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AOL Time Warner marriage too promising to be believed


THE DILBERT moment at AOL Time Warner is nowhere near running out of punch lines. While this is bad for the company's shareholders, employees, creditors and vendors, it bodes well for corporate tragicomedy.

Having consummated the worst merger since Samson met Delilah, the company recently rolled out a fresh strategy for its America Online unit, a new organization at the top and a bold, can-do attitude.

"This management structure fully utilizes the strong talent we have across the company," explained a top American Online executive. "We believe we have the right organization, with the right people in place, to lead the industry in the next wave of growth."

Oops! Wrong news release! That was American Online President Ray Oglethorpe, speaking in January 2001 about last year's fresh strategy. He doesn't have his job anymore, maybe because nothing he said came true.

This year's fresh strategy is a real departure, a firm step forward that launches American Online on an unswerving course for at least a couple weeks. Instead of the old plan, which was to utilize management resources across all company brands, America Online is going to fully leverage its programming and product expertise!

Don't be greedy with the "buy" orders. There are only 4 billion shares to go around.

In reality, AOL Time Warner's strategy is exactly the same as in 2001. It's a two-step blueprint. 1. Hope that hot air and chair-shuffling on the officers' deck will speak louder than terrible earnings. 2. Pray hard for an advertising rebound.

It hasn't worked.

In May AOL Time Warner's new chief executive, Richard D. Parsons, reassured Wall Street by pledging not to over-promise about future earnings. But his promise not to over-promise turned out to be an over-promise.

A few days ago, America Online cut projections for online advertising sales and profits for the second time in two months. AOL Time Warner stock is worth a fourth of what it was worth in July 2001.

Parsons is a good guy charged with sweeping up the crater left by Gerald M. Levin, who sold Time Warner last year for funny money called AOL stock. Levin retired in May to collect $1 million annually in "consulting" pay from the company, which is a good deal if it keeps him out of the building.

Parsons, who likes to say that "hope might be a virtue, but it's not a strategy," may genuinely feel his company is not just whistling past a future credit downgrade. But his turnaround plan for America Online, the main drag on the larger corporation, seems no more likely to succeed than The Adventures of Pluto Nash, Time Warner's recent Eddie Murphy flop.

The solution to America Online's problems, company officials say, is coming up with "distinctive new products and content" that will build online membership and retain old subscribers - at prices above the cost of generic Internet service.

This is a heck of an admission. A key motive in the marriage that created AOL Time Warner last year was the opportunity to pipe Time Warner's movies, magazines, Jennifer Love Hewitt videos and other content to America Online's subscribers, to the benefit of both operations.

If America Online is again placing its main bet on ginning up its own content, the merger must not be working. But I guess we knew that.

The discouraging facts for America Online are these: Growth in its subscriber ranks, now a truly impressive 35 million, is slowing. Its plan to sell premium content over the Internet won't work without a big piece of the fast-modem, broadband market. It doesn't have a large share of the broadband business. It probably won't get one.

New organization chart notwithstanding, the music has not stopped playing in the AOL Time Warner corporate suite. Before long, Chairman Steve Case will leave.

The company denies this, of course, but after a dustup over accounting practices dies down, expect Case to assume an "advisory" role that will give the big boardroom chair to somebody else.

Case is a genius who did more than maybe anybody to bring the Internet to the masses. But he must go. Among his brilliant moves was buying Time Warner from Levin at the top of the stock bubble.

The deal was probably favorable, on balance, for America Online owners, but it creamed Time Warner shareholders. Many of them are his bosses now. They have seller's remorse.

"There is absolutely no basis to these rumors," spokeswoman Tricia Primrose said yesterday. "Steve Case is not leaving the company."

Of course. But we know how much faith to put in official AOL Time Warner statements.

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