Autumn of the Moguls: My Misadventures with the Titans, Poseurs, and Money Guys who Mastered and Messed Up Big Media

It may have been Pittman who recognized it first.

Hence, by engineering the millennial sale of Time Warner to AOL, at precisely the highest reach of the market, he was able to accomplish the most difficult but most elemental feat of modern business: He turned vast theoretical paper money into incredible real dough. (Viacom’s Sumner Redstone, more streetwise than TW CEO Jerry Levin, said that when he had been approached about merging with AOL, he’d told Mr. Pittman, “I really don’t trust your currency.”)

Pittman and AOL’s detached founder Steve Case were following that most basic (if never publicly stated) business principle: You only make money, real money, off people who are stupider than you, and the stupider they are, the more money you can make.

They knew (and Pittman, who went back to the Time and Warner wars, knew as well as anyone) that since Jerry Levin had made being smart the raison d’être of his moguldom—he was the mandarin mogul—it was even more unlikely that anyone would say to him about the AOL deal, “Don’t be stupid.”

It wasn’t just Levin who was stupid. The entire Time Warner board appeared know-nothings too. In a sense, their collective view was as simple as, technology is the future, so let’s do something technological—even though they knew precious little about technology.

It was just a perfect moment of pervasive and confident know-nothingness at which Pittman and Case struck. The buyer (and in truth Time Warner was the buyer) was caught unaware.

Then, 18 months later, in a fascinating paroxysm of elemental capitalist blame (where there is profit, there is loss), as the summer of 2002 began in earnest, and as what had happened became clearer and clearer (that Pittman had really taken Time Warner to the cleaners), Bob Pittman was ripped apart by the crowd (i.e., the media).

I suppose it is a kind of ultimate character note, the ultimate cool—slick, fast, and coifed—that having done what he did to Time Warner, having become fabulously rich while great numbers of Time Warner people (including Jerry Levin) got much of their net worth wiped out, he still thought he could hang around, even become the CEO. (It didn’t help matters when Pittman took to telling people that he too had lost a lot of money—that he wasn’t even a billionaire anymore.) He, quite possibly, figured he’d be held in awe for pulling off the greatest bait-and-switch in business history.

Here’s what happened: Within a few months of the merger, it was clear AOL couldn’t make its advertising numbers and that its subscription growth had seriously slowed (within weeks of the merger announcement the Internet bubble was obviously bursting; by the time the merger closed, it was a wrecked economy); what’s more, Time Warner’s own broadband service, Road Runner, was becoming a significant competitor to AOL. And yet AOL’s lightning rod, Bob Pittman, was taking over the combined company. Then too, the AOL guys were talking about spinning out the Time Warner cable business—Jerry Levin’s baby.

This was the elemental dish: It had become the two former allies, Pittman and Levin, the two guys most associated with the AOL deal, against each other. Each of them trying to grab the company, each of them trying to shift the greater blame onto the other (actually, each of them trying to grab the company before the blame crushed them).

There was even a proxy war: It was Levin’s PR guy, Ed Adler, in New York, against Pittman’s PR guy, Ken Lerer, in Dulles, Virginia. The first pitched battle was over the spring 2001 Pittman cover story in BusinessWeek, which had a crystal-clear subtext: Levin doesn’t count; Parsons doesn’t count; I am the heir apparent. Levin fired back with a story in Time Inc.’s own Fortune and one in the New Yorker by mogul Boswell Ken Auletta about the triumph of Jerry Levin. (Then there was a second story in Fortune—this one including Levin on the cover as one of the most brilliant thinkers of the age.)

At the same time, there were other rumors out of the rumor-mad Time Warner camp (never many rumors out of the AOL side): Levin couldn’t get the support of an ambivalent board to buy AT&T’s cable system (which would have made AOL TW the national media monopoly); Levin was having trouble getting that same ambivalent board to extend his contract. Levin’s people were pushing Levin, and Pittman’s people were pushing Levin.

Here is the Talented Mr. Ripley theory about Jerry Levin: He seems harmless enough until he kills you. The weapon of choice against Bob Pittman was Levin’s surprise early retirement (forced though it may have been) and the sudden inevitability of Richard Parsons as the new CEO—Levin was out, but, with a certain sort of kamikaze style, he had scuttled Pittman too.

