Time Warner Chief Says AOL Should Be Company’s Focus

Turning around America Online will do more for parent Time Warner Inc.’s stock than the steps sought by investor Carl Icahn, Chief Executive Richard Parsons said Wednesday.

Time Warner is exploring “structural and strategic” changes to boost sales at its AOL Internet unit, Parsons said at a media conference in New York.

Parsons, 57, is under pressure from Icahn, who has demanded that the New York-based company buy back $20 billion of its shares and spin off its cable television unit to lift the stock price. Parsons’ comments were his first public remarks since Icahn made the demands last month. Microsoft Corp. is in talks to invest in AOL, a person familiar with the matter said last week. Parsons declined to comment on that issue.

“We need to accelerate the path we’ve been on with greater urgency,” Parsons said. AOL needs to increase ad sales to counter a drop in subscription revenue, he added.

Time Warner has said it plans to buy back $5 billion of its shares and sell 16% of its cable unit in an initial public offering next year. The company is evaluating whether to buy more stock, Parsons said. It may also sell a bigger stake in the cable unit “over time,” he said.

Time Warner wants to hang on to AOL’s potential, Parsons said. The unit is “the No. 1 point of focus right now.”

Shares of Time Warner fell 29 cents to $18.08.

A bigger share buyback and the spinoff suggested by Icahn, 69, whom he met with last month, aren’t the best ways to boost the stock, Parsons said.

“The major source of under-valuation is neither of those things,” Parsons said. “The real driver is going to be AOL in the short term and in the long term.”

AOL’s sales fell 4% to $2.1 billion in the second quarter as subscription revenue declined 9%. It had 21 million U.S. subscribers as of June 30, down 3 million from three years earlier. The efforts to boost advertising have started to pay off, with ad sales up 45%.

“AOL and cable are the two biggest drivers,” said James McGlynn of Summit Investment Partners in Cincinnati. “The buyback just restrains management from doing a trophy deal.”