After months of speculation about his uncertain status atop AOL Time Warner Inc., Steve Case sent a clear message this week about his future as chairman of the media and entertainment giant.
In his public pronouncements and behind-the-scenes discussions, Case made sure people knew he was heavily involved in shaping the details of America Online's new business strategy this fall. With advertising plummeting and subscriber growth slowing, AOL is trying to hold on to as many users as possible and make more money on each of them through new features and premium services.
After others at the company decided he would address Wall Street analysts and investors in the middle of a four-hour strategy presentation here on Tuesday, Case insisted on delivering high-impact closing remarks instead. "He wanted a public role," said a source involved in planning the event.
"Originally, Steve was scheduled to kick off the second half of the presentation, but his sense was that he wanted to be the capper. Steve had the last word."
Case didn't stop there. He also had his photograph and a signed letter prominently displayed on the welcome screens of AOL's 35 million online subscribers. He invited their feedback about the giant Internet service, and promised a follow-up letter next month, and periodic updates over the next year, letting them know what he had learned. "Our relationship with you is the most valuable thing we have," Case wrote.
Within a day, AOL received more than 100,000 e-mails from its members in response to Case's appeal. At the same time, his performance in the Imperial Ballroom of the Sheraton New York drew praise from some on Wall Street as an important first step in restoring the company's battered credibility.
"For any brand, you need to have a very clearly defined sense that there are responsible individuals out there who are willing to hear what you want to do to make something better," said Christopher Dixon, an analyst with UBS Warburg. "I was pleased to see that he showed up."
In an interview after his remarks, Case said he was satisfied that the company had done a thorough job of identifying the financial and strategic issues it faces. He said analysts in the crowd had told him that AOL's strategy "sounds logical and reasonable and the question is, 'Can you do it?'
"That is all you can expect," Case said. "Now it is about execution."
Surrounded by camera crews, photographers and reporters, Case had a difficult time making his way out of the ballroom after his remarks. Inside a nearby conference room, AOL's new day-to-day manager, Jonathan Miller, held a news conference. But the real action and energy emanated from Case, who finally put up his hands in mock surrender as blinding camera flashes enveloped him. "The 'Lord of the Rings' premiere is in L.A.," Case shouted as he finally stepped onto an elevator flanked by bodyguards.
Planning an AOL Comeback
Case readily acknowledges that the challenges America Online faces are immense. While most AOL subscribers access the Internet from their computers using standard dial-up service, an alarming number of them are abandoning AOL for bare-bones services that charge less than half of America Online's $23.90 monthly fee. Others are departing for more expensive, faster connections provided by cable operators and telephone companies.
To combat deterioration of its subscriber base, America Online is adding magazine, film and music from its Time Warner parent. The company is also considering launching a basic, low-priced service that would strictly provide access to the Internet. Meanwhile, AOL is planning to aggressively market an existing $14.95-a-month plan to retain subscribers who access the Internet via high-speed connections offered by other providers.
In the short run, AOL's presentation of its new strategy this week was overshadowed by predictions that its advertising revenue in 2003 would drop 40 to 50 percent, and that the unit's overall profitability, based on one closely followed measure, would fall 15 to 25 percent. The company said revenue would not grow before 2004.
The dismal forecast sent AOL Time Warner's stock price falling about 15 percent, further angering Time Warner employees who already resent AOL for dragging down the value of the stock. Since the companies merged in January 2001, the stock price has lost most of its value because of financial problems at the Internet unit, and criminal and civil investigations into misleading accounting that artificially pumped up AOL's revenue and earnings, both before and after the deal, by tens of millions of dollars.
As founder of AOL and chief architect of the merger, Case has been the target of fury from shareholders led by media maverick Ted Turner, who lost billions of dollars in the after the transaction, and money manager Gordon Crawford. In August, Crawford, senior vice president of Los Angeles-based Capital Research & Management, traveled to New York to let his feelings be known in person in Case's office at Rockefeller Center, sources said.
Crawford, whose money management firm lost hundreds of millions of dollars by investing in AOL, was blunt, telling Case he no longer had the support of many shareholders, or his own employees. Crawford urged Case to resign.
Case refused, telling Crawford he was not responsible for the company's problems amid a national drop in advertising that was affecting all media businesses. "I'm sticking around," Case told Crawford, according to a source familiar with the conversation. Crawford declined comment.
With Turner and Crawford gunning for him, Case mounted a largely behind-the-scenes campaign to ensure that his job as chairman would not be in jeopardy. Case grew closer to AOL Time Warner chief executive Richard D. Parsons. The two have a fluid working relationship: Parsons runs the company day to day while Case focuses on longer-term issues, such as fixing the AOL service.
