AOL Time Warner Forges Ahead

Even as the celebratory champagne flowed Friday, executives at the newly created AOL Time Warner began the sobering task of leading the world’s largest entertainment and media conglomerate.

After a yearlong government review, America Online, the No. 1 Internet firm, and Time Warner, the world’s leading entertainment company, closed their $99-billion deal late Thursday night, the biggest corporate merger in U.S. history. By dawn Friday, workers were already installing the new AOL Time Warner sign outside New York’s Rockefeller Plaza, where the merged company will be based.

The company’s co-chief operating officers, Robert W. Pittman and Richard D. Parsons, spoke to the Los Angeles Times on Friday about the surprisingly difficult regulatory process, their future plans and what consumers and competitors can expect from AOL Time Warner.

Question: It’s been a long battle. Did you underestimate how difficult it would be to win government approval for this deal?

Parsons: I’ll be honest. We were surprised. Certainly I was surprised by the level of both scrutiny and intensity that this generated. And by the large numbers of people, including our competitors, who showed up in the halls of government to raise questions and protest. This was such a novel transaction that it sent ripples through the business community. I hadn’t anticipated how much fear we would create in the marketplace. And the government reacts to noise and concern.

Pittman: There’s a silver lining to it taking so long: It gave us a lot of time to work on the integration of the companies.

Q: Are there any of the government-imposed conditions that worry you or will hurt the company’s bottom line?

Pittman: No. The conditions make sure we do what we have said we would do. And we fully intend to do those things anyway, so we don’t have any concerns.

Q: What can consumers expect from AOL Time Warner in the coming months?

Pittman: [The TV and PC] will start sharing some stuff with each other. There are times when you’re watching TV that you might want to check your e-mail or send an instant message. Sometimes when you’re on your computer, you may want to listen to music or see a videotape that relates to a news story you just read about.

Parsons: We’re also working with AOL to perfect digital downloading of music, which is going to open the market to a whole group of consumers who don’t go into music stores.

Q: Is the slowing economy going to hurt your ad revenue?

Pittman: In the advertising world, you hear people say there’s a slowdown. But it’s not across the board. When [buyers] cut back, they don’t cut back on their primary ad buys, which provide a big reach. Turner Networks, WB and the Time magazine group all fit into that category. . . . Also, if you do have a slowdown in traditional media and there’s open inventory on our existing media properties, we’re a major advertiser ourselves. We’re No. 7 in the country in advertising sales. We have the ability to take our own ads and put them on our own properties, so we can fill up the slack there.

Q: What about layoffs?

Parsons: This merger is not about layoffs. But in any merger, you are going to have some overlap and some redundancy . . . with the exception of co-COOs . . . (laughter). There will be some reduction initially. But not anything like you see when two banks get together and 10,000 people [are laid off]. There will be some personnel actions you will hear about in the coming days, but nothing material.

Q: There are a lot of strong personalities now leading the company. How are you all getting along?

Pittman: We’re getting along very well. If you’ve got strong people, they all get along. It’s insecure people who you have to worry about.

Parsons: There’s plenty of work to go around. Neither company has been diminished as a result of this merger. It also helps that we like each other. Bob and I were colleagues in the past, before he went off to make his fortune at AOL. But having him back is terrific. And Steve [Case, chairman of AOL Time Warner] is a terrific young man.

Q: The Federal Trade Commission has required AOL Time Warner to share its cable lines with rival high-speed Internet service providers. For the last year, the company has opposed government involvement in the open-access debate. Do you now think it’s time for the government to create a level playing field by requiring all cable providers to lease their lines?

Parsons: I think we will show some leadership in the marketplace and the rest of the cable industry will follow. It will become a moot point. There won’t be a need for any further government action.

Q: Analysts have speculated that you might decide to sell your cable operations. Is that an option?

Parsons: It’s always an option, but it’s certainly not in our plans at the moment. Jerry Levin [chief executive of AOL Time Warner] likes to call this the golden age of cable. I agree with him. We are working like the devil to hang on to our cable assets and make them grow even more rapidly.

Pittman: There’s a huge growth opportunity. Some people have thought of cable as being an industry that’s mature. I don’t think that’s true. We think cable is going to be the best way to power this revolution of streaming audio and other products that the consumer wants.