AOL Time Warner Inc. management last week unveiled a series of sweeping changes at an all-day analyst conference, trotting out 12 divisional executives to convince Wall Street of the synergies inherent in the recently merged company.
Gone are the barriers that once prevented various divisions from doing business with one another or promoting and selling each other's products. In their place: a new organizational structure aimed at extracting the maximum value from the media and communications juggernaut's unprecedented 130 million subscribers.
Executives are furiously tap-dancing to achieve the goal of $1 billion in cost cuts and new revenues from "synergies" this year.
Among the reported changes:
- The creation of CNN Money-formerly CNNfn-which will tie the cable financial-news network more closely to Time Inc.'s Money magazine. As part of the deal, CNN Money will be relaunched and receive full support from AOL Time Warner's America Online Inc. Internet-access division and Time Warner Cable cable systems.
- Plans to cross-promote Time Warner Cable on America Online Inc., via targeted pop-up screens to users of the online service.
- An agreement to give AOL open access to Time Warner Cable's high-speed Internet access service.
AOL Time Warner executives continuously stressed the synergies between the companies, touting the creation of a film, Internet, cable, broadcasting, music and publishing conglomerate that users never need to leave.
"We're not a media company anymore; we're not an Internet company," AOL Time Warner chairman Gerald Levin told analysts at the conference. "We're a one-of-a-kind company that is taking its place on the world stage with growth aspirations that are unmatched and unassailable."
Those growth aspirations include boosting revenue 10.5 percent to $40 billion and cash flow 30 percent to $11 billion next year. Although the company had a bit of a hiccup toward that goal in the fourth quarter-it reported a loss of $1.1 billion in the period, mainly because of merger-related costs-Levin said the company is totally focused on meeting those goals.
All this comes as AOL Time Warner is in a serious cost-cutting mode. Earlier last month, the company announced it would lay off 2,400 employees. Those reductions should save between $200 million and $300 million, said chief financial officer J. Michael Kelly.
Additional cost savings-about $100 million-will come from a revamped executive compensation plan. Executives will now receive two-thirds of their salary in stock options and one-third in cash.
The elimination of the Time Warner Digital Media unit will save another $200 million, Kelly said.
MORE PERSONAL FINANCE
The CNNfn shift, which will occur later this year, is designed to "encompass a broader range of financial news focusing on personal finance and small business, where no other cable programming has dominated," said Cable News Network spokeswoman Christa Robinson.
It appears that CNN-which recently eliminated nearly all of its business-news shows-will go after a more casual investor with CNN Money than the Wall Street audience targeted by top business-news channel CNBC.
CNN also said that CNNfn, which counts just 17 million subscribers after five years of operation, will also secure more carriage on the Time Warner Cable systems owned by its parent company. CNNfn is distributed to just 2.8 million of Time Warner Cable's subscribers, but the company will soon significantly boost the network's distribution.
That move is striking, considering that Time Warner Cable executive vice president of programming Fred Dressler has always maintained a strict separation of "church and state." Ownership of a network by Time Warner or Turner Broadcasting System Inc. was never a guarantee of carriage on Time Warner Cable systems.
Privately, Time Warner Cable officials now admit that has changed, according to sources.
"AOL expects everyone to work together for the common good of Time Warner," one cable executive said. "Time Warner will be expected to carry Turner channels. Some programmers will be squeezed out. Time Warner channels will rise to the top of the heap."
During Time Warner's past consolidations-dating back to the Steve Ross regime at the then-Warner Communications Inc. and its various units, to mergers with Time Inc. and then Turner Broadcasting System Inc.-the different divisions had pretty much been "a collection of fiefdoms," a source said. The executives in charge of those units could pretty much do what they wanted, synergy be damned, as long as they hit their budgets.
"No one would tell [Time Warner Cable president Joe] Collins what to launch," the source said.
Time Warner Cable spokesman Mike Luftman said the agreement to commit more subscribers to CNNfn was a joint decision between Time Warner Cable and AOL Time Warner Inc. corporate executives, though he declined to name the individuals involved.
Dressler couldn't be reached to comment on how the new, synergistic AOL Time Warner would affect his job and the programming decision process, Luftman said.
ONE FOR ALL, ETC.
Under the new ownership structure, Time Warner Cable will be more open to working with networks owned by its parent company, Luftman acknowledged.
"I think that there is a new commitment through all of the operations of AOL Time Warner, going forward, in support of other divisions' developmental efforts," Luftman said.
CNNfn recently lost several programs thanks to cuts at CNN, including Street Sweep, which was positioned as one of network's flagships when the show launched in the fall of 1999.
Its core programs now include Ahead of the Curve, which runs from 6 a.m. to 8 a.m., and Moneyline, which it shares with CNN at 6:30 p.m. The network also runs Biz Buzz
(6 p.m.) and Business Unusual
Digital Jam, which ran from 7:30 p.m. to 8:30 p.m., was set to be scrapped permanently as of Friday, one network source said.
