Media Curmudgeon

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February 14, 2006

Carl Icahn's Comedy Act

Several months ago there was a story in the New York Times about corporate raider Carl Icahn doing a stand-up comedy set at Caroline's, a comedy club in New York, for a charity event. I guess Icahn must have liked doing comedy because he tried it again last week when he held a press conference to announce the result of the Lazard Report, a 371-page document produced by his partner in comedy and Time-Warner bashing, Bruce Wasserstein.

I call it comedy, as Jack Myers did in his Thursday, 2/9/06 Jack Myers Report. Here's what Myers wrote under the title "Carl Icahn Comedy Show:" "With Carl Icahn suggesting that Time Warner split itself into four independent operating companies, the investment community is even more critical and bemused than they were when Icahn hired Frank Biondi for a minimum $6 million dollar fee to front his increasingly scorned challenge to the leadership of CEO Richard Parsons."

In the 2/8/06 New York Times reporters Richard Siklos and Andrew Ross Sorkin called Icahn's press conference "theater" -- probably a gentler term than "comedy," but still slightly derisive, and justifiably so, I think. Siklos and Sorkin wrote: "In a display of grand corporate theater, Bruce Wasserstein and Carl C. Icahn shared a podium yesterday to step up their indictment of the management of Time Warner Inc. and argue their rationale for breaking the company into four separately traded public companies."

The Times story gives some details about the press conference, the Lazard Report, and some of Wasserstein's sarcastic remarks about Time Warner CEO Dick Parsons. But even less subtle and more skeptical of Icahn's effort to pressure Time Warner to make some moves to boost its stock price, was media reporter Geraldine Fabrikant's sidebar titled "For Time Warner Aspirant's Firm, a Rough Six Years." Fabrikant noted that Biondi had been fired from two straight jobs (chief executive at Universal Studios and chief executive of Viacom) and that the investment firm Waterview Investments, of which he has been managing partner, had lost 61 percent of its investors' money.
Fabrikant made the same point that Jack Myers did, but in a subtler and more detailed way--that Icahn's appointment of Frank Biondi to head a slate of directors that Icahn wants Time Warner shareholders to vote for is a huge joke that no one except Icahn, Wasserstein, and Biondi take seriously.

I'm surprised that Wasserstein has joined forces with Icahn, who has proven several times previously that he can't run companies he raids or takes over, and has approved putting Biondi, a notorious loser, in place as the front man. Wasserstein has done a good job in turning around several media companies he has purchased, including American Lawyer and New York magazine. His company, Lazard, also turned out an excellent, in-depth, if somewhat slanted, report about the failures of Time Warner management.

I didn't read the entire report, but I did read the section on AOL, where I used to be a Vice President from 1998-2002. I have tried to keep up on what's going on at AOL (I've blogged about AOL often) and was curious to see what the Lazard Report had to say about AOL. I was impressed with the depth of the report. Lazard put its collective fingers on the many reasons AOL has, essentially, been five years too late on every major decision it has made, except in streaming video for music and events, in which it has been a leader (my opinion, not Lazard's).

The Lazard Report is correct in bashing AOL for letting search get away. It also had all the numbers comparing its slow growth in advertising revenue to that of Google, Yahoo, Diller's IAC, CNET and iVilliage. None of the numbers show a pretty picture. But the Lazard Report tries to lay the blame for AOL's poor performance squarely on Dick Parson's shoulders. I think that is wrong. It is particularly illogical to place all the blame on Parsons and then imply (totally cynically, I believe) that the savior is going to be Biondi, who lost a whopping 61 percent of his investor's value in Waterview Investments. I heard from a very reliable senior-level source who is involved in the investment fund industry that the truth is closer to 100 percent. Yes, it really is a comedy.

AOL's dysfunctional behavior began at least ten years ago under Steve Case's leadership. Case knew AOL was going to go broke unless it could sell advertising, which Case hated--he thought everything on the Internet should be free. So AOL founder Case brought in Bob Pittman to rescue AOL, which the super-salesman Pittman did. And as long as Pittman was president he was able to keep, the arrogant, advertising-averse, highly-political programming people in check.
But as soon as Pittman went to Time Warner and took his top deal makers with him in 2001, AOL fell apart. AOL's new president, programmer Barry Schuler and his program people strutted like peacocks and listened to each other, not to AOL members. Two new presidents of AOL's sales division, Interactive Marketing, reorganized, then reorganized again, and then again so that no one sold anything. That was not Parson's fault.

After Pittman left Time Warner in exhaustion, Don Logan was put in charge of the AOL and several other Time Warner divisions and he hired AOL's current CEO, Jonathan Miller, from Diller's IAC. Miller was the wrong choice, as he has proven over and over again. But AOL was still throwing off too much cash from its subscriptions (mostly dial-up) and was dealing with several lawsuits, so Parsons couldn't sell it. He had to try to bide his time, let the cash flow in, and find a buyer.

With a brilliantly orchestrated campaign, Parsons set out to sell AOL to the one company who could afford to overpay--Microsoft. Parsons was about to close a deal for a reported $20 billion with Microsoft, who pissed around too long and let Google rush in and make a brilliant strategic deal to pay $1 billion for 5 percent of AOL, thus blocking Microsoft from acquiring all the AOL traffic for its MSN search product. Parsons was able to keep the huge cash flow from AOL, get significant promotion from Google for AOL, and pocket $1 billion. Can anyone imagine Frank Biondi being able to do that?

The breakup value of Time Warner might possibly be greater than its current market value, which ranges around $18 per share. And Time Warner's overhead is excessive, as the Lazard Report points out; however, would the total overhead be less costly if the company were broken up into four or six divisions, which would entail each division having some redundancies that do not exist under the Time Warner umbrella. Furthermore, Parsons' crowned successor, the immensely talented Jeff Bewkes, who has a stellar track record of successes, would certainly not work for Frank Biondi and a board of directors that is also full of the dregs. If stockholders vote for the Icahn slate, it would be like recommending that the Yankees trade A-Rod in a straight player swap for Eddie Gaedel (look him up on Wikipedia).

The one benefit I can see is that if Time Warner were broken up, decisions almost certainly would be made faster than in the current King Kong-sized bureaucracy. Then, perhaps, AOL could make decisions that were only four years too late instead of five. But this potential benefit is hardly worth breaking up Time Warner for.

Posted by Charles Warner at February 14, 2006 1:18 AM

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