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Case accepts blame for AOL-Time Warner debacle

In a rare and candid talk, former AOL Chief Executive Steve Case muses on the reasons the merger with Time Warner failed.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
3 min read
MOUNTAIN VIEW, Calif.--Steve Case is not ashamed of taking the fall for the merger of America Online and Time Warner, perhaps one of the greatest failed deals in corporate history.

Two days after the fifth anniversary of the deal, a visibly graying Case, former chairman of what was then AOL Time Warner, provided a candid perspective into the factors that prompted the merger and some of the general reasons it failed. The blame could go to the billions of dollars in market value evaporating during the bust, or management's stubbornness in promising more than it could deliver, or doing all the wrong things at the wrong time.

Steve Case

From Case's view, the blame starts with him.

"In retrospect, I probably wasn't the right guy to be the chairman of a company with 90,000 employees," Case said during an event at the Computer History Museum here. "In retrospect, none of us were the right guys."

Indeed, for Case and Gerald Levin, then-CEO of Time Warner, the architects of the deal, grand visions of an Internet-charged media behemoth faded into the bland realities of turf wars and cutthroat politics. Case learned Time Warner's notorious culture of fiefdoms the hard way, as multibillion-dollar businesses bristled at the idea of working with their new AOL masters.

Case added that much of the merger's failed vision stemmed from a failure in "timing and execution." When the stock market began to collapse in 2000, the ripple effect did not reach AOL Time Warner (the company has since dropped the "AOL") until late 2001. After an embarrassing retraction of its financial forecast and a toppling stock price, Levin was shown the door, Chief Operating Officer Bob Pittman was ousted, and Case resigned as chairman in January 2003.

"The merger was my idea. If you wanted to be mad at somebody, I was the one to be mad at."
--Steve Case
former chairman,
AOL Time Warner
"For some reason--some was cultural, some was the stock going down--people got mad," he said. "The merger was my idea. If you wanted to be mad at somebody, I was the one to be mad at."

Still, Case's reasoning for the deal made sense: AOL needed Time Warner for its cable division.

While AOL was the undisputed champion of dial-up Internet access when the deal was inked in 2000, the greater threat posed by broadband loomed in the distance. Cable companies and local phone giants were the main purveyors of high-speed Internet access, leaving outside players such as AOL unable to upgrade their customers while keeping their access business profitable.

Now in 2005, AOL has watched its dial-up subscriber base plummet by nearly 4 million since 2002. Most of these customers left for broadband services provided by their cable or phone company, and Time Warner Cable decided to stick with its own Road Runner ISP rather than market AOL.

Time Warner "provided an unparalