Autumn of the Moguls: My Misadventures with the Titans, Poseurs, and Money Guys who Mastered and Messed Up Big Media. Michael Wolff
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ride.
The fact that what was created here was largely an illusion—that the company had gone from a proven, profitable pay-as-you-use scheme to an unproven new vision of infinite more-customers-more-advertising-and-direct-selling scalability—was, as yet, unrecognized.
It may have been Pittman who recognized it first.
Hence, by engineering the millennial sale of Time Warner to AOL, at precisely the highest reach of the market, he was able to accomplish the most difficult but most elemental feat of modern business: He turned vast theoretical paper money into incredible real dough. (Viacom’s Sumner Redstone, more streetwise than TW CEO Jerry Levin, said that when he had been approached about merging with AOL, he’d told Mr. Pittman, “I really don’t trust your currency.”)
Pittman and AOL’s detached founder Steve Case were following that most basic (if never publicly stated) business principle: You only make money, real money, off people who are stupider than you, and the stupider they are, the more money you can make.
They knew (and Pittman, who went back to the Time and Warner wars, knew as well as anyone) that since Jerry Levin had made being smart the raison d’être of his moguldom—he was the mandarin mogul—it was even more unlikely that anyone would say to him about the AOL deal, “Don’t be stupid.”
It wasn’t just Levin who was stupid. The entire Time Warner board appeared know-nothings too. In a sense, their collective view was as simple as, technology is the future, so let’s do something technological—even though they knew precious little about technology.
It was just a perfect moment of pervasive and confident know-nothingness at which Pittman and Case struck. The buyer (and in truth Time Warner was the buyer) was caught unaware.
Then, 18 months later, in a fascinating paroxysm of elemental capitalist blame (where there is profit, there is loss), as the summer of 2002 began in earnest, and as what had happened became clearer and clearer (that Pittman had really taken Time Warner to the cleaners), Bob Pittman was ripped apart by the crowd (i.e., the media).
I suppose it is a kind of ultimate character note, the ultimate cool—slick, fast, and coifed—that having done what he did to Time Warner, having become fabulously rich while great numbers of Time Warner people (including Jerry Levin) got much of their net worth wiped out, he still thought he could hang around, even become the CEO. (It didn’t help matters when Pittman took to telling people that he too had lost a lot of money—that he wasn’t even a billionaire anymore.) He, quite possibly, figured he’d be held in awe for pulling off the greatest bait-and-switch in business history.
Here’s what happened: Within a few months of the merger, it was clear AOL couldn’t make its advertising numbers and that its subscription growth had seriously slowed (within weeks of the merger announcement the Internet bubble was obviously bursting; by the time the merger closed, it was a wrecked economy); what’s more, Time Warner’s own broadband service, Road Runner, was becoming a significant competitor to AOL. And yet AOL’s lightning rod, Bob Pittman, was taking over the combined company. Then too, the AOL guys were talking about spinning out the Time Warner cable business—Jerry Levin’s baby.
This was the elemental dish: It had become the two former allies, Pittman and Levin, the two guys most associated with the AOL deal, against each other. Each of them trying to grab the company, each of them trying to shift the greater blame onto the other (actually, each of them trying to grab the company before the blame crushed them).
There was even a proxy war: It was Levin’s PR guy, Ed Adler, in New York, against Pittman’s PR guy, Ken Lerer, in Dulles, Virginia. The first pitched battle was over the spring 2001 Pittman cover story in BusinessWeek, which had a crystal-clear subtext: Levin doesn’t count; Parsons doesn’t count; I am the heir apparent. Levin fired back with a story in Time Inc.’s own Fortune and one in the New Yorker by mogul Boswell Ken Auletta about the triumph of Jerry Levin. (Then there was a second story in Fortune—this one including Levin on the cover as one of the most brilliant thinkers of the age.)
At the same time, there were other rumors out of the rumor-mad Time Warner camp (never many rumors out of the AOL side): Levin couldn’t get the support of an ambivalent board to buy AT&T’s cable system (which would have made AOL TW the national media monopoly); Levin was having trouble getting that same ambivalent board to extend his contract. Levin’s people were pushing Levin, and Pittman’s people were pushing Levin.
Here is the Talented Mr. Ripley theory about Jerry Levin: He seems harmless enough until he kills you. The weapon of choice against Bob Pittman was Levin’s surprise early retirement (forced though it may have been) and the sudden inevitability of Richard Parsons as the new CEO—Levin was out, but, with a certain sort of kamikaze style, he had scuttled Pittman too.
It is necessary here to point out that taking it out on the guy who outsmarted you does not, in turn, make you smart.
Indeed, part of the subtext, at this point in the undoing of AOL Time Warner, is that everybody (shareholders, employees, media, fellow execs) got mad at Bob Pittman, not just because he decimated TW but because of the widely circulated suspicion that Pittman turned out not to believe in AOL. (Here’s a question that was constantly asked: “When did Bob know that the company was going to go south?”)
Time Warner, however it lashed out, could not make itself undumb.
The logic that advanced thinkers (or hustlers) were championing in, say, 1995 was the same logic that the highest-ranking people at AOL TW were still stoically dealing in by the summer of 2002: The Internet is the future; platforms will converge; the winner will be the one with the most eyeballs.
Whereas Bob Pittman, by the summer of 2002, wanted to get as far from the division and the Internet as possible. It may be that Bob Pittman didn’t believe in the Internet business anymore because he was the man who destroyed it.
Here’s what he had done: He convinced every Internet company that it would be a loser unless it became what he called an “anchor tenant” on AOL. That is, these companies would pay AOL fantastic sums of money, often hundreds of millions of dollars, to have first crack at the legendary mother lode of AOL eyeballs. Accordingly, every Internet company went to the public markets with, fundamentally, this one proposition: If you give us money, we can buy access to AOL eyeballs, and then we can’t lose.
Of course, everybody lost (except AOL, which, on the basis of these anchor deals, managed to get Time Warner into the ultimate anchor deal). AOL eyeballs turned out to be worth much less than AOL was selling them for—and, accordingly, the whole industry, which had been paying AOL much more than it got, went belly up. Ergo, Bob Pittman, like no one else, came to understand AOL’s real value—that there was a profound discrepancy in the accounts.
I hasten to add that inventing a reality in which everyone, however briefly, comes to believe is a metaphysical rather than an accounting fraud (although sometimes it can be both).
Pittman’s idea (and I suspect he had this idea as he was doing the merger with Time Warner) was to get as far away from the break in the space-time continuum known as AOL as fast as he could. His idea was that you take the Time Warner behemoth and you get it to obscure AOL. And for a year Pittman steamed around and held meetings and demanded accountability and cut perks and sought margin growth and insisted on integration. (He kept complaining that the real problem was that the Time Warner divisions wouldn’t cooperate with his grand one-stop, cross-platform-print-TV-film-music-online-cable-advertising-merchandising-promotion vision; one of his schemes was to reward Burger King, a big advertiser, with walk-on roles in AOLTW television shows for Burger King servers.) But instead of the AOL division becoming lesser in relative size to the larger company, it grew larger as, in fact, it became ever weaker—causing the bureaucracy to revolt.
The sorry state of the AOL division meant that the old Time Warner, with all its fractious and testy division moguls, got to rise again. (Part of Levin’s original merger dream was that AOL would be such a superdivision that all the other divisions would converge into it.) The company returned to being (apparently, had never ceased to be) an association of disparate enterprises, each with