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AOL Casts Blame in Wrong Place by Casting Out Schuler

By Keith Regan E-Commerce Times ECT News Network
Apr 10, 2002 4:10 PM PT

Often, management shakeups are nothing more than bodies being moved around, sometimes just for show, to let investors know that no one is asleep at the switch.

AOL Casts Blame in Wrong Place by Casting Out Schuler

But in the case of Barry Schuler's being shifted out of the CEO role at America Online, it's more. A whole lot more.

The wisdom or folly of the move will only be revealed over time, but no one can accuse AOL Time Warner of going halfway.

The shakeup moves Schuler into a new position as head of the digital services division of AOL Time Warner. Having trouble figuring out what that means? You're not alone. It's a fair bet that Schuler had a similar reaction.

Turns out the digital services division is sort of an internal consulting organization aimed at helping all of AOL get more connected to the Web.

Important? Sure, but it's no AOL.

Then again, AOL is no longer much like AOL -- at least, it is not the powerhouse of growth and revenue generation that investors thought they were getting a piece of when the merger was first announced nearly two years ago. And that, not Schuler, is the real problem.

Second Verse

The second part of the shakeup may be even more puzzling than moving out Schuler, who has put in a fair amount of service -- at least in Internet time -- at AOL. Instead of hiring a new AOL CEO who could really ride shotgun over some serious turnaround work, the media company will hand the reins over to Bob Pittman.

Now, Pittman is a logical choice, since he ran AOL before the merger. But if his bosses think he can do this job, he must be a master of time management. Before long, he'll be the one and only COO of all AOL Time Warner. Apparently, he plans to give up sleeping in order to take over at AOL as well.

Tick Tock

If they give parting gifts to outgoing AOL chiefs, Schuler should get a clock. That, more than anything, represents what brought him to this point. It's been well over a year now since the titanic merger that united AOL and Time Warner. And during that time, AOL has hit a wall.

The automatic, cruise-control growth is gone. AOL can inundate consumers with all the Version 7.0 CDs in colorful jewel cases it wants; it just isn't going to pick up members as rapidly as it once did. And slow growth is a recipe for edgy analysts and investors, especially when spiced with an online advertising slump.

Told Ya So

Analyst Holly Becker of Lehman Brothers said the change seems to be proof that the AOL nut is proving harder to crack than the company originally expected.

But it's not all AOL's fault. The combined company reported a loss of $1.8 billion in the first quarter. A large portion of that loss consisted of write-offs of failed investments; but sagging advertising revenue and slowing subscription rates at Time Warner magazines didn't help.

In fact, if it hadn't been for blockbuster theatrical releases like Harry Potter and Lord of the Rings, the losses might have been even worse.

It's a classic case of high expectations. The AOL side of the business was supposed to forever gush with growth, like a bottomless geyser. That was never realistic, but that's easy to say now.

Repair Shop

The question is, how do you fix what ails AOL? Shifting users to broadband is part of a longer-range strategy to stream them video and basically fill their lives full to the brim with Time Warner content.

That's a nice idea, but it's not going to happen overnight. Raising prices might be a possibility, but it's a risky proposition and the timing just isn't right.

So, the search for answers will go on. Unfortunately, the person who presumably will be charged with finding them -- AOL's new CEO -- is going to be a bit busy running a multibillion-dollar conglomerate with tentacles in every corner of the media world.

Meanwhile, Barry Schuler becomes yet another victim of circumstance.

The real problem is that all of AOL Time Warner is susceptible to economic slowdown, the entire beast being dependent on advertising to keep it alive.

The flash and glitter that had investors blindly fumbling for their wallets has faded, the smoke cleared, and the reality isn't nearly as pretty as everyone thought it might be.

Scapegoats are always handy, though, and so the new kid on the block, the Internet unit that was actually the buyer in this mega-merger, gets kicked in the chops. Even Barry Schuler can't be surprised by that.

What do you think? Let's talk about it.

Note: The opinions expressed by our columnists are their own and do not necessarily reflect the views of the E-Commerce Times or its management.

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