Refocusing at Time Warner

The Baltimore Sun

Exit, the diplomat. Enter, the operator.

After months of speculation, Time Warner Inc. announced this week that Jeffrey L. Bewkes, the chief operating officer, will succeed Richard D. Parsons as chief executive at the end of the year.

The announcement, though far from unexpected, could pave the way for major changes at the world's largest media company, which owns Warner Brothers, AOL, Time Inc. and CNN.

Parsons has placed a premium on stability in a company that has been long on upheaval.

Bewkes, who has a reputation for being less attached to history and more deeply immersed in the challenges facing his company's businesses, could decide to sell or spin off assets, fashioning a Time Warner that is smaller and more focused on producing content rather than distributing it.

Yesterday, Bewkes took his first step in an overhaul of the company, promoting John Martin to chief financial officer.

Martin, who oversaw Time Warner Cable's spinoff while CFO at the unit, and Bewkes will form the core of a management team that will take over when Bewkes replaces Parsons Jan. 1. Their job will be to wring more profit from the company's movie studio, publishing and Internet divisions or divest some businesses, analysts say.

The company's stock price has languished for years since the disastrous merger with AOL at the beginning of 2001. Parsons, 59, is credited with restoring morale by reversing the polarity on the merger - AOL was rubbed out of the company's name - and by negotiating settlements over issues stemming from the merger, which had led to investigations by the Justice Department and Securities and Exchange Commission.

More recently, Parsons fought off a vigorous effort by financier Carl C. Icahn to break up the company and implemented a buyback of the company's stock. But for all that, the market never became convinced that he could get the company growing again.

The accession of Bewkes (pronounced BEW-kess) is viewed by analysts and some investors as a natural next step for Time Warner. Having invented the modern version of HBO by diversifying its offerings and making video-on-demand a reality, he brings a history of operational success to a position that has historically been occupied by deal makers like Gerald Levin and Steve Ross.

But he may need to do a few deals of his own to get the stock moving again. At a time when so-called "pipes" - networks that carry content - are becoming a commodity, Bewkes could sell all or part of the cable unit. He could also sell the access component of AOL, as Time Warner did in Europe, to create a pure digital Internet company that could become part of an ad-supported joint venture.

Proceeds from sales or spinoffs could be used to pay for purchases of businesses with a higher growth profile than many of the lucrative but slow-growing assets the company owns now.

Bewkes, who is known for his direct manner in private, spoke in very general terms in describing the handoff from Parsons.

"We continue, and will continue, to look at the structure of the company and what we should focus on," Bewkes said in a telephone interview. "We're not going to say or predict what our decisions will be."

Some industry analysts predicted that Bewkes would be more willing than Parsons to rethink the company's ownership of AOL and Time Warner Cable or sell parts of them outright.

"I see Mr. Bewkes as being less sentimental about divisions than Mr. Parsons," said Thomas Eagan, an analyst for Oppenheimer & Co. "I think he's also more willing to embrace technology to create new business models."

There are perils. Together, cable and AOL represent more than half of the company's value, and without them Time Warner could end up as an acquisition target.

Bewkes has indicated that the transformation of AOL could yield results - although the company has made a number of now-forgotten efforts to reposition what was once the leading Internet brand in the world. There has been speculation that Bewkes would choose to sell Time Inc., home of People, Time and Sports Illustrated, but the tax consequences would be severe and the proceeds from the sale would have very little impact on a company of Time Warner's size.

Parsons' contract ends in May, and he may remain chairman beyond that. Bewkes, 55, became chairman of Time Warner's entertainment and networks group in 2002 and was promoted to president and chief operating officer at the end of 2005.

"The key question remains how quickly Bewkes can move to break up the company - and how much value will actually be created from separating out these businesses," said Richard Greenfield, an analyst at Pali Research.

Although units like AOL and Time Warner Cable face big challenges, "we're not convinced that simply separating out the assets creates a tremendous amount of value," Greenfield said.

Bloomberg News contributed to this article.

Copyright © 2020, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad