It was a rare bit of hyperbole from Parsons, considering that one of the hallmarks of his turnaround at Time Warner has been his determination to understate the goals of a company once built on hype. But Parsons can afford to loosen up a bit. He’s led a methodical, unglamorous, yet successful effort to stabilize a media and entertainment giant that almost collapsed under the weight of history’s worst deal ever. Time Warner’s stock reached a new yearlong high of $17.47 last week. And in less than a year, Parsons has also chiseled the company’s debt to $20 billion from $30 billion. Most of its divisions are thriving, especially its Hollywood studios and mammoth cable-TV businesses. Cooperation has supplanted infighting among top executives. Even AOL, though still mired in federal probes of possible financial misdeeds, has a stronger pulse.
Time Warner is so revitalized, in fact, that it’s openly exploring major acquisitions again. “We’re now in a position to play,” says Parsons, adding that the company can afford a deal next year with price tags of up to $8 billion in cash. The top priority: expanding its cable holdings. After all, Time Warner Cable, the No. 2 cable operator behind Comcast, is growing fast, fueled by an array of digital services, including movies on demand, broadband access and TiVo-like recording and playback. Last week Time Warner unveiled plans to provide Internet phone calls through cable (sidebar). Potential takeover targets include Adelphia, now in bankruptcy, and Cablevision, which dominates suburban New York.
But there’s a long-shot scenario in the mix that’s more intriguing. Time Warner could put Disney in its sights. “The easy thing would be for Parsons to buy cable,” one senior Time Warner executive says. “‘Is he going to buy Walt Disney?’ is the more interesting question.” For years, Disney has been a subpar performer, and has been mentioned often as a potential target for Comcast. Time Warner execs say Parsons would consider making a friendly bid for Disney–but only to rescue it from a hostile-takeover attempt. A Time Warner spokesman says the company is focusing on growing its businesses, not coveting Disney.
Parsons once seemed like a long shot himself to lead a turnaround. He was, after all, on the Time Warner executive team that rushed into the merger with AOL. But Time Warner’s board sensed that the low-key and diplomatic Parsons could sort out the mess, and unanimously voted him into the CEO’s job when Gerald Levin quit, and into the chairman slot when Steve Case was forced out last January.
Parsons laid out clear goals–reduce the debt, end the civil wars and the hype, and repair AOL, among others. But his first step was to appoint two lieutenants to oversee the sprawling operations. Don Logan, the veteran CEO of Time Inc., was named chairman of media and communications. Jeff Bewkes, the HBO boss, was handed responsibility for cable, music and Hollywood. With their help, Parsons set a clear road map for other goals. “Our company had a reputation for switching gears every 30 days,” says Logan. Parsons bluntly told the employees that staffers had to put the past behind them or leave the company. “People have a sense we’re making progress,” Parsons says. It helped that Time Warner issued a boatload of new stock options last February at about $10 a share, many of which are already in the money.
Cutting the debt was easier than expected. In just months, Parsons raised more than $6 billion. About $2.6 billion came from the sale of Warner Music. He deftly managed the sale by playing interested buyers off each other–music giant EMI and investors led by Seagram scion Edgar Bronfman Jr. To close the deal, Parsons set a 72-hour limit for Bronfman to negotiate his winning bid.
If only the AOL unit could be fixed so quickly. There are signs of progress. The latest version of AOL software, 9.0, is winning high marks from critics. Since the second quarter, AOL has begun attracting new advertisers, who have spent at least $175 million so far with the online service. Now CEO Jonathan Miller is projecting double-digit growth in ad revenue for next year. Yet its most fundamental problems remain. Some 2.6 million dial-up subscribers have abandoned the service. Says analyst Tom Wolzien of Wall Street’s Sanford C. Bernstein: “You’ve got to give Parsons a lot of credit. But the big issue, the future of the online business, remains.” Parsons acknowledges as much: “What we’re trying to figure out is a model for long-term growth.” Parsons rebuffed an emissary of online mogul Barry Diller who approached him informally about a potential sale of AOL. Diller said he did not authorize anyone to approach Time Warner. But he added that he believes a dealmaker did so in hope of brokering a sale.
While AOL will remain part of the company for now, it’s not clear whether the same can be said of board members Case, Miles R. Gilburne and Kenneth Novack. The three are the only remaining influential AOL officials from the period when the alleged accounting irregularities occurred, and shareholders seem disenchanted with them. Early this year a surprisingly large number of investors voted against re-electing them. In light of last year’s vote, the board inevitably will have to consider the matter before deciding on the slate of candidates to be presented to shareholders in May.
Parsons’s own future is more secure than ever. He is likely to be awarded a huge bonus this year. Only his legacy and successor are in question. “To maximize the value of Time Warner” is his answer to the first. Some officials inside the company wonder if he’d ever do that by presiding over a sale of the company. But unlike a year or so ago, that doesn’t seem to be in the stars. “This is a great company,” Parsons says, adding that he personally loves “the things that we do, that we create.” (He can enjoy the spotlight a bit, too, as when he attended the world premiere in Berlin last week of New Line’s final episode of “Lord of the Rings.”) At about $100 billion in value, including $20 billion in debt, Time Warner would choke almost any suitor. And it is an unlikely target for the few companies that could afford it. If the current trends hold, the 55-year-old Parsons may have a long tenure, making the question of a successor less urgent. One sign of how relaxed the company is these days is that top execs can joke openly about turnover. At a recent birthday toast for Parsons, one potential successor joked about Parsons’s bright prospects. “If I had known he was 55, I wouldn’t have taken this job,” Bewkes said, according to a reveler. “I thought he was 63.” Then again, everyone may be feeling a little older after the past few years.
