And Then There Were Two

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Robert Pittman is often described as a marketing genius, but by the time he sat down with his boss before the July 4 holiday, he had nothing left to sell. As chief operating officer of AOL Time Warner, Pittman had spent close to three months commuting from corporate headquarters in New York City to the America Online offices in Dulles, Va., where he was assigned to rescue the online service from slowing subscriber growth and a plunge in online advertising. Fixing AOL was going to be a long-term project--and Pittman was no longer in for the long haul. He told AOL Time Warner CEO Richard Parsons, 54, that he should speed up the search for a full-time replacement at the online unit.

Pittman was tired of the travel and time away from his young family. And he was tired of the blame he was getting for the company's woes, reflected in its widely held stock, which has fallen more than 70% over the past 12 months. Parsons asked Pittman, 48, to take the weekend to "cool off" and think it over. But Pittman did not have second thoughts. Last week he resigned.

That's the official version, and no doubt much of it is true. But there's more to the story, which reveals a sharp reversal in strategy at AOL Time Warner.

Pittman had worked from the top down to fulfill the grand promises of the January 2001 merger of AOL and Time Warner, trying to force the proud and relatively autonomous old-media divisions--cable TV, movies, music, publishing, TV channels--to work more collaboratively with one another and with the online division, especially on joint advertising deals. But Pittman was a polarizing figure, as were his proteges from the AOL division. Youthful, cocky and ostentatiously wealthy from their AOL stock options, they swooped down on Time Warner as if they held the secrets to some new business reality. They quickly alienated top executives at Time Warner and, worse, produced little in the way of results.

The head-knocking search for synergies failed to appreciate that Time Warner's strength lay in the seasoned operating executives at the top of its various divisions, who have produced solid earnings quarter after quarter, regardless of which vision of the month their corporate overlords were selling to Wall Street. Time Warner's weakness has been the inability of the dreamers and bureaucrats in its headquarters to effectively tie the whole enterprise together. Parsons, who took charge as CEO only in May after the retirement of Gerald Levin, had limited experience as a big-league operating executive and knew that was where he needed help. So with Pittman's departure, two of the most respected and accomplished of the divisional executives, publishing chief Don Logan and HBO's Jeff Bewkes, are moving to the parent company to try to make sense of it.