It is necessary here to point out that taking it out on the guy who outsmarted you does not, in turn, make you smart.

Indeed, part of the subtext, at this point in the undoing of AOL Time Warner, is that everybody (shareholders, employees, media, fellow execs) got mad at Bob Pittman, not just because he decimated TW but because of the widely circulated suspicion that Pittman turned out not to believe in AOL. (Here’s a question that was constantly asked: “When did Bob know that the company was going to go south?”)

Time Warner, however it lashed out, could not make itself undumb.

The logic that advanced thinkers (or hustlers) were championing in, say, 1995 was the same logic that the highest-ranking people at AOL TW were still stoically dealing in by the summer of 2002: The Internet is the future; platforms will converge; the winner will be the one with the most eyeballs.

Whereas Bob Pittman, by the summer of 2002, wanted to get as far from the division and the Internet as possible. It may be that Bob Pittman didn’t believe in the Internet business anymore because he was the man who destroyed it.

Here’s what he had done: He convinced every Internet company that it would be a loser unless it became what he called an “anchor tenant” on AOL. That is, these companies would pay AOL fantastic sums of money, often hundreds of millions of dollars, to have first crack at the legendary mother lode of AOL eyeballs. Accordingly, every Internet company went to the public markets with, fundamentally, this one proposition: If you give us money, we can buy access to AOL eyeballs, and then we can’t lose.

Of course, everybody lost (except AOL, which, on the basis of these anchor deals, managed to get Time Warner into the ultimate anchor deal). AOL eyeballs turned out to be worth much less than AOL was selling them for—and, accordingly, the whole industry, which had been paying AOL much more than it got, went belly up. Ergo, Bob Pittman, like no one else, came to understand AOL’s real value—that there was a profound discrepancy in the accounts.

I hasten to add that inventing a reality in which everyone, however briefly, comes to believe is a metaphysical rather than an accounting fraud (although sometimes it can be both).

Pittman’s idea (and I suspect he had this idea as he was doing the merger with Time Warner) was to get as far away from the break in the space-time continuum known as AOL as fast as he could. His idea was that you take the Time Warner behemoth and you get it to obscure AOL. And for a year Pittman steamed around and held meetings and demanded accountability and cut perks and sought margin growth and insisted on integration. (He kept complaining that the real problem was that the Time Warner divisions wouldn’t cooperate with his grand one-stop, cross-platform-print-TV-film-music-online-cable-advertising-merchandising-promotion vision; one of his schemes was to reward Burger King, a big advertiser, with walk-on roles in AOLTW television shows for Burger King servers.) But instead of the AOL division becoming lesser in relative size to the larger company, it grew larger as, in fact, it became ever weaker—causing the bureaucracy to revolt.

The sorry state of the AOL division meant that the old Time Warner, with all its fractious and testy division moguls, got to rise again. (Part of Levin’s original merger dream was that AOL would be such a superdivision that all the other divisions would converge into it.) The company returned to being (apparently, had never ceased to be) an association of disparate enterprises, each with vast and often unassailable clout, whose highest imperative seemed to be to resist what management wants—to resist, in fact, being managed at all. Pittman, it turned out, was easy to dispose of. By July 2002 he was gone.

But a revolution does not mean that logic is restored.

There were two depressing but motivating beliefs in the AOL Time Warner corporate offices which continued the logic of the AOL merger. The first was that spinning off or otherwise disposing of AOL would probably mean the end of the larger company too (and everyone but the most hostile was a long way from contemplating that yet).

The second belief among the deeply depressed people at the highest levels of AOL Time Warner—not at all unwarranted—was that the whole media business was probably going up in smoke. Music had been the first thing to go; print was going fast; pictures would follow. The media business would lose control of the media. Puff. Napster. The horror, the horror. AOL was supposed to be the lifeboat—however uncomfortable it was that Pittman and his posse preferred to swim for it.

It actually Strikes me that Bob Pittman may have been one of those guys who actually knew what they were doing.

Bob Pittman is a media guy—in a very old-fashioned way.

He’s not a manager, or philosophiser, or mandarin, or even, really, a mogul.

