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Go to extended excerpts of the interview:
Last fall, Bob Pittman signed on as president and chief executive of AOL Networks, the Dulles division of money-losing America Online Inc., which runs the 8 million-member information service. Pittman reports to AOL Chairman Steve Case.
Pittman, 42, created the MTV and Nickelodeon cable channels and ran the Six Flags amusement park chain. He was most recently chief executive of Century 21 Real Estate Corp. but had been on the AOL board of directors for a year. He recently chatted with Staff Writer Victoria Shannon in AOLís Manhattan offices as the company unveiled a plan to put advertising in chat rooms online.
Here are extended excerpts from the conversation:
Q. Analysts are waiting with bated breath to see where the revenue is going to come from...
A. Both the good ones and our shorts. As a matter of fact, at this company I found the shorts probably control messaging more than anyone else [laughs]. Iíve never seen anything like it in any business.
Q. As a consumer, are the ads [in chat rooms] going to bug me?
A. Hereís what I think the win-win-win is -- and it did happen with the Tel-Save deal [announced March 4], which is the model Iíd like to have. [AOL agreed to post Tel-Save ads to enable subscribers to sign up for the phone service while online and bill their long-distance charges online.] On the Tel-Save deal, the consumer is going to get a very low-cost long-distance option. If we save the fellowís money, yes, we can take some of his advertising, but what we also like to press them to do is give our members a low price. So we can say, "Youíre a member of AOL? Iím using our clout to get you some cheap prices on things you need and want." And by the way, itís easy to argue to the Tel-Saves, "Listen, if you do that, youíll get a better penetration anyway, and as long as youíre making money incrementally, you should go for the volume because thatís the play."
Q. The demographics on AOL and anywhere online, anywhere on the Internet, are higher than the national average in terms of income and education, whatever you want to measure. But chat-room demographics must be different than the norm, no?
A. Curiously, you have a hard-core group of people who will chat, but demographically you tend not to see them broken down by income-level, intelligence, whatever. Think of your friends, and youíve got some people who just canít socialize enough? Theyíre always over someoneís house, or theyíre always in a bar, or theyíre always talking to somebody? Thatís the chat room devotee.
Q. Do you spend any time in chat rooms?
A. I do. I click through them, jump through them. Iím mainly an observer, but will I participate? Yes. I often try and goad people on. Throughout the whole debacle with demand, I was in there probably every other night trying to goad people because I was trying to see how they felt and what was going on.
Peopleís affinity for it depends on whether you would sit in a bar and talk to a bunch of strangers about all sorts of things because it is, in my mind, the same activity. It is the online version of just chatting about anything.
Q. I think youíre being too kind to it.
A. Iím trying to be understanding. Itís funny because I have a 13-year-old son, and it was curious to me, for his birthday this year he wanted to invite some friends over. They stayed up all night, and they were on AOL, all night, and they were chatting, all night, all around: "Tell íem this. Ask íem this." They were telling these girls they were 16-year-old boys. They said, "These girls were 16-year-old girls," and I said, "How do you know they were 16-year-old girls?" Their eyes sort of got this big when I gave them this potential revelation.
Itís funny, Iím a pilot and I went into one of the aviation chats. There [his sonís chat rooms], it is the extreme of your Lobby Room kind of chats. But these were very serious guys. It was absolutely like sitting at the airport in a hangar when I was 18 years old and listening to these old guys talk about flying.
Q. My father was a pilot and I know that ambiance.
A. You know the thing -- that hangar talk was going on online and I said, "Man, this is just like it." It was sort of amazing to me.
Q. Are you all settled in Northern Virginia now? Have you bought a place?
A. Yes, I did.
Q. Where are you living?
A. Oh, Iím not telling anyone that. I went to great lengths to make sure no oneís going to find my house. You know, in New York, everybody knows where everybody lives, and no one ever publishes that. I spoke to Steve [Case], "You know, in this high-profile business . . . itís horrible that they would do that." [In December, The Post published Caseís purchase of a $1.25 million home in McLean.] So I actually went through my lawyer and I said I want to figure out how we do it so that my nameís never on this thing. I donít want people to find my house. I was somewhat surprised by that.
Q. In Northern Virginia, though, right?
A. Yes, Northern Virginia.
Q. A house?
A. A house.
A. Purchased. But I will not move in for a little while as I do construction. I find everybody in Northern Virginia has a taste for colonial homes, which I donít, so I tend to look hard to find something else.
Q. You have a radio voice.
A. That was my start.
Q. I couldnít tell the twang was Mississippi, though.
A. Well, itís there. In New York, they hear it. Now the good news about Virginia is they donít peg me so much as being a Southerner because I guess I sound more like them.
Q. How are you measuring access improvement these days?
A. I think the best way probably is to listen to the consumer. Weekly, weíre doing studies with people, "What are you feeling?" We do three levels of studies. We do one level, which is people online, and we go to them and survey them. The second level are subscribers who we reach out to and survey, and third is the public who is not an AOL member -- whatís their perception of us
What youíre finding is clearly that if you have to use AOL itís getting a lot better. Our online users are the ones reporting the most improvement, people who are members but may not be using it as frequently report second-best, and the outside world that doesnít use AOL is the farthest behind reality.
Consumer perception lags reality -- on both sides of it. I mean, the problem gets worse before people realize itís a problem, and it gets better before they realize itís better.
Q. Your main measurement of this is in feedback?
A. It is. We will do stuff like we go through major cities and we call the least busy number and the busiest number in that market. Every day weíre calling 50 cities, 100 cities, and testing, at all hours to see if we can get through every hour, how many times. What weíre really looking at is how long does it take you to get on, whatís the average. . . . Youíd like people to be able to get on in one minute or so, and weíre beginning to get that in most places.
