There Must Be a Pony in Here Somewhere

by Kara Swisher

  The AOLers also underestimated how the Time Warner people felt about them—and most especially about their battlefield leader, Bob Pittman, who many at Time Warner felt did not have the capacity for running a creative, multi-industry business. The issue of Pittman’s role would soon take center stage, especially since the responsibilities he got in May of 2000 made him the point man for the merger’s execution.

  Or, as Business Week put it, it was “Show Time!” In a cover story that immediately spread ripples of discontent throughout the Time Warner side, Business Week lionized Pittman as the man to watch at AOL Time Warner. “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,” the magazine gushed. “It doesn’t hurt that he gives them much of the credit.” Even though Pittman was sharing COO duties with Dick Parsons, the story didn’t even mention Parsons until the 12th paragraph.

  What Business Week failed to notice was that the return of Bob Pittman to Time Warner was a less welcome homecoming than it appeared to be, especially since he had remained a controversial figure there long after he left. There were many reasons for this, including still-simmering corporate jealousies over Pittman’s close relationship with the late Warner icon Steve Ross; envy over his huge financial payoff in the Six Flags sales; and his reputation for self-aggrandizement, relentless ambition, and a whiff of hucksterism. Now that he was returning to the merged company even more fabulously wealthy and as the big boss, Pittman became a natural lightning rod.

  It’s hard to say if Pittman relished his bit of payback, because he wasn’t a prime mover of the merger, and he hadn’t actually believed Case could make it happen. “Wake me when it’s over” was Pittman’s frequent response to updates on the progress of the on-again-off-again talks in 1999. And of all the AOL executives I talked with after the merger was announced, Pittman seemed the least excited. In one interview, he rolled his eyes at the thought of his “retaking Manhattan,” as news accounts had surmised. While Pittman had never liked being stuck in the sticks of northern Virginia, he was also quite wary of reentering the snake pit that he clearly regarded Time Warner as being. My impression was that he was always worried that Manhattan might actually retake Bob Pittman.

  Perhaps that’s why he hit the company at such a full bore, so much so that almost everyone I interviewed at Time Warner had the same description of his style: An efficiency machine without an ability to make small talk or engage in the kind of “foreplay” that his job clearly required. Many described him as slow to compliment, fast to criticize, and eager to be seen as a tough operator. Of course, it was a lot easier to be a head banger when you were preaching to the converted, as he had been doing at AOL. At Time Warner, there were a lot of disbelievers in the merger, although some welcomed the prospect of change shaking up the company.

  But there were not enough believers at Time Warner and that was problematic, since any chance of success for the combined company’s big goals depended on having someone like Pittman in control. His hard-charging style was anathema to those accustomed to Levin’s neglect. While Levin would periodically act out and fire a division head, his reign was marked by minimal interference and little of the kind of active management that would be Pittman’s hallmark. Pittman would edit ad storyboards at the cable unit, comment on HBO programming, and even give advice on talent to the music unit.

  Pittman also had a nagging reputation within Time Warner for short-term thinking. “I think the biggest problem was his time horizon,” said a high-ranking Time Warner executive who had worked with Pittman. “Long-term planning to him was thinking about the first month of the quarter, not the next year. This year, next year did not interest him.” Pittman supporters deny that characterization, but it was a trait he was known for at Time Warner when he returned as the prodigal son.

  But encouraged by both Case and Levin, Pittman recast himself as an agent of change, charged with making the ambitious numbers work by reducing costs and launching synergistic initiatives. His involvement was soon considered mindless meddling by most at Time Warner, a feeling that was exacerbated when Pittman sent his tight-knit team around the company in an effort to “cross-pollinate” the cultures.

  While you might think employees at a media company in New York would have a tolerance for colorful characters, at Time Warner they did not. Among those belonging to the AOL executive shock troops were the pugnacious deal maker David Colburn and slick ad salesman Myer Berlow, both of whom practiced a take-no-prisoners style and left disgruntlement in their wake. The irritation they caused would be rubbed even more raw by CFO Mike Kelly, whose bullying and haranguing of division heads over making the numbers eventually caused them to revolt.

  By contrast, most AOLers thought Pittman was never tough enough, as he seemed to prefer trying to encourage changes without forcing them. Many urged him at the start to be more ruthless at Time Warner. “If you choose the battlefield of ‘Do they like you?’ you will not win,” Berlow told me he advised Pittman. “You have to be willing to say: ‘Do it my way.’ ”

  To those at Time Warner, this seemed to be AOL’s style from the beginning, as the group from Dulles quickly began to make its presence known throughout the company via a series of small moves that would produce large reverberations. With a goal of bringing power to the center, as had been the rule at AOL under Pittman’s strong hand, the AOL executives thought they would be the ones to finally deliver excitement and growth to what they often scoffingly called an iron-age company.

  Can’t We All Just Get Along?

  But first, they had to make one company from many—or so the AOL team thought.

