There Must Be a Pony in Here Somewhere

by Kara Swisher

  Many other things about Levin would infuriate his detractors, but none more so than his steadfast refusal to say he was wrong. In all the interviews I had with him, Levin never once expressed any doubt that the merger had been the right move. He may be the last one who believes in the merger, but he still believes in it all the same. “When the economy comes back and everyone figures out how to work together, they will reconsider me,” he said, ever the oracle. “I believed in the Internet and I believe in it now.” He also refused to say he might have been tricked by AOL, as many at Time Warner think. “Of course, I did trust the integrity of Case, Pittman, and Kelly,” Levin wrote me in an email in 2003. “I don’t believe they engaged in deception.”

  This stubborn insistence that he sees what no one else can see is typical of the contrarian, go-it-alone style that has been the trademark of Levin’s career. Many years ago, the Orlando Sentinel quoted him as saying in weird fortune-cookie style, “He who makes a living from a crystal ball must learn to eat ground glass.” His critics believe that this time, his last prophetic vision—the merger of AOL and Time Warner—will leave him chewing into eternity.

  But he won’t be alone in partaking this unpalatable meal. Before it was all over, almost everyone associated closely with the merger would be taken down in some fashion. Soon enough, the acronym AOL would come to stand for “Another Ousted Leader.” And when it was over, the last man standing on the podium would turn out to be Levin’s loyal lieutenant, Dick Parsons. He, like Gromyko, would be the only true survivor.

  It’s the End of the World As We Know It

  When AOL Time Warner finally told the financial world that it wouldn’t make the aggressive numbers it had long been predicting, it came as no surprise. With the deteriorating economy, slow movement on promised synergies, and, finally, the September 11 terrorist attacks, it was more of a shock that the pullback had taken as long as it did. Many felt the constant backing of the projection was more than a little egotistical on Levin’s part especially, an impossibly elaborate justification for the merger. Some felt the numbers were Levin’s battle cry in a war he was losing.

  Levin had already been getting heat over the issue in management meetings, especially from Ted Turner, who had become increasingly agitated as the stock started plummeting in the spring. The dyspeptic billionaire would later trace his discontent to his ouster at Levin’s hands in the May 2000 management restructuring, but the truth is Turner had long been harboring rage at Levin that needed little cause for eruption. Later, Levin noted that Turner always needed a demon to battle against, which was entirely correct. To Turner, Levin was satanic. In many 2001 meetings, he began calling him names, like “thief” and “liar,” and also began leveling a series of accusations about his shortcomings as the CEO. As usual, Levin ignored the rants, sitting quietly without acknowledging them until Turner eventually petered out.

  Initially, because it was Turner doing the ranting, no one paid much attention. “That’s Ted” was the usual refrain, since Turner’s outbursts toward Levin had been so frequent over the years. While Turner would be credited with helping get rid of Levin, he was used mostly as a tool of others more deft and focused in their machinations. But Turner was attuned at a very emotional level to the extreme discomfort that the corporation was feeling, especially in its increasing ire at Levin. His pain was soon to be everyone else’s.

  Yet Levin couldn’t have cared less, because after the terrorist attacks, he claimed something inside his soul snapped. As he described it, the concerns of normal business practices seemed ridiculous and crass. The attack on his beloved New York also allowed old wounds about the death of his son, Jonathan, to reemerge. “After 9/11, I was a basket case, and could not see anything anymore,” said Levin to me in an interview in 2002. “I just lost all the drive I had had.” He repeated this sentiment frequently to both the press and personal friends.

  Within Time Warner, many scoffed at this newly soulful Levin, claiming he was seeking an excuse for his incompetence at running the company. Many were appalled at his frequent chest beating over the tragedy, finding it untoward and insincere. “It was just another thing Levin used for his own benefit,” said one top Time Warner executive. “He should have been ashamed of himself.”

  Like those that followed the death of his son, I think these attacks on Levin are unfair. While he deserves all kinds of criticism for his executive performance, his emotions seem genuine enough, especially since they were exceedingly awkward and not particularly convenient for him. In fact, his overblown reaction to September 11 made many people who worked closely with him exceedingly uncomfortable. He dragged Parsons, Pittman, and others down to Ground Zero, for example, to survey the disaster, and he spent much of his time in the weeks after the attack working on charitable endeavors to help in the recovery. And at a very difficult financial time, with the ad market coming to a complete stop, he instructed AOL Time Warner’s news organizations to spend whatever was necessary to cover the event with no revenues coming in.

  Levin had changed substantially after the attacks in another key way, becoming even less willing to compromise and more isolated than ever. This was a problem, since AOLers were now deeply engaged in the business in a way Levin hadn’t previously had to contend with. Instead of being able to do whatever he liked in seclusion, with minimal input between himself and his division heads, Levin had surrounded himself with people eager to use power. “Levin never had a collaborator and did not preside over a collegial operation until the deal,” said one executive who had been close to him before the AOL merger. “And that didn’t matter until it mattered.”

