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AOL's Pittman departs after shake-up sees Time Warner take control of board

David Usborne
Friday 19 July 2002 00:00 BST
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Turmoil at AOL Time Warner, the world's largest media conglomerate, burst into the open yesterday with the resignation of its chief operating officer, Robert Pittman, one of the architects of the $102bn mega-merger of AOL and Time Warner that was completed last year.

The departure of Mr Pittman, who had become tarred in recent months with gathering problems at the AOL online division, signaled a clear shift of power towards the Time Warner branch of the company. Richard Parsons remains CEO.

Speculation about strife inside the world's largest media company helped to drive its stock price down towards historic lows yesterday. The management changes were finalised at a meeting of its board at the headquarters of the AOL unit in Virginia.

The company, which has been struggling to make good on the ambitious targets it set for itself at the completion 18 months ago of the merger of AOL and Time Warner, was also hit by newspaper reports that AOL had indulged in "unconventional deals" to boost its revenue numbers.

Underscoring the shift of control inside the behemoth, the board also confirmed that it was elevating two figures from within Time Warner. Jeffrey Bewkes, the head of its HBO cable television division, and Don Logan, chairman of Time Inc, will become deputies to Mr Parsons.

The dramatic reshuffle also reflects a significant change of strategy by Mr Parsons, who recently has de-emphasised the need for cross-platform synergy in the company and started the process of returning responsibility for growth to its various individual divisions.

In a lengthy report, The Washington Post said it had uncovered a variety of ad-sale transactions that appeared to be unconventional if not illegal. One involved bartering ad spots with Sun Microsystems in return for equipment. The paper said the deals it reviewed added $270m (£175m) in revenue between July 2000 and March 2002.

AOL said it had stayed within all accounting regulations. It added that the "the transactions cited by the Post comprised less than 2 per cent of AOL's revenues during the same period, and accounting for them differently would have had no impact on the company's net income".

The removal of Mr Pittman, who had been chosen to oversee AOL, was welcomed by Wall Street last night. "He was part and parcel of a lot of the excesses of the past," said Paul Kim, a Kaufman Brothers analyst. "If you are looking at AOL, that is where trouble spot is."

Shares in AOL Time Warner slid more than 5 per cent, or 66 cents, to $12.45 in trading in New York. Investors have been fleeing AOL Time Warner stock for several months amid concern that the company has failed to detail a coherent strategy. Growth numbers have been especially dismal inside the AOL division.

"It's absolutely critical that the company stabilise management and state a coherent and rational strategy going forward," Mr Kim said. "At this point, since a year and half that the merger has closed, the company has been aimless." Most analysts were already predicting the departure of Mr Pittmanafter the company recently began a far-flung search for a new high-powered executive to oversee the AOL online division. That search is continuing.

Mr Parsons, who took over as chief executive officer in May, replacing Gerard Levin, is expected to continue devolving responsibilities.

Efforts by the company after its merger to knit together all its units are seen to have failed. Particularly problematic was a blueprint for selling advertisements across all of its platforms ­ including the online unit and magazines and films.

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