Time Warner Inc. on Wednesday dumped the head of AOL in favor of a career NBC Universal executive as the Internet unit struggles to transform itself into a free, ad-supported website.
The replacement of AOL Chairman and Chief Executive Jon Miller with Randy Falco underscores AOL’s struggle to find its place within Time Warner and in a rapidly changing Internet economy.
“What this deal signifies is that the Internet isn’t that different anymore -- it’s big media,” said Jeff Lanctot, general manager of the online advertising agency Avenue A/Razorfish. “And big-media experience is important when you’re building a big media company.”
In hiring Falco, who has spent his entire 31-year career at NBC, Time Warner gains a nuts-and-bolts manager with expertise in video programming and relationships with key advertisers -- crucial assets as AOL tries to lure visitors with a range of sponsored entertainment offerings.
Falco, 52, oversaw the business side of General Electric Co.'s sprawling television empire, including advertising sales, cable distribution, affiliate station relations and its Spanish-language network, Telemundo.
Laura Martin, an analyst at Soleil-Media Metrics, said that, after three decades at NBC, Falco might have trouble adjusting to the culture and dizzying pace of change at an Internet company.
“This is not the most obvious choice,” Martin said. “We think AOL and the Internet have very little to do with linear television programming expertise.... It will be interesting to see whether he can adapt.”
The move stunned many AOL insiders, particularly because AOL’s third-quarter advertising revenue jumped 46% compared with a year earlier, the first validation of AOL’s shift from a subscription-based Internet access business to a free online portal. Miller had been one of the key architects of the strategy.
Miller had been hired away from USA Interactive Inc. to lead AOL in August 2002, the year after the company completed its merger with Time Warner. AOL was being investigated for improper accounting practices, its ad revenue was slumping and growth in its core business, dial-up Internet access, was faltering as customers switched to high-speed connections.
Since peaking at 26.7 million in September 2002, AOL’s U.S. Internet subscriptions have fallen to 15.2 million. The flagging subscription business resulted in a 3% drop in AOL’s third-quarter revenue this year. During his four years at the company, Miller cut nearly 1,000 jobs.
Despite Miller’s success, AOL’s transition to an ad-supported business caused friction between Time Warner executives in New York and AOL managers in northern Virginia, said two Time Warner executives who asked not to be named because they didn’t want to comment publicly on internal discussions.
Time Warner President Jeff Bewkes said in a statement that Falco, the son of an RCA engineer, had the “right tools” for AOL, singling out his experience in operations, video programming and running an advertising-supported business.
“My challenge will be to execute on the strategy that I believe will make AOL once again the leader of the online world,” Falco said in the statement. It was not clear when Falco would take over.
Falco had interviewed with Miller and others at Time Warner for what some assumed would be AOL’s second-in-command position. It was unclear what allowed Falco to vault into the top job, although Time Warner executives have said privately that although Miller was a “visionary” and “strategic thinker,” they were interested in an executive whose strength was operations -- particularly as AOL tries to grab business from Yahoo Inc. and Google Inc.
Falco’s “big strength is his relationships with advertisers, which is probably why they got him,” said industry analyst Michael Vorhaus of Frank N. Magid Associates in Sherman Oaks.
Falco’s departure from NBC Universal comes less than a year after he was passed over for the top job. Instead, Jeff Zucker was tapped as chief executive of the company’s television group, setting him up to eventually succeed Bob Wright, who has run NBC for 20 years.
Although Falco’s exit will leave a big hole in the company’s senior ranks, two executives said Wednesday that he would not be replaced. Instead, his responsibilities would be distributed to others.
Times staff writer James S. Granelli contributed to this report.