Steve Case - The Story of AOL's Architect

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Case Details:

Case Code : LDEN017
Case Length : 14 Pages
Period : 1992-2002
Pub Date : 2002
Teaching Note :Not Available
Organization : AOL TW
Industry : Media and Entertainment Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"Every time people ask, 'How is he going to survive?' he makes the right moves."

- Gordon Bridge, Chairman, Connect Inc. (Internet Software provider), in April 1996.

"Half nerd and half marketing guy. He is enough of a nerd to be really into online services, but he has all marketing skills to understand how to make it work"

- Marc Andreessen, Founder of Netscape, Describing Steve Case, in January 2000.

"But one has to wonder, if he is as great a bungler as media accounts citing anonymous Time Warner sources are making him out to be, then how exactly did he get to be Chairman of the world's largest media corporation?"

- Andrew Leonard, Tech-Columnist (www.salon.com), in January 2003.

Steve Case: Guilty or a Scapegoat?

In January 2001, the US-based Internet media company, AOL, acquired media giant Time Warner (TW)¹ through a complete stock deal. Not only was the merger (valued at $112 billion) the biggest ever in the media industry, it was also one of the biggest in the history of the corporate world.

The new company, called AOL Time Warner (AOL TW) had 100 million paid subscribers, which included the customers of AOL's dial-up service and the subscribers of TW's cable and magazine divisions. The chief architects of the merger were AOL's CEO Stephen McDonnell Case (popularly known as Steve Case or Case) and TW's CEO Gerald Levin.

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The merger was talked of as the beginning of a new trend: the coming together of traditional and new media companies. However, instead of gaining from the synergies expected of the merger, AOL TW soon got entangled in a web of problems.

The reasons for the problems were many: the inability of the companies to integrate their cultures (which led to exodus of key executives); the end of the Internet boom in the early 21st century that led to a drastic decline in AOL's subscriber growth and advertising revenues; and AOL's inability to tap the broadband² option in time. AOL TW also ran into financial problems on account of the merger. In March 2002, AOL divisions reported a decline of 31% in advertising and commerce revenues and a 44% decline in content revenues. In April 2002, the company reported a huge non-cash goodwill charge (which reflected the depreciation of the stock since the merger) of $54 billion and a debt of $28 billion.

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1] The US-based Time Warner is a leading media conglomerate involved in the production and distribution of movies and television programs, the publishing business (Time, Fortune and Money), and the broadcasting and entertainment business (through cable television channels, CNN and HBO).

2] Broadband refers to a high-speed interactive data transmission service. In this service, several data channels can be carried over a common wire using a wide band of frequencies. Information can be sent on many different frequencies or channels within the band concurrently, allowing more information to be transmitted in a given amount of time. Even as many Internet subscribers switched to broadband, AOL had not increased its focus on the same.