  After the hoopla of any merger announcement, it often takes a decade for a new company culture to emerge, and at least that long to get real traction with new business practices. That had certainly been the case with the Time and Warner merger in the early 1990s, and it held true after the Turner acquisition as well. And even after all that time, most still considered Time Warner more of a holding company of different businesses than anything unified, right up until the AOL merger.

  It was ironic that they expected unity from a company that had always been disjointed, and that they expected it after the biggest merger in history—one with a pronounced culture clash of old and new worlds. Nonetheless, Pittman, Levin, and Case, as well as members of the board, all seemed to be in an inexplicable rush to prove the worth of the new and unknown combination. It was this need for speed—a signature characteristic of the Internet era—and the desire to make this merger appear as successful as possible as soon as possible that led to many of the thoughtless errors that later took place. This need was obviously born out of a deep insecurity that had been part of AOL culture since its beginnings. Always counted out as losers, the executives of AOL now had their ultimate comeuppance to administer to those who had doubted them.

  Full of hubris over their success, the AOL team—with Levin’s enthusiastic encouragement—began trying to create one culture from many. Intensely worried about the potential of Time Warner’s decentralized nature to wreck the merger, the corporate team tried to quickly push through a series of initiatives designed to bring everyone together. If they couldn’t, they feared their chance of making the kind of money they’d promised Wall Street was doomed. In fact, a January memo from the investor relations department to all the top executives warned that the new company was under intense scrutiny. “AOL Time Warner can expect to be something more than the most watched company in 2001,” it read. “But quite possibly the one from which most is expected.”

  The first true effort to unite the cultures was aimed at the pocketbooks of the company employees, in hope that financial benefits would inspire them to join together. Steve Case and others believed that the best way to share the wealth and inject a little bit of Levin’s longed-for Internet DNA into the Time Warner culture was via stock.

  So Case and other top executives at AOL Time Warner advocated a
new stock option plan to replace Time Warner’s traditional cash bonus plan, which had been based on both divisional and company performance. This was a major move, because over the years the profit-sharing program could yield huge returns to top executives who beat their financial plans. Even at the lower levels, the cash bonus could account for a huge part of an employee’s salary, and when it came to top executives, it meant millions of dollars. Best of all, it was cash money in someone’s pocket, with none of the potential risk of stock options.

  But at AOL, stock, which had made millionaires of even lowly assistants, was considered the only true way to reward talent. So the compensation at AOL Time Warner would now be aligned with the company in a much more direct way, linking financial benefits directly to stock performance. This would also presumably save the company cash, as options were not counted as an employee cost in financial reporting. The move was a hallmark of AOL’s entrepreneurial culture, which believed these “founder’s options” were a necessary part of bringing the company together as one in an immediate and obvious way.

  “If you align with shareholders, that’s the right thing if the idea is to try to get the company to think like a company as a whole,” said former CFO Mike Kelly. “If you are pushing the organization, cash can work, but it is hard to know if people are submitting divisional plans to be realistic or to get more cash at the end of the year.”

  At the start, at least, many at Time Warner were nervous about the level of risk—but they were also eager to benefit from a stronger stock. Helped by encouraging results for the combined company in its first quarter, AOL Time Warner shares still remained higher than the value of their previously owned Time Warner shares in the first months of 2001. “I thought I was headed for an early retirement, since it looked like the shares were going to be okay at first,” said one top employee. “I won’t deny the greed.” Indeed, since many of the higher-ranking executives at Time Warner got gigantic grants of stock, greed was an important motivator.

  But the mood quickly changed as the stock started to sink in the late spring, eventually playing such a factor that I taped a note to the wall above my desk saying “THE STOCK WENT DOWN” as a reminder of the most critical factor in why the rest of AOL’s efforts later began failing so miserably. AOL’s leaders had badly misjudged Time Warner’s appetite for risk.

  If the combined company’s stock had gone up, there would never have been a peep of protest about the options plan or anything else, since the employees would have reaped huge gains. But in taking away the Time Warner side’s highly lucrative profit-sharing plans, then saddling employees with paper options whose value became worthless, top executives sowed the seeds of serious discontent. This was exacerbated by the fact that company pension plans also held giant blocks of company stock, which employees seldom sold as it piled up over the years. Now, all of corporate morale was tied much too closely with AOL Time Warner’s stock price.

  And there were other unsuccessful attempts to promote togetherness and save money. One of the executive board’s directives decreed that everyone in the newly combined company should use AOL’s email system. In a perfect world, this made sense, since each Time Warner division and even its subdivisions had its own costly information technology structure. But AOL’s simplistic email was designed for undemanding chatters and consumers. While it was fine for AOL’s internal needs, a larger communications entity like Time Warner had more complex uses for email. Irritated Time Warnerites soon found their attachments mangled, photos lost, and Excel spreadsheets jumbled.

  It’s difficult to fault anyone for being upset at this change; not only was AOL’s email offering clearly inferior, but urging employees to migrate all their information, addresses, and saved email files to a new system was a huge irritation. Despite the more serious issues between AOL and Time Warner, I think I heard more about the email debacle than about any other issue—suggesting that small details can truly matter a great deal. I first saw evidence of this at an HBO event in Aspen in March of 2001, where employees were in near revolt over the glitchy AOL mail they were forced to use. “Fuck AOL, fuck AOL, fuck AOL,” one employee muttered under her breath as she tried and failed to send a single email there.

