'Less Flashy' CEO Builds AOL Turnaround Plan

By Edmund Sanders

Nov. 21, 2002 12 AM PT

Times Staff Writer

Rock music still rumbles down the halls of America Online headquarters, but the mood inside the offices of the Internet giant seems closer to the blues.

AOL Chief Executive Jonathan Miller, who has been on the job three months, already has imposed a decidedly more somber, business-like approach in the Internet division of AOL Time Warner Inc. This week he laid off 90 employees in AOL’s ad sales divisions in Dulles, Va., and New York. He canceled the company’s annual holiday party, saying a celebration “flies in the face” of the serious challenges the company is facing. Among them: a government investigation of its accounting practices and slowing subscriber growth.

For a newcomer, Miller has spent surprisingly little time schmoozing with employees, instead devoting himself to developing a turnaround plan that he is scheduled to present today during a meeting with AOL Time Warner’s board of directors.

Miller stands in stark contrast to some of the company’s recently departed leaders, including AOL Time Warner Chairman Bob Pittman, who was criticized for setting overly ambitious targets, and Internet programming head Jimmy de Castro, who piped in the rock music and led a high-energy exercise class in the morning to help boost morale.

“He’s unlike previous AOL executives, and that’s a good thing,” said Kaufman Bros. analyst Paul Kim. “He’s less flashy. Less arrogant. And less dictatorial.”

Miller’s long-awaited blueprint to revive AOL reflects some of his no-nonsense, practical style. “It’s not a silver bullet,” said a source briefed on the proposal. “It’s a modest plan, but a realistic one.”

The plan proposes cutting costs, focusing less on ad sales and expanding America Online’s sagging high-speed service by developing exclusive programs. They would rely partly on AOL Time Warner’s own stable of entertainment companies, according to sources familiar with the details.

It also proposes creating several premium services, which will cost subscribers more than AOL’s standard Internet product but could offer more compelling features, such as sneak peaks at upcoming movies, exclusive interviews and the ability to download music, sources said.

Boosting America Online’s e-commerce business through new partnerships with retailers is another key component. One strategy is to create a platform on the AOL service on which small and medium-sized sellers can offer various products directly to consumers at fixed, discounted prices. Miller also is pushing AOL to sprinkle sales opportunities throughout the online service -- for instance, pitching CDs to subscribers who visit AOL’s music site -- rather than confine them to a separate shopping mall.

Miller, former head of Barry Diller’s USA Interactive, is set to lay out his vision with his boss, AOL Time Warner senior executive Don Logan, at an AOL Time Warner board meeting at America Online headquarters in Dulles. The board is expected to approve the plan, and specifics are to be publicly announced Dec. 3 during a presentation to Wall Street analysts.

AOL officials declined to comment.

The plan does not include any major surprises or drastic changes to the approach already being pursued by Miller and Ted Leonsis, a longtime AOL executive who recently stepped back into a more active role as vice chairman of the Internet unit. Both men have been working since September to develop a strategy to shift America Online away from its dependence on aggressive advertising deals, which dried up with the dot-com bust and now are the target of a criminal investigation by the Justice Department.

Due largely to a growth slowdown and accounting problems at the Internet division, AOL Time Warner stock has lost half its value since the beginning of the year.Shares closed Wednesday at $14.80, down 17 cents, on the New York Stock Exchange.

Analysts say they are looking forward to hearing the details of Miller’s plan, but don’t expect any quick fixes.

“I expect to be underwhelmed,” Kim said. “There’s not much they can do. Execution will matter a lot. But I still think subscriptions numbers could turn negative next year.”

Miller’s proposal is the latest of several turnaround efforts launched over the last year, including one by Pittman that called for AOL to temporarily de-emphasize the high-speed product.

Miller is taking the opposite tack, attempting to address a common Wall Street refrain that America Online lacks a clear broadband strategy.

In recent weeks, the company has started rolling out new high-speed features, including a broadband radio with CD-quality sound and AOL Live, which features online entertainment programs, similar to television shows. At the same time, beta testing for a long-delayed music subscription service is underway and expected to be unveiled shortly.

Profile

Jonathan F. Miller

Chairman & CEO, America Online

Age: 46

Hometown: New York

Education: B.A., Harvard, 1980

Career Highlights:

* Managing director, Nickelodeon International, 1993-1997

* President and CEO, USA Broadcasting, 1997-1999

* President and CEO, USA Electronic Commerce & Services, 1999-2000

* President and CEO, USA Information & Services, USA Interactive, 2000-June 2002

Sources: Associated Press, AOL Time Warner