Washington Post

Media Veteran Selected To Lead AOL

Page A01; by Frank Ahrens (Aug. 7, 2002)

AOL Time Warner Inc. announced yesterday that it has hired Jonathan Miller, an amiable media executive who has worked in television and the Internet, to turn around its troubled America Online unit.

Miller, 45, headed the interactive parts of USA Networks, Barry Diller's enterprise that once included television and online businesses, such as Ticketmaster and travel booking site Expedia. Miller quit in June to start his own firm and was contacted by AOL's executive search firm shortly afterward.

"AOL has grown rapidly in the past two years, but we're at a place now where we need a fresh perspective," AOL founder Steve Case, AOL Time Warner's chairman, said in an interview yesterday. "Over the last few years because of the whole dot-com mania environment, our focus really became a little too skewed toward monetizing the service as opposed to meeting the needs of the members. We're getting the focus back on the members."

Neither Miller nor Case offered specific ideas for increasing ad revenue, which has slumped at America Online, but Case hinted at offering a "premium" service to users based on the pay-television model: additional charges for additional content.

"This company is the battleship of interactive media," Miller said in an interview yesterday. "It's right where the money is today, and it certainly has an opportunity to be where the money is tomorrow."

Miller's hiring as chairman and chief executive of the AOL unit represents another step in changing the internal culture of AOL Time Warner, the media behemoth created by the 2001 merger of AOL and Time Warner Inc. Under former chief executive Gerald M. Levin and hard-charging former chief operating officer Robert W. Pittman, AOL Time Warner was known as a chest-thumping alpha-firm, flush with a swollen stock price and new-economy success. But Pittman, who came from AOL, rubbed many of the old-media Time Warner executives the wrong way.

Levin resigned in December and was replaced by Richard Parsons, known as a consensus-seeking conciliator. When Pittman exited last month, the company reshuffled and placed Time Inc. chief Don Logan and HBO head Jeff Bewkes -- two more driven but understated executives -- directly under Parsons.

The hiring of Miller, described as "a guy you root for" by one person who knows him, is consistent with AOL Time Warner's make-nice makeover. Miller, who will report to Logan, was the first choice of Parsons and Case among several candidates, including about four inside the company, according to a source familiar with the hiring.

Miller takes the position vacated by Barry Schuler in April. Since then, Pittman ran the unit on a temporary basis. Pittman resigned from AOL Time Warner last month.

Miller takes over an America Online unit that grew from just another Internet service provider in the 1980s to the industry leader in the mid-'90s, its stock growing enough to allow the company to take over media goliath Time Warner Inc. in a merger completed in January 2001, creating the world's largest media company.

Even before the merger closed, however, AOL's stock began to slip from a high of more than $90 per share. AOL Time Warner stock closed yesterday at $9.90, down 5 cents, or 0.5 percent, in slightly heavier-than-average trading.

AOL claims 34 million users, but subscription growth has flattened over the past year and advertising revenue has crashed, owing to a dismal 2001 ad year and the punctured Internet bubble.

America Online sold $342 million in advertising in the second quarter, the company reported last month, but $220 million of that was from long-term contracts that probably will expire in the coming year. Online advertising is expected to continue to sink this year.

Parsons has said that AOL Time Warner is a robust company with one weak division -- America Online. In the most recent report, the company reported solid earnings across its many divisions, save for America Online.

"There are no quick fixes, no magic bullet," Case said.

Miller said online advertising is "still in its infancy" and additional ad revenue could be achieved by improving the product and attracting more people to the service.

"You can do voting and contests and all kinds of promotional things," Miller said. "People are more accustomed to being interactive in their pursuits. That's a marketer's dream."

In an effort to gain new subscribers and make current ones happier, America Online recently signed Google to be the site's search engine and is to roll out AOL 8.0, the latest version of its software, this fall.

Miller has "his work cut out for him," said George Nichols, media analyst for Chicago-based Morningstar Inc., which holds no AOL Time Warner stock and does no consulting. "AOL suffers from a laundry list of problems and there's no miracle worker around to engineer a quick turnaround."

Nichols, however, said Miller is a good choice, thanks to his strong track record at USA Interactive.

"And by all accounts, he has a non-abrasive personality and keeps his ego in check -- rare qualities for a media executive," Nichols said. "I hope he can change the corporate culture -- the previous regime seemed hellbent on boosting short-term results at any cost."

America Online customers rely on dial-up, or "narrow-band," telephone connections to reach the service, a potential liability as more consumers move to high-speed access. Miller is not convinced such a switch will happen overnight.

"How fast is that changing?" he said. "The narrow-band business is the mother ship and it's a very healthy business overall. There will be a migration over time, but it's not tomorrow morning and it's not the day after that that will threaten the mother ship."

There are as many ideas for fixing America Online as there are problems. Some favor extracting more money from subscribers. Others are designed to expand the service by offering more enticing content, such as movies, television and music from AOL Time Warner's prodigious Warner Bros. film and music businesses.

Meanwhile, AOL Time Warner is being investigated by both the Securities and Exchange Commission and the Justice Department for unorthodox booking of advertising revenue at America Online, first reported in a series of articles last month in The Washington Post.

Case said the Justice Department investigation "didn't come up in my discussions with Jon."

AOL has hired the law firm of Williams & Connolly, including partners F. Whitten Peters and Steven A. Steinbach, to represent it in the investigations, company and industry sources said yesterday.

Miller said his recent start-up company, financed by Boston venture capitalist General Catalyst, will continue to operate but not under his leadership. General Catalyst is involved in projects with America Online, he said.

"I have a single job," he said.

Staff writer Kathleen Day contributed to this report.