Richard Parsons: Just as the closing credits rolled, Time Warner worked a miracle

In a rare interview, Richard Parsons tells Irene Hell how the media giant came back from the brink to become a financial and box-office smash
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The Independent Online

Richard Parsons took over as chief executive of what was then called AOL Time Warner in May 2002. He was named chairman the next year, replacing Steve Case, who masterminded the merger of the world's largest media and entertainment group with the world's leading internet company. At the start of 2003, the group had $30bn (£15.6bn) of net debt, problems with financial regulators and was suffering from a lack of investor confidence.

Richard Parsons took over as chief executive of what was then called AOL Time Warner in May 2002. He was named chairman the next year, replacing Steve Case, who masterminded the merger of the world's largest media and entertainment group with the world's leading internet company. At the start of 2003, the group had $30bn (£15.6bn) of net debt, problems with financial regulators and was suffering from a lack of investor confidence.

The bursting of the internet bubble and a collapsing stock price due to questioned booking practices at its AOL unit forced the company to write off billions of dollars. It was facing oblivion. Then Parsons executed a turnaround. In just over 30 months at the helm, he has restored investor confidence, slashed debts and posted billion-dollar profits.

He dropped "AOL" from the company name and slashed the debt from $30bn to $16.8bn by selling Warner Music and the company's stakes in Comedy Central and Hughes Electronics. Also helping were favourable deals such as a $750m anti-trust settlement with Microsoft.

Time Warner is now not only the largest but the most profitable media company in the word. It is enjoying the glow of critical and box- office successes such as The Lord of the Rings the Harry Potter movies and HBO's The Sopranos, Sex and the City and Six Feet Under on television.

Q: When you took over in May 2002, your company was on the edge. How did you turn it round?

Parsons: It was not as monumental a task as many people thought, as the fundamental businesses of the old Time Warner - like publishing, the cable networks and movies - was running well. Right after the merger the AOL business collapsed and Warner Music Group, like the whole music industry, was in a state of decline. So we sold our music business, as well as other non-strategic assets, to strengthen our balance sheet, and put in new management. We focused on turning AOL around, and I think we made a lot of progress there. We are seeing good growth in the AOL business again, and it is generating about $1bn in free cashflow annually. AOL Europe has also turned profitable.

After the 2001 merger, AOL seemed like an iceberg that would cause the old Time Warner ship to sink.

The merger did not work out quite the way many of us expected. The internet bubble burst and we had to fix the leaks. We put a new management team on the bridge and simplified our company.

After turbulent years, Time Warner is back on track. Last year our revenues were $39.6bn and we continue to make good profits this year. Our ship has become lighter and easier to manoeuvre and the work on board is more cheerful.

With Harry Potter and Lord of the Rings, our Hollywood studios have set box-office records.

We have 80 000 people with incredible skills. With Warner Bros, New Line Cinema, CNN, Time People Fortune AOL among many others, we have the best-in-class brands. My task as chief executive is to make people and investors aware of the tremendous potential - which is simply to be the best, most profitable and most important media and entertainment company in the world.

When you started, the collapsing stock price of AOL, angry shareholders, investigations by the authorities and billion-dollar losses gave the impression that the end of the world was near. How did you stop the Titanic from sinking?

We had a tight spot to go through in 2002 and at the start of 2003. It was a little tricky to negotiate. But we got through. Things are much better now.

"Tight spot" is nice wording.

How do you like that in your business resumé: first year as chief executive he writes off $100bn.

Your predecessor, Jerry Levin, and AOL founder Steve Case were hailed for constructing the biggest deal in history. You are the only senior executive who survived the aftermath of that merger. You took a lot of heat.

We did. I guess we were the company everybody liked to kick around for about a year and a half.

We were in the papers every day. During the whole period, my mother still loved me.

Before you joined Time Warner, you were chief executive of the Dime Savings Bank. Like Time Warner recently, it was on the edge. You turned it around and made it profitable again. What's your secret?

I have a three-part mantra: we want to make money for shareholders, we want to do some good in the world and we want to have some fun.

What caused the crisis at AOL Time Warner?

It was more a psychological problem. As I said, the old Time Warner businesses were running well and generating billion-dollar revenues. We only had to raise staff morale.

So our main task was to reunite the company and to regain the trust of the investor community. If we march in the same direction, we can accomplish a lot. So getting the troops lined up with a common vision was vital. I said: "Let's get this thing going." We had to focus on driving our company forward instead of licking our wounds from the past.

What was the biggest surprise you faced on becoming chief executive?

I was surprised by how difficult it proved to be to bring that AOL/new media culture together with the Time Warner/old media culture. That was a bigger job than I'd thought as they are very, very different.

Insiders say there was a civil war between the units. How did you prepare for your role as a peacemaker?

I was a middle child. I grew up in Brooklyn with three sisters and a brother. You know what that means: everybody is constantly fighting with everybody and you are in the middle of the storm trying to make peace. That is your life. Making everybody work and play well together.

