September 12, 2002 12:08 PM PDT

Sweeping changes for America Online

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AOL Time Warner on Thursday announced sweeping organizational changes at its America Online unit, in a bid to make that division more profitable and tighten its focus on broadband services.

An overhaul has been expected for some time. Recently, former USA Networks executive Jonathan Miller was named CEO of the division, in a move that presaged the restructuring.

Speculation was further fueled after a speech that AOL Time Warner CEO Richard Parsons gave in the United Kingdom this week. According to news reports, Parsons said that "if (AOL) is going to live, and I think it is, it will be somewhat like HBO," the company's cable-television division. He added that AOL would need to schedule programming that people were willing to pay for.

Miller will now oversee the AOL brand, interactive marketing and AOL broadband.

"I think the motivation (for the reorganization) is that I wanted to move quickly to get the organization aligned against our business priorities," Miller said in an interview. He added that he wanted to trim the operating levels in the company and move more quickly to turn around the business.

Indeed, the stated focus on broadband has given some on Wall Street a shot of optimism. AOL, however, remains a blemish on the parent company.

"It's a step in the right direction, but how large a step is open to question," said David Lee Smith, an equity analyst at RBC Capital Markets. "I think the AOL portion of AOL Time Warner probably took several steps forward a few weeks ago when they gained carriage on AT&T-Comcast. But they still have a long way to go."

Two executives are stepping away from full-time roles at the company: President Ray Oglethorpe will retire after advising the company during a "transition period," and Jan Brandt, chief marketing officer and vice chairman, will become a part-time adviser to the company.

The positions of president and chief operating officer are being eliminated. COO J. Michael Kelly has been named CEO of AOL International, reporting to Miller. Kelly will also oversee the AOL Anywhere products and services.

Also, CFO Joseph Ripp has been named vice chairman, overseeing corporate and operating functions, including network infrastructure and technology operations. The company is conducting a search for a new CFO.

Trouble behind. Trouble ahead?
The online giant has had its share of troubles. The soft advertising market, for instance, is taking its toll. The company recently said it expects 2002 revenue from advertising and e-commerce at the unit to be around $1.7 billion, although sales could come in about 5 percent lower. And accounting processes in its business affairs unit have drawn questions from investigators at the Securities and Exchange Commission and the Department of Justice.

Last month, AOL disclosed that it would conduct an internal investigation of three unnamed transactions that may have been improperly accounted. The deals, valued at $49 million and spanning six quarters, may have been improperly accounted as advertising and commerce revenue. The investigation may have been sparked by a series of reports in The Washington Post that flagged possible accounting improprieties in some of AOL's deals.

Meanwhile, speculation continues to mount about the future of Steve Case, formerly the CEO of AOL but now chairman of AOL Time Warner. Case remains the final AOL veteran in the company's upper management, but his future at AOL Time Warner has come under question, according to reports.

Although AOL Time Warner's Parsons has stated that he continues to work closely with Case, there is speculation that Case may have lost his role as the futuristic voice in the company, according to Thursday's edition of The Wall Street Journal.

AOL said Thursday that the business affairs division, which was responsible for making deals that included advertising pacts, would be disbanded, with employees reassigned to the business units they support.

In a release, Miller set a list of objectives for the newly restructured unit, saying that "AOL must maintain its leadership position among dial-up subscribers, enhance our broadband business and reinvigorate our relationship with marketers."

The company has created new "councils" that will work on brand, product and technology strategy. A senior strategy group consisting of Miller, Ripp, Kelly, AOL Interactive Services President James de Castro and AOL Time Warner Media and Communications Chairman Don Logan, has been formed to set corporate goals and strategies.

 

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