January 12, 2003 8:07 PM PST

For AOL, it's Case closed

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Having defied naysayers for the better part of two decades, the man who built the biggest Internet access company in the world finally met his match this weekend.

In agreeing to step aside as AOL Time Warner chairman in May, Steve Case admitted a rare defeat in an unpredictable career that carried him from computer start-up to the top of the media establishment.

AOL Time Warner board members who were contacted late Sunday declined to comment on the move. But sources close to the company have said the coup was led by shareholders upset by a 70 percent decline in the value of the company since the $106 billion merger was finalized in January 2001, as well as ongoing accounting scandals.

Among the dissidents, sources have said, were Ted Turner, a board member and the largest individual shareholder; Gordon Crawford, a portfolio manager for investment firm Capital Research and Management; and John Malone, chairman of Liberty Media.

Case, 44, had become the focus of ire for many of these people as he is the last architect of the troubled merger between America Online and Time Warner to still hold a position in the company. Executives who ran AOL Time Warner early on, such as former CEO Gerald Levin, former Chief Operating Officer Robert Pittman and former Chief Financial Officer J. Michael Kelly, have either left or have been demoted.

In a statement announcing the decision, Case insisted he will continue to play an important role in the company as a director and as co-chair of the company's strategy committee. But he admitted that internal dissent over his continued leadership of the company had grown too divisive to ignore.

"Given that some shareholders continue to focus their disappointment with the company's post-merger performance on me personally, I have concluded that we should take steps now to avoid the possibility of that effort hindering our ability to pull together as a team and focus fully on our businesses," he said.

Case's retreat, near the third anniversary of the announcement of the merger, cements the defeat of the brash dot-com invaders who briefly held sway at one of America's most venerable media companies.

A series of purges had already replaced most of the key AOL managers installed at the time of the merger, weakening Case's sway at a time when strategic ruminations had taken a backseat to daily operating decisions.

Industry insiders are watching closely for new rounds of layoffs and cutbacks at the AOL division as it seeks to regain its balance after a pair of disastrous advertising years and as analysts begin to worry about the strength of its core subscriber business. AOL 8, the latest version of the service released this fall, comes amid increasing competition with rivals Microsoft and Yahoo, particularly in the emerging market for high speed Net access.

Whether Case will prove a significant voice in this makeover remains to be seen.

CEO Richard Parsons last year tapped former Time CEO Don Logan and former Home Box Office CEO Jeffrey Bewkes to take over Pittman's responsibilities. In August, AOL Time Warner named former USA Interactive executive Jonathan Miller as the chief executive of its AOL division.

A Honolulu native, Case worked briefly in product development at Pizza Hut before co-founding AOL in 1985. By the mid-1990s, the start-up was on a path to become the largest Internet service provider in the world, using mass marketing to beat out other early entries including CompuServe, which it eventually acquired.

By the late 1990s, AOL dwarfed its closest rivals, and used its heft to rack up huge multiyear advertising deals. Its stock soared, paving the way for a surprise takeover of media behemoth Time Warner, announced in 2000.

Case has repeatedly asserted that he believes he has much to offer the company as the visionary who built AOL into a powerhouse with 34 million subscribers, over the backs of numerous skeptical reviewers in the early years who dismissed it as a service for simpletons.

But clearly demand for Case's vision has slipped. If he still has important insights about the future of media, as he asserts, selling them to AOL Time Warner executives will be more difficult than ever.

 

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