  That soon became the mantra for many at Time Warner, as AOL sprung its final tool intended to promote harmony. With a need to get synergistic initiatives going as quickly as possible and enhance cooperation among many divisions, the newly invigorated corporate center began to dictate a series of required face-to-face meetings for managers to strengthen ties.

  Soon enough, divisional heads and their subordinates were summoned to weekly and monthly intracompany gatherings. Some were led by Levin, some by Pittman and Parsons, and others by Pittman lieutenants Mayo Stuntz and Marshall Cohen. These “councils” of division CEOs, marketing honchos, and ad poobahs were intended to foster the sharing of ideas and better ways of doing business together. They were also intended to nudge the company into functioning as a unified whole, with executives from the various divisions working together rather than remaining isolated in their own fiefdoms.

  On its face, this idea isn’t a bad one—except that most of the meetings soon degenerated into useless free-for-alls where little was accomplished and acrimony only increased. Problems that started as questions of style evolved into battles over basic issues of how to do business. Against the backdrop of a rapidly weakening economy, these tussles became increasingly ugly. As one AOL manager who watched from the sidelines while bigger bosses bickered told me, “It degenerated into a series of street fights.”

  One Nation Under Siege

  Street fighting was a particularly apt metaphor for AOL Time Warner internal relationships in the first months of 2001. Like warring gangs, each side had its share of righteous, arrogant, and aggressive attitudes. Of course, the bigger problem was that no one from either company valued the history of the other’s institution. They felt they had nothing to learn from each other.

  Even a cursory discussion with either side revealed irreconcilable sets of values and goals. To Time Warner, AOL was rude and rambunctious, facile and ignorant about the complexities of the various businesses, and primarily interested in milking the divisions for the greater glory of its online service. To AOL, Time Warner was political for the sake of politics, slow moving and obdurate, and unwilling to make the changes needed to face down the challenges of the future. Both were right, of course, but neither was able to help the other overcome its joint set of problems.

  The fighting began over simple issues of civility. As I started reporting this book, I soon found myself cringing at the multitude of stories about the antics of AOLers, especially those of David Colburn and Myer Berlow, who appeared to relish their enfant terrible reputations at Time Warner. And they were in fact like terrible infants, as they inflicted almost immediate damage on the merger by behaving more like tantrum-prone toddlers than new leaders of one of the world’s most respected companies. The stories about the pair, who actually did not work as closely together as some perceived, soon became legend. Arriving late to meeting after meeting, trading high fives, spitting food, and interrupting others, the legend of their behavior, and the behavior itself, horrified many in the more formal corridors of Time Warner.

  Berlow, for example, quickly became famous for his expensive but rumpled suits, his chain-smoking lunch table at the Four Seasons, and his tendency to mouth off to Time Warner executives about how their business was doomed. Colburn, meanwhile, was constantly cracking wise, asking for free tickets to movie premieres, concerts, and awards shows, and strong-arming colleagues into deals they didn’t agree with. While this kind of silliness was common in the looser dot-com era when AOL’s power had given them a limitless ability to misbehave, in New York their actions were soon magnified in the echo chamber that is a major media company.

  One encounter would create widespread reverberations in the media culture, making it seem as if hundreds had experienced each slight and rudeness. Like that of t
he putz T-shirt, stories about Berlow and Colburn soon became exaggerated and the pair became the equivalent of corporate urban legends. At AOL, this was often annoying to many, but seldom was it threatening. To the vast majority of employees at Time Warner, where AOLers now commanded immense influence, they were considered out of control and possibly dangerous. “Time Warner was a hierarchical company and not used to senior executives mouthing off without meaning it or to provoke debate,” said one former Time Warner executive who had previously worked with AOL. “At AOL, that was normal and expected.”

  When I later asked Berlow about his behavior, he discounted the many stories about him that cropped up, saying that he, Colburn, and others at AOL were easy marks for Time Warner backstabbers who resisted change in all its forms and were motivated by jealousy. “It was a culture so humiliated that we bought them that they couldn’t think of anything else,” he told me. “Arrogance makes a good story, but they didn’t want synergies, because synergies meant you don’t have principalities.” To him, it was Time Warner’s “ack-acking” that ultimately took this merger down.

  But Berlow, whom I’d known for many years and whose company I had always enjoyed, was well aware of his colorful reputation. Frankly, he relished it at times and I doubt he wanted to behave any differently at the new company, especially since he was proud of his accomplishments as one of the pioneers of the online ad business. His efforts to build this new business took a certain amount of chutzpah that he never lost. Over many years, I’d seen him and other AOL executives make public speeches that sometimes made me want to hide under the table, almost always due to the fuck-you tone and message. “People who have no charisma hate those who do,” he often joked. “We believe in what we do and that bothers those that don’t.” I didn’t know about that, but it was clear his peculiar brand of charm was lost on those at Time Warner.