Pittman Put Back in Charge of AOL

AOL Time Warner Inc. removed Barry Schuler as head of its Internet division Tuesday and temporarily gave the job back to Bob Pittman, who will attempt to revitalize the unit while also serving as chief operating officer of the parent company.

The management reshuffling reflects the growing anxiety on Wall Street about the Internet unit’s recent performance and its prospects for future growth. Analysts called Schuler a victim of the advertising slump and overly aggressive performance goals, which the company was unable to meet.

Pittman, who served as AOL’s chief executive before Schuler took the post in January 2001, is widely respected by investors as an operational wizard who helped turn Dulles, Va.-based AOL into an Internet powerhouse in the late 1990s.

“Nobody understands AOL’s operations and potential better than Bob Pittman, and no one is better qualified to manage this business,” said AOL Time Warner’s Richard Parsons in a statement. Parsons, who will become CEO of the New York-based company next month, declined to comment further.

Parsons and Pittman approached Schuler a month ago and asked him to step aside and become head of a new division that will develop digital services.

Schuler said he was excited about the new assignment and stressed it didn’t result from corporate infighting: “I don’t feel victimized. It’s natural evolution. We’re putting the right people in the right places. We have some challenges at AOL. We should apply our best talent to make things happen.”

He said that Pittman’s advertising experience would help America Online emerge from its current slump, while his own passion lies in designing new products.

“Anybody who knows me knows that this is what I’m all about,” he said. “I’m a product guy.”

The changes are effective immediately, the company said.

Analysts said Schuler’s reassignment reflects AOL’s disappointing financial performance and lackluster growth. “When performance lags, people want action and they want heads,” said Bill Whyman, president of Precursor Group, a technology analyst in Washington.

AOL is the nation’s largest Internet service provider with a comfortable lead over its rivals. AOL has 34 million subscribers worldwide. No.2 Microsoft’s MSN has more than 7 million.

But a national advertising slump has eroded profit at both the AOL unit and its parent, which relies heavily on the online division for growth. Advertising and commerce revenue at the AOL unit decreased 7% in fourth quarter of 2001 to $637 million, down from $686 million a year earlier.

At the same time, AOL’s market is maturing and revenue-per-subscriber is flat, despite a rate hike last year and several new products designed to pump up sales.

Since the Internet unit is key to AOL Time Warner’s growth, the parent company stock has skidded from more than $55 a share last spring to $21.85 on Tuesday, down 10 cents in New York Stock Exchange trading.

Putting Pittman in charge sends a message to Wall Street that the company is taking the problems seriously, analysts said.

“The move may be an antidote to the worries [of investors,] but these are market challenges that would be hard for anybody to meet,” said Scott Reamer, general partner of Union Tree Capital, a Denver hedge fund.

The changes come as AOL Time Warner Chairman Gerald Levin prepares to step down next month, handing the reins to Parsons.

The surprise reassignment of Schuler--a popular, respected figure among AOL’s 16,000 workers--is another blow to morale in Dulles, which endured 2,400 layoffs last year and watched the company’s power center shift to AOL Time Warner’s headquarters after the 2001 merger with Time Warner.