As Headquarters Takes Shape, AOL Tries to Define Its Future

Thrusting out from a corner of the $1.8-billion AOL Time Warner Center -- now under construction across from Central Park -- will be a 10-story glass shaft shaped like an upended prism and nicknamed “The Prow.”

AOL Time Warner Inc., lead tenant of this most expensive building in U.S. history, plans to use it as a mammoth display case for an artistic creation that, without making a blatant commercial statement, will somehow reflect the loftier aspirations of the world’s biggest media conglomerate.

After a year of pondering, a committee of engineers, artisans and set designers has a working concept: a sculptural object, a bit like a mobile but not wind-driven and definitely not electronic or neon-lit, team leader George Ladyman said recently. It will change shape, he said, but in a stately and predictable way, not unlike the grand mechanical clocks that dominate town squares in Switzerland.

“The intent is not to be Times Square but elegantly quiet,” he said.

If it sounds as if Ladyman is grappling with abstractions, his task echoes his employer’s own struggle to redefine itself in the wake of what critics consider one of history’s most disastrous corporate mergers.

As AOL Time Warner pushes forward with preparations to occupy the lavish new headquarters sometime in early 2004, it still must contend on multiple fronts with negative fallout from the January 2001 merger that created the company.

Irate investors, whose shares have lost two-thirds of their value since the marriage of America Online Inc. and Time Warner Inc., accuse the deal’s architects of swallowing their own hype about such amorphous concepts as synergy and cultural cross-pollination when they should have focused on more practical issues, such as rising debt and shrinking revenue streams.

“They drank the Kool-Aid,” as Florida hedge fund manager Douglas A. Kass once put it.

Instead of turbocharging the growth of a collection of dowdy “old media” assets, America Online has been nothing but a drag on the combined company. Subscriber growth at the Internet unit has stumbled, and ad revenue has plunged headlong.

Worse, AOL is the target of federal criminal and civil investigations into suspected phony bookkeeping. Those probes have spawned shareholder lawsuits against the parent company.

America Online’s new management team is scrambling to retool its business plan to attract free-spending subscribers while fending off stiff competition from the likes of Microsoft Corp. and Yahoo Inc. The AOL Time Warner board Thursday received a preview of the plan, which is scheduled to be unveiled Dec. 3.

Under pressure from bond-rating firms to pare down debt, AOL Time Warner is preparing to spin off its cable television properties in a stock offering that probably will come next year. The company also may shed other businesses, including one or more of its Atlanta pro sports franchises.

In short, AOL Time Warner may have done a lot of shape-shifting of its own by the time Ladyman’s sculpture is unveiled.

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Function, Not Metaphor

AOL Time Warner Chief Executive Richard D. Parsons resists attempts to attach any deep corporate symbolism to the new headquarters.

“The headquarters is more functional for us -- and a part of something good for the city,” Parsons said in a recent interview. He called the project “the Rockefeller Center of the 21st century.”

In 1997, when developer Stephen M. Ross of Related Cos. approached Time Warner with an opportunity to anchor a complex that would combine office, retail, residential and performance space, Parsons said that he and other executives recognized it as both an answer to their own real estate problems and “a galvanizing concept from the point of view of the city.”

The two-tower, 53-story complex, slated to open in stages beginning in September, is arguably the most important construction project for New York since the World Trade Center more than 30 years ago. The site, on Columbus Circle at the southwest corner of Central Park, was an eyesore for a generation, as one plan after another fell victim to municipal infighting, economic setbacks and the opposition of Upper West Side neighborhood activists.

The building will house not only AOL Time Warner’s headquarters and the main New York broadcasting studio of its CNN unit but also the posh Mandarin Oriental Hotel, a multilevel retail and restaurant gallery, 198 luxury apartments priced from $2 million to $30 million and the new home of Jazz at Lincoln Center, the organization headed by trumpeter-composer Wynton Marsalis.

More than simply providing space, the project is meant to help define a burgeoning “media and entertainment corridor” on Manhattan’s West Side, stretching from Madison Square Garden to Harlem’s Apollo Theater and including the Broadway theater district, Radio City Music Hall, the big TV networks, Carnegie Hall and Lincoln Center.