In a press release, CNN also said CNN Money would incorporate "content and promotional support from Time Inc. brands, including Fortune
Robinson said it's too early to say whether telegenic Money
magazine editor Jean Chatzky, who contributes regularly to NBC's Today
show, would be involved with the new network, or whether she'd be allowed to continue working for the competition.
Chatzky couldn't be reached before deadline.
CNN rejected requests to interview CNN News Group president Phil Kent regarding the rebranding effort and other CNN changes.
One MSO programming veteran said he was skeptical of CNN Money's plans to focus on consumer-oriented business shows, noting that it hasn't worked in the past.
"Look at CNBC. They tried personal finance, and it never worked," he said. "Personal finance has never been successful on the news channels."
Rival programmer Bloomberg L.P. plans to continue focusing on the professional investor audience, but the network also has a large following of smart private investors, said Katherine Oliver, general manager of Bloomberg Television and Radio.
Bloomberg isn't concerned that Time Warner Cable's new commitment to CNN Money could hurt its chances of securing additional carriage with the MSO, Oliver said. The network currently has 1.2 million subscribers through Time Warner, which distributes it on the digital tier, Oliver said.
LOOK OUT FOR ITV
AOL Time Warner's synergies may also soon be displayed through Time Warner Cable's interactive-television efforts. To date, the MSO hasn't rolled out any interactive television products beyond video-on-demand.
While Microsoft Corp., Liberate Technologies Inc. and other vendors are hoping to sell their middleware platforms to the second-largest cable operator, one ITV executive said privately that she expects AOL to shun the current products on the market and develop its own platform.
Levin served as chief cheerleader at last week's conference, constantly driving home the point of AOL Time Warner's unprecedented reach and its multiple revenue streams.
"If I had to use one word to characterize this company it would be 'subscriptions,'" Levin said. "That's the reason why the cultures are so compatible. There is so much we can do in retention, acquisition and upselling, all built on the consumer relationship."
One example the company pushed hard was its marketing of the Warner Bros. movie The Perfect Storm
Once an AOL user signed on to the service, a banner for the movie appeared on his screen. When the user clicked that banner, it brought him to the movie site, which then showed him a trailer for the movie. Next, clicking on another button took the user to the Warner Bros. site that allowed him to buy the video or DVD.
Pop-up screens are another powerful marketing tool-as AOL Time Warner publishing unit Time Inc., which sold more than 800,000 trial magazine subscriptions last year using pop-ups-can attest.
Cable chief Collins said a week-old trial of marketing cable service via pop-up screens in Houston and two markets in North Carolina generated 6,000 leads.
"In our business that's a really, spectacularly big number," Collins said. "We're very excited about what that's going to do to be able to allow us to keep moving all of our products deeper and deeper into the marketplace."
But what AOL Time Warner is now discussing takes the pop-up form of direct marketing several steps further. Take a movie from Warner Bros.-another AOL Time Warner company-as an example.
Starting with the pop-up screen, users can be directed to Warner Bros. movie sites; music sites that allow them to download songs from a movie's soundtrack; ticketing sites that let the users buy tickets for those movies; and chat rooms to talk with the stars of those films.
The result is the potential for a tremendous amount of revenue generation from a common infrastructure, something that Levin called the "AOL money machine."
The potential equally impressed analysts. UBS Warburg media analyst Christopher Dixon said in a research note the presentation "clearly demonstrated that it would make good on earlier promises to hit the ground running."
But consumer sales are just the tip of the iceberg. Utilizing the power of AOL Time Warner brands and reach translates into a powerful engine for advertising revenue.
TEFLON TIME WARNER?
Although the media industry has been hit hard by the downturn in advertising, AOL Time Warner is nearly immune, said company co-chief operating officer Bob Pittman.
Pittman said advertising and electronic-commerce revenue at AOL rose 71 percent in the fourth quarter, to $686 million. And with the merger complete, he said, AOL Time Warner becomes an even more powerful advertising force.
AOL Time Warner expects advertising revenue to increase between 9 percent and 11 percent in the first quarter, and by 18 percent to 22 percent for the year.
"That implies an enormously aggressive ramp-up in the first three quarters," said Banc of America Securities analyst Doug Shapiro. "It has to be driven more so by synergies."
The big question for investors will be just where those synergies will come from, Shapiro added. Will they be cost or revenue synergies?
"Revenue enhancement, that's the investors' leap of faith," he said." They [AOL Time Warner] are saying, 'Our one-plus-one is going to equal four.'"
One of those Time Warner properties that's been speculated to be on the downside is the cable operation. Many analysts have speculated that Time Warner Cable could go on the chopping block.
But AOL Time Warner restated the importance of cable infrastructure to the analysts.
"If you look out over the next few years, you'll see us as a buyer, not a seller," AOL Time Warner chairman Steve Case said.
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