He’s a promoter, a huckster, a snake-oil guy.

He finds something to sell, and then does what he has to do to get people to buy it. Likewise, if people stop buying what he’s selling, he sells something else. Music videos. Theme parks. Real estate. Online services. There’s always something.

This is the source, perhaps, of his perpetually unruffled quality. He doesn’t see any of this as life-and-death, or painful transition, or existential business drama. Rather, it’s the same old hustle.

10 (#ulink_0093fb3a-3d6f-550d-b80d-9ff8c2e92745)

NOT GETTING IT (#ulink_0093fb3a-3d6f-550d-b80d-9ff8c2e92745)

My problem, my analytic failure, is in always thinking this is the end. That it must be the end. That it has to be obvious to everyone that this is the end. That we have reached the point at which reformation must begin. That the moral of the story is clear.

By July 2002, there was the absolute logical certainty that AOL Time Warner, the largest company in the media business, among the largest companies in the world, could not survive. The collapse of Vivendi was nearly a fait accompli. Bertelsmann was in deep retreat—they would surely sell Random House, its vast over-the-top acquisition (again, that problem of foreigners and due diligence), if only there were a buyer. Disney had become one of those isolated nations—Romania of the Ceauşescu era, or North Korea—held together only because its own despot had so thoroughly isolated himself from reason and the rest of the world. Viacom was a company caught between two warring chief executives who would sooner see each other dead than save the enterprise. News Corp. was run by the ancient mariner, almost mystical in his leadership. (What happens when the mystical leader dies?) All this together with the fall of Enron, WorldCom, Global Crossing, and Adelphia, and an epochal challenge to the cult of corporate personality—a post-Maoist climate, almost.

If I had briefly thought Heilemann and Battelle had an extraordinary opportunity—a chance to seize an antibehemoth Zeitgeist—now I began to think, Who would even come to a media conference? Who would want to? The media was dead—everybody knew. Must know.

And yet, certainly I was the shortsighted one.

When you listen to the journalists and analysts covering the media business, you can actually think it’s an orderly, self-correcting world we work in. Reporters might spend a day ripping Messier or Pittman or Middelhoff to shreds, but then, shortly, return to defending Vivendi or AOL Time Warner or Bertelsmann.

“In fact,” said the Times, “once all the broken promises about being a new breed of company for a new millennium are discounted, AOL Time Warner does not seem to be in such bad shape, considering the economy.”

Reporters resist following to the end the cold logic of breakdown and collapse—even for the fun of it. They can’t seem to help thinking that invariably, rationality will emerge out of the current mess. If Martha Stewart goes to jail, the world will have been righted. It’s all ultimately part of a healthy process. After this period of resignations, terminations, investigations, and reorganizations, normalcy will return.

The rules of reporting and analysis are that even if you have good reason to suspect that the end is near, that events are largely out of control, that very bad things will invariably happen to very bad companies, you’re not allowed to say it. There’s just no formula or model for applying any sort of chaos theory, or even gut sense, to business reporting or corporate analysis.

You couldn’t say what seemed pretty obvious: that nobody knew how to run the superaggregated and radically transformed companies that came into being during the past decade. That these companies defied control, were too vast and far-flung and composed of too many recalcitrant people and inimical functions. This, together with the fact that the guys who ran these companies often clearly had no idea what they were doing.

Everybody but the most literal-minded knew this.

But to be a respectable business reporter, you have to pretend the world is a coherent, rational, by-the-numbers place. You can’t report that everything is up for grabs, that the greatest likelihood is that we’re deep into a process that will cause the reordering of most of the basic structures of the media business—that the sky is falling.

Now, each of the management coups at AOL Time Warner, Vivendi, and Bertelsmann during the summer of 2002 was reported as a function of internal travails, and that is obviously the case—each enterprise was reporting its own variation on a looming cash crisis, which, in business terms, is the mother of all crises. On the other hand, three is a trend. Three indicates a mass movement, a systems issue, a rapidly spreading condition. It is not just a function of bad management but of larger, converging forces. History is turning against you—and is probably out to get you. And there’s no way to manage yourself out of the mess.

But responsible reporters can’t say that.

Which is why I started to wonder if I might have special powers.