  Indeed, increasingly over the course of the fall, some board members began worrying about the possibility of missed financial results and started offering advice. “It was fair to say we were concerned, but we accepted what we were told, that we would be able to meet the numbers,” said one board member, who noted that Levin seemed increasingly irritated. “But it became more and more obvious that we needed to press on the management.” As he had with Turner, Levin didn’t respond. “He was not interested in anyone’s perspective,” said another board member, who also noticed Levin’s growing isolation. “I would have been offended, but he did not even talk to me.”

  That included most especially the man who’d dreamed up the idea of AOL Time Warner, Steve Case. Case had removed himself from the fray rather quickly after the merger for a number of professional and personal reasons. First, as at AOL, Case was not much of a line manager, having little interest in operations and the day-to-day worries of running a large corporation. He was typically much more interested in involving himself in the policy arena and other big-idea visions for digital convergence and the future, preferring a more Reaganesque role.

  In addition, sources close to him told me that Case felt he should stay away from corporate headquarters in New York. He wanted to make it clear that Levin, Pittman, and Parsons were in charge, even though he had mandated an “active” chairman’s role in the merger, which meant having an impact on major strategic decisions. Thus, he kept his main office in Dulles and traveled to New York infrequently. He’d kept a similar distance at AOL with Pittman, and their split duties had worked just fine. In that arrangement, Case had been able to fly high above the clouds, while others carried out the dirtier work on the ground. But such 20,000-foot haughtiness would become problematic once Case suddenly reengaged with the company, and especially with Levin.

  Case also had a much more personal reason to be absent in the first months of the merger: In March 2001 he learned that his older brother, Dan, was seriously ill with brain cancer. Case was close to only a few people, and he trusted fewer still—and Dan was one of them. While he would publicly downplay his brother’s illness when news articles questioned his absence from the growing turmoil at the company, Case was surely devastated by it.

  I know I was, since the sunny Dan was one of the kinder and more thoughtful souls I’d met in Silicon Valley. I had spent a lo
t of time with him over the years, first when I met him while cover-ing AOL for the Washington Post and later when I started working for the Wall Street Journal in California. As the leader of the San Francisco–based boutique investment firm Hambrecht & Quist, which was involved in taking public many early Web companies like Netscape, Dan was a keen observer of what was going on in the Internet sector. I met with him now and again and emailed often, mostly asking for his take on the crazy swirl of the late 1990s. He almost always provided a sharp insight and was ultimately amused by the circus atmosphere that had taken over, despite the fact that his own company had taken financial and public relations hits along the way.

  When I asked him to talk about his illness for the first time for my column, he replied, “Who wants to hear about a head case?”—making a play on both his illness and his name. He finally jokingly relented, as long as I promised “no little dot-drawing with my skull wrapped in bandages,” referring to the surgeries he’d have to undergo and the dotted art portraits the Wall Street Journal uses in place of photos. I promised.

  In the interview, the ever-gracious Dan spoke eloquently about what he faced and his low odds for survival. “I do not think people change their character that much, but they can change their priorities,” he told me. “While I have always liked the integration of work and my personal life, health is obviously going to go way up and work go way down.” Later, he kidded that, “We had already created an organizational plan of succession at H&Q for a future year, and I beat expectations by putting it in effect in March.”

  He also talked about the recent spate of troubles in the industry he’d helped build, noting that they had been constructed on too-flimsy foundations. “It was a classic match between creating quality and getting market share, and it got out of whack,” he said, referring to the very venture-backed companies that AOL and others had feasted on to get huge. “Both the old and new economy have been taking potshots at each other, but the companies that succeed will be the ones that embrace both sides. It’s important to remember that the whole notion of the entrepreneurial cycle is messiness and creative destruction.” Dan was not talking specifically about AOL Time Warner’s problems to me, but his comments were also how his brother looked at the situation.

  Steve Case was there in May 2001 when Dan made his final appearance at the H&Q annual investment conference, and he gave a moving tribute to his brother’s influence on his success. He also spent a lot of time with Dan in San Francisco, working on a brain cancer project to search for new and more aggressive ways to battle the disease. But by the fall, when Dan seemed to be on a bit of a rebound and it began to become clear that things might be seriously askew at AOL Time Warner, Case began returning his attention to AOL Time Warner, where he wanted to reassert himself as chairman.

  And that was precisely the moment when Levin wanted as little of Case’s input as possible. He was already furious that Case hadn’t agreed to cancel the September board meeting in deference to the trauma caused by the World Trade Center attacks, and he became openly disdainful of Case’s motives. “Just emotionally, I could not accept the inhumanity of business as usual,” Levin told me. “They were all only worried about if ads sold.” Of course, this was Case’s job—and also Levin’s—but Levin seemed unable to accept such bottom line worries any longer. Or about uniting AOL and Time Warner either. “Until the attack, Jerry was committed to making a new culture,” said one top AOL executive. “And then he changed his mind.”

  To further drive home this new sentiment, Levin wrote a November 19 holiday letter to AOL Time Warner employees that floated the idea of AOL Time Warner as a force for good in the world—of “investing in the public trust” rather than simply being a money-making machine. Levin continued to push that idea, often insisting the company was about more than just profits. Case was furious that Levin would make such declarations—basically telling Wall Street at the worst possible moment that profits didn’t matter—without any input from him. The truth is, the fracas had little to do with the letter and a lot more to do with control. They began to clash regularly as Case pummeled Levin with numerous emails about the need to drive integration more strongly. That typical Case habit angered Levin, who didn’t want a person he considered inexperienced in media and management telling him how to run the show.