As one of New York’s leading corporate citizens, Time Warner was partly motivated by a sense of civic duty, Parsons said. But the building also made business sense. AOL Time Warner, which occupies 2.6 million square feet of space in more than half a dozen Midtown locations, was facing lease expirations that would have forced it to sign new contracts at top dollar, Parsons noted.

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Strategy Question

The 800,000 square feet of space in the new building will allow the company to shift its executive offices from their cramped quarters at Rockefeller Center while providing state-of-the-art studio facilities for CNN and its business-news sibling, CNNfn. The new complex, featuring broad expanses of working space, ought to boost productivity for people such as Parsons, who likes to “manage by walking around.”

Some observers are skeptical about whether the building accomplishes any strategic purpose beyond establishing a trophy address. At AOL Time Warner’s annual meeting last May in the Apollo Theater, a shareholder blasted management for wasting investors’ money “replicating the Taj Mahal.”

“I don’t understand the logic of it,” Merrill Lynch analyst Jessica Reif Cohen said recently. “They’re not consolidating the operations at all. In a way, it’s just another building.”

Indeed, most of the company’s operating units won’t be making the move to Columbus Circle. For example, “American Morning with Paula Zahn,” the CNN morning news show, will remain in its gleaming new studio on Seventh Avenue. The Time Inc. publishing division, HBO and Warner Music Group also are staying put.

According to a former architect for Time Warner, even CNN’s main news bureau was reluctant to give up its dingy rabbit warren next to Penn Station.

Architect Christopher Choa, a partner at HLW International, represented Time Warner in the project’s early design phases. Choa recalled the CNN people as “very prickly.””They were being forced to be in the building, so they were going to fight every decision tooth and nail,” Choa said.

At the time, CNN still was a new member of the Time Warner family, having come aboard as part of Time Warner’s 1996 acquisition of Turner Broadcasting Corp. Choa diagnosed the network’s fractiousness as resentment over its loss of autonomy.

After the AOL merger was completed, the architect said, executives from the America Online side played only a background role in discussions about the new headquarters, while CNN continued to be “the strongest AOL Time Warner personality.”

A former CNN executive, speaking on condition of anonymity, acknowledged the tension but said the network’s overriding goal was simply to fight for the best space it could get. “We ended up being a little more engaged than we wanted,” he said.

As Parsons remembers it, some CNN executives initially may have resisted the move on budgetary grounds, but “the news people got the joke immediately.” Broadcast pros, he said, could instantly appreciate the value of an interior working space with column-free spans as much as 55 feet wide. Better still, the new studio’s front porch will overlook a dramatic Central Park archway that is bound to become a familiar backdrop for live reports -- the Gotham equivalent of the White House and Capitol shots used by Washington reporters.

The price tag for AOL Time Warner’s piece of the complex is about $800 million.

“In the overall scheme of things, it isn’t a huge number,” Merrill Lynch’s Cohen said. But considering the pressure to reduce debt, she added, “I don’t want to underplay the significance.”

Cost considerations have forced AOL Time Warner to make some sacrifices at the new complex.

Ladyman, perhaps best known as designer of the Six Flags attraction “Batman, the Ride,” initially pushed for a promotional exhibit like Manhattan’s popular Sony Wonder Technology Lab -- not a store but a museum-like place to interact with the company’s brands and products. The idea was dropped as too expensive.

“We decided there were other ways to achieve the same kind of impact,” Ladyman said.

For example, the company will provide tours of the CNN studios and construct in its lobby a huge, programmable “media wall” that can screen live news and entertainment programs as well as movie trailers and promotional clips.

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AOL’s Edifice Complex

At a cost of $1.8 billion, the new AOL Time Warner Center in Manhattan’s Columbus Circle will be the most expensive building in U.S. history.

The two-towered complex, scheduled to open in stages beginning in the fall of next year, will serve as the media conglomerate’s headquarters and will provide a posh address for Jazz at Lincoln Center and some of the biggest names in retail and entertainment.

A look at the highlights:

Height: 53 stories, 750 feet

Space: 2.5 million square feet

Prime tenants: AOL Time Warner, Mandarin Oriental Hotel, Jazz at Lincoln Center

Retail shops: Hugo Boss, Joseph Abboud, J. Crew, Armani A/X, Cole Haan

Developer: Related Cos.

Architect: David Childs of Skidmore, Owings & Merrill

Celebrity residents: Singer Ricky Martin, trumpeter Wynton Marsalis, producer Arnold Kopelson