Determined to Stay
Nevertheless, Case's scramble to retain boardroom power is a stunning illustration of how far his star has fallen in the two years since he was seen as the Dulles boy wonder who rode the dot-com crest to AOL's takeover of Time Warner, the largest merger in U.S. history.
Case has insisted privately and repeatedly that he will not step aside. In September, Case met with executives of Warner Bros., the company's high-powered movie studio, in California. The meeting had the accoutrements of a Hollywood power breakfast -- served on white tablecloth by waiters -- but little of the glamour, if only because of the somber mood. Case was humble but not apologetic, sources said. He did, however, tell the 10 or so movie executives that he was remiss in not keeping a closer eye on America Online during the lengthy period when he was focusing on consummating the merger. But now, he told them, he was fully engaged and eager to fix whatever was broken at the online firm.
Case has told some people close to him that he has been called an idiot or a genius, depending on the fashions of the day, and that he shrugs off both characterizations. Sources also said he has reminded peers that he has been mistakenly counted out before, as when AOL's online service was overwhelmed by busy signals in the mid-1990s. And he told analysts this week that AOL has overcome mammoth difficulties and challenges before, and would do so again.
Case has encountered tension in the corporate suite long before the most recent maneuvering, through his own efforts to push out other top-ranking executives. Case played a key role, sources said, in the forced departure of AOL Time Warner's top executive, former chief executive Gerald M. Levin, late last year.
When Levin resigned in December 2001, he cited the profound effects of the terrorist attacks of Sept. 11. He said at the time he had inserted a provision in his contract, after the violent death of his son, that allowed him to exit early. But what Levin didn't mention, and what others have not disclosed publicly, is that Levin had clashed with Case, sources said.
Levin, whose rise in the corporate world rested largely on his role in building the HBO cable business, wanted to buy AT&T's cable network, the nation's largest. AOL Time Warner already possessed the second-largest cable system. The combined entity would give Levin, a cable guy at heart, an unparalleled advantage over competitors, with about one third of the cable market, stretching the company's commanding lead in cable systems and ability to distribute Internet content.
Case, however, wasn't enamored of the idea. He worried that a pursuit of AT&T's cable system would ensnare AOL Time Warner in another lengthy regulatory review by antitrust enforcers in the government. That, Case reckoned, was the last thing the company needed after it had just weathered a bruising year negotiating with the Federal Trade Commission before winning approval of AOL's $112 billion acquisition of Time Warner.
Case let his opinion be known. Levin, bristling, made it clear that he didn't want to hear Case's views on the matter, and brushed him aside in board meetings. Case, a proud man, resented the slight.
AOL Time Warner ultimately lost out to Comcast Corp. in its bid to buy AT&T's cable operations. But before the bidding war was over, Case found that he had something in common with Ted Turner: They both felt slighted by Levin.
Shortly after the AOL-Time Warner merger, Levin had taken away Turner's responsibility for overseeing his beloved CNN and broadcasting operations, and shunted Turner, a company vice chairman, aside to an unspecified role as "senior adviser."
With Case, the top AOL official, and Turner, a Time Warner voice, working together, Levin found he was losing support on both sides of the board, sources said. In the end, while there were not enough votes to throw Levin out, he sensed the tide was against him and resigned.
Falling Out With Pittman
Case also played a role in the departure last summer of Robert W. Pittman, whose vision for the online service was at odds with the founder's views. Although Case had at one point supported Pittman strongly, their views diverged over time. Pittman emphasized ramping up advertising deals that AOL cut directly with chief executives of other firms. Case said America Online veered off course during this period by allowing itself to be driven by profitable but ill-conceived deals, including intrusive pop-up ads, instead of focusing on subscribers.
Case distanced himself from Pittman, who grew tired of the steady stream of negative stories in the press about his stewardship of AOL. Finally, Pittman went to Parsons and said he was considering leaving, sources said. Parsons quickly said okay. Apparently, that wasn't the response Pittman anticipated. Without the explicit backing of Case or Parsons, Pittman resigned.
Most insiders say they don't expect the energized Case to follow Levin or Pittman out the door. Any real squabbling over his tenure is unlikely to arise much before the company's annual meeting in the spring, when bitter shareholders have warned that they may try to amass enough votes to throw Case out.
Asked whether he was bothered by news reports and speculation about his supposedly shaky status at the company, Case maintained that he was comfortable with his decision to remain silent until this week. "I've chosen not to engage in extensive interviews so sometimes things come out in a way that doesn't reflect your recollection of reality," he said.
Klein reported from Washington.