clear whether Americans would be willing to pay for programming when they’d been watching free TV for years. And though the technology was cutting edge—very basically, coaxial cable wires transmitting content—something better would soon become available to take the idea nationwide, a necessity for the true success of the endeavor. But it was something no one at Time Inc. except Jerry Levin and a handful of others seemed to think was worth investing in.