Q. I hear a lot of complaints still.
A. Most of the problems that we have today I think are probably people who havenít gotten new access numbers because we do have some numbers that are still heavily busied out even though we have a lot of them -- they donít know how to change the number -- that is one of the big problems that you have.
Q. Well, "Meg" [an online personae who writes the daily AOL Insider] is doing a great job of trying to spread the word.
A. Sheís trying. Itís difficult to explain to somebody whoís never done it how you do it. And some people just go, "I donít want to try. Iíll just take the busy signals," and you go, "You donít have to dial for five minutes. You can change it." I tell friends, "I can tell you the numbers over the phone." "No, no, no, forget it."
Q. What do you tell friends and family who complain to you about access problems?
A. From my standpoint, in the last week or so, thatís sort of gone away. As a matter of fact...
Q. Because theyíre tired of telling you...
A. No, Iím beginning to get the opposite. My family doctor has been my doctor forever and heís a good friend -- I mean, he tore me up about it because he was communicating with his patients over it. He actually wrote me an e-mail I got yesterday saying, "Itís fixed. Itís fine. Still getting a few busy signals. Itís wonderful." And now heís off telling me something else we should be doing. Heís gonna be a lifelong critic now of AOL. "Now hereís something you ought to do -- this medical stuff over here."
One of fears I have right now and the reason you wonít hear us publicly declaring victory is that what I donít know is whether there was a hording effect, or whether the hording effect left. Weíve seen it level now -- is there suddenly something else going to bump it? I want to see a little more, and Iíd like to get a little ahead. . . . We [got in trouble because we] expected a 50 percent increase [in usage] per member -- that sounds like a lot to me, in any business youíre talking about. One hundred percent [is what we got].
Whatís interesting is if youíve done -- which Iíve done a lot of -- consumer businesses, you realize the biggest problem you have is people have filled up their day. To get a new product into a personís life requires them to give up something else. Typically, if somebody has a new product they incrementally shift time. They donít just drop TV to pick up something else. For that to happen -- thatís the surprise to me in this whole thing.
I had nothing to do with the forecast [it was before he was hired]. I went back and had the luxury of beating up everybody and saying, "How could you have been so wrong?" But when I looked at the reports, I said, "You know what? You did a good job forecasting. Nobody could have done better. We didnít have any historical precedent."
Q. Speaking of TV, Ted Leonsis [president of AOL Studios] would always say that "Seinfeld" is the competition. Is that who you see as your competition?
A. In a very broad sense. The reality is TV is the competition for anything in the home. Remember, most Americans have a table here and a TV here, and theyíre eating and watching TV. And they read and do it -- theyíve got the newspaper and the TV on. And thatís one of the problems with these WebTV-type products. They forget the fact that people now have their computer and the TVs on. And the services have a lot of music and Iíll say, "Isnít this music neat?" and theyíll say, "No, because I canít hear my TV." It is reality -- Iím long passed value judgments, having been in the TV business for a big portion of my life.
Q. Well, Iím not even a cable subscriber, so Iím off your list.
A. Well, youíre talking to somebody who probably watches less TV than you do.
A friend of mine is a book publisher here in New York. He said, "Youíre killing our business." As we analyze it we say, "You know, your customer can type. Anybody who can type is our target." And he said, "Youíre stealing our time." This is a very big book publisher who told me this.
Q. But then why is Borders so popular and book-selling so much bigger than it was? And what about Amazon.com?
A. Youíre finding a narrow group of books are selling, and the small little bookstore that I loved is the one going out of business, and itís all going to just the people who can really go for the big mass-market titles and extraordinary volume. And John Grisham now puts his first two chapters on AOL -- which actually turned out to be a big hit. Now, heís another Mississippian, so Iím very pleased.
Q. What is the AOL of the year 2000?
A. The challenge you have with new products is to get íem to be a necessity. Theyíre either a luxury or a novelty -- get íem to be a necessity. The best way to figure out how to do it is to get íem to use it more every year. If you do, itíll be a necessity. The hula hoop went like this [inclines arm down to show declining sales], thatís clearly a novelty. Cuisinart went like that [motions the same] -- Iím not sure it ever was a necessity. Dishwasher went like that [angles arm nearly straight up], microwave oven went like that, cable TV went like that, and AOLís going like that. The challenge is to continue to embed ourselves into the publicís life.
The other challenge you should have is every year we should look back on the previous yearís products and be embarrassed by [them]. We should be making that kind of progress every year, just in terms of the look, the feel, the navigation. If you look at AOL with the bars downloading art, youíre sort of embarrassed now that we have this AOL. Next year, hopefully, weíll be able to look back at this and say, "Ewwww, that wasnít so good."
Q. Back to TV -- TV is still the competition.
I think TVís the competition with anything at home. Itís the number one at-home activity, so therefore, anything in the home has to live under that umbrella. What was the most stunning to me about this business is that [recent studies show] we have stolen time from TV -- because no oneís ever done that. No other productís ever done that in the history of TV.
Q. But thatís not why TV viewership is declining, because AOL is increasing.
A. Actually, it is. If you look at the results in the original stories about it the analysis was that itís going online. If it goes from TV, it should be coming somewhere else. It is. We measured it. Weíre catching it here. If you analyze an AOL home versus a non-AOL home with TV, you will see a great difference. What I canít prove to you yet because studies are in place is, is it causal? I would suspect it is, but weíre really going to have to track people over time, who get AOL, see what happens. We have tracked people who dropped AOL and their TV viewing is high.... I will definitely say that TV underdelivers in an AOL household.
Interview continued, Part II