Right after I became chief executive of Time Warner, we embarked on a listening tour. We went around the world, virtually everywhere where we have a significant collection of employees. We met staff and we listened to them.

What did you hear?

At the start of 2002, morale was at a low. There was a lot of mourning - lamenting about the loss of value and reputation that followed the merger with AOL. I had to let them get it off their chests. I did listen to the complaints and I said: "Got it, heard it, understand it. But we are where we are today. We can't change the past. We only can do something about the future."

It also helped to have a change in leadership - so the direction from the top was more consistent with co-operation than confrontation.

What did you do with those who did not want to stop their little wars?

I said we have the best business and brands in the media and entertainment industry, and the best management around those brands, and that is not a bad place to start. People who either don't choose to go with the programme or cannot go with the programme, they have to go some place else.

The Securities and Exchange Commission is questioning some booking practices at your AOL unit. Even though you cut the word from your company name, it seems you are still haunted by your AOL past prior to the merger.

We have been in discussions with various regulatory agencies that are looking at some of those past transactions. Hopefully this issue will come to a good end soon.

Your company lost billions of dollars. The accounting problems occurred before you became boss of Time Warner. You have nothing to do with it. However, now you have to fix the situation, do you plan to take legal action against individuals involved in the case?

I am sure that it will all eventually get sorted out. Right now our focus is on driving the company forward, creating value, fixing the past. We are making whatever adjustments we need to.

We are getting that cloud out of the sky. We need to resolve this situation, put it behind us and move forward.

In your last quarterly report, you put aside $500m for possible liabilities from the investigation. What does that mean?

Let me put that in context for you. There have been discussions with government agencies for almost two years. Now we have some visibility of what will be the probable cost of resolving all these matters. You can estimate the range of liability that you have to reserve for. So in the third quarter we took a reserve of $500m.

Why did you sell Warner Music? Because of illegal downloading?

I don't think piracy is going to kill the music industry. But digital technology and the ability to download will change the packaging from CDs to a single-based business. The financial characteristic is going to change as well over the next three to five years.

However, that was not the real reason we sold the music business. We sold because music is too volatile. We don't know where it is going, we don't know what the ultimate formulation of that business will be. We want businesses with steady growth for the next three to five years.

A deal with Bill Gates and Microsoft was also surprising.

Bill Gates is a smart man. I think, given an opportunity, he would rather settle than fight.

You were on the edge of a very brutal browser war with Gates. He spent millions of dollars on headhunters to get some of your Netscape customers to his Microsoft browser. Everybody expected a long and bloody legal battle.

Bill knows that in a war everybody loses. Everybody takes casualties. It is just that one side takes more casualties than the other and then gives up. But everybody loses. Nobody wins.

I think Bill understood that. Microsoft is the premier company in the world in the software industry.

So we sat down with Microsoft and said: "You are an important part of the ultimate solution to piracy issues, we are an important part of your ability to innovate and offer new functionality and services in your operating systems for the consumers. We should be working together instead of fighting each other."

Bill said: "That's right. Let's sit down together and put our past disputes behind us and focus on the future."

Bill Gates settled with your company for $750m.

I don't take the credit for it. Bill is a smart guy.

What is on your shopping list? There are rumours that you want to buy the Dutch production company Endemol (the maker of Big Brother).

I won't comment on speculation about any specific asset, though we clearly have an interest in further internationalising our company. But with any potential acquisitions we will be patient and disciplined and only focus on those opportunities that deliver returns and create value for our shareholders.

What is your "star" - what is your big dream?

My biggest dream for this company is to restore it - to bring Time Warner back to the position that I think it once had and, even better than that, to make it the greatest company in the media and entertainment world.

I want Time Warner to continue to be home to the most talented people - producing the highest-quality products - in the global media and entertainment industry. Thanks to them, we'll be able to build on the progress we've already made and offer our shareholders the sustained and superior returns they have every right to expect. Time Warner will not only remain best in class, we'll have a lot of fun in the process.

What do you dream of personally?

World peace. It sounds like a cliché right now. Why can't we all just live together? You do wonder how much blood has to be spilt - how many people have to be sacrificed for what? I have no idea why people are fighting with each other all the time.

How can that be done?

I've always remembered and admired the dream so powerfully articulated by Martin Luther King in that amazing speech he gave at the Lincoln Memorial,in August 1963. "I have a dream," he stated, that one day we'll live in a nation in which children "will not be judged by the colour of their skin but by the content of their character".

That's my dream, too.

BIOGRAPHY: Richard Parsons

Born: Brooklyn, New York, 1948.

Education: University of Hawaii.

Career (1973-75): aide to President Gerald Ford.

1977: joined the law firm Patterson, Belknap, Webb & Tyler.

1984: managing partner, Patterson, Belknap, Webb & Tyler.

1988: chairman and chief executive, Dime Bancorp.

1995: president, Time Warner.

2002: chief executive, Time Warner.

2003: chairman, Time Warner.

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