  Wire Mire

  But Case was determined, since a link between AOL and cable had been the linchpin of the whole merger strategy. “Cable was the driver of everything,” said one person knowledgeable about Case’s thinking. “Without it, the merger made a lot less sense.” And given the online unit’s increasing weakness as the dial-up business stagnated, it desperately needed to shift over to high-speed alternatives as soon as possible. The whole cable issue had started out on the wrong foot for Case, who had been livid when Levin and cable head Joe Collins had blacked out Disney’s ABC broadcast network from its systems in the midst of the merger approval process. The move had brought increased scrutiny to the deal and added to the time and trouble it took to get an okay for the merger from regulators.

  Case had pressed the issue of a combination of AOL online assets with Time Warner Cable at a joint meeting of the boards in July of 2000, promising that high-speed AOL-based services were going to happen and happen fast. He again noted in an October 2000 earnings call, “It’s highly likely we’ll complete a [cable] deal before the merger and highly likely we will complete the deal this quarter.” And then in January of 2001, an investor relations’ memo to top executives more stridently linked AOL Time Warner’s stock success with a cable and online linkage. “The sooner we get AOL not only on Time Warner Cable but on other systems, the swifter we’ll remove the big question mark over the stock,” it read.

  The fact of the matter was this: The company’s failure to make any progress in linking AOL to Time Warner’s cable assets was the single clearest indicator that the merger was never going to work. AOL executives were acutely aware that the online service’s dial-up business—as large as it was—was now about to become static as more consumers switched to broadband connections. More troublesome was the fact that large numbers of those who signed up for high-speed connections were dropping AOL, never to return. This was a problem on many levels, since its number of subscribers was AOL’s only currency in its efforts to sell advertising. Subscribers also provided a monthly certainty of cash flow, sending gushers of free-flowing money into the company. And moving into high-speed would be risky, since it offered dramatically lower margins and less control over the customer, who was not as limited to AOL’s longtime walled garden as he was in a dial-up environment.

  But broadband was the only way into the future for AOL, as more and more consumers demanded speedier Web hookups. The AOL team, which tried to muscle its way into a deal with Time Warner Cable, was soon thwarted by Joe Collins, a tough executive who had little regard for AOL from his premerger experience tangling with the company over open access. He had already been bothered by AOL’s aggressive political attempts before the merger to force cable operators to open their lines to online companies like AOL.

  Sources close to him said that Collins, like many key players in the cable industry, had no intention of letting AOL waltz in the door to hijack an increasingly important new business for cable. He and others had seen how AOL had hijacked consumers from the phone companies, and they were determined that wouldn’t happen with high-speed cable. Anyway, Time Warner Cable had its own offering with the highly successful Road Runner service. Why give AOL the opportunity to steal thunder from that promising business? Plus, it made AOL appear more of a threat than ever to other cable companies rather than a partner. As with the direction of online music, AOL’s and Time Warner’s interests diverged dramatically in this all-important arena.

  To AOL, that gap was another example of Time Warner’s shortsightedness and its division heads’ inability to see their goals as one. After much back-and-forth, Levin in August approved Collins’s transfer to a new interactive video
unit to move him out of the way. Levin told me he did not consider it a demotion, noting that Collins understood interactive best. But others thought differently about Collins’s ouster. “While everyone else smiled and knifed us in the back, Joe would not cooperate explicitly, which only made things worse,” said one AOL executive. “He just said, ‘Fuck you,’ which was basically the attitude of all of the cable industry.” A Time Warner executive concurred: “Joe had long operated independently and just did not want to do an AOL deal.”

  Even with Collins’s replacement, though, there was still no movement on any kind of cable deal with AOL—which made Case even more annoyed at Levin, whom he now began to disdain for his inability to control those under him. Case wanted Levin, for example, to completely “blow up” Road Runner and replace it with AOL. Case became even more incensed when Levin lashed out rudely in a meeting at Miles Gilburne, the AOL-deal guru and company board member, after a question he tried to get out about cable issues at AOL. Gilburne was worried about acquiring a new cable company if synergies between AOL and Time Warner Cable had not been found. Levin considered Gilburne a dilettante for lecturing him on issues he knew nothing about, and cut him off.

  No one was going to be lecturing Levin, the cable expert, on that issue. And no one was going to stop him now if he wanted to buy a cable company, a desire that jumped to the forefront when AT&T’s massive cable systems came into play in mid-2001. After all, he’d been right before about the cable business, when his much-criticized move to build up Time Warner’s cable assets throughout the 1990s paid off, and he knew he was right now. Levin was even more annoyed since he’d thought the merger was more than simply about cable, and he considered Case’s obsessive focus on it not properly visionary. While he agreed that AOL needed to be available on Time Warner’s high-speed lines, he also thought that it did not mean that other services like Time Warner’s Road Runner—a big success—should be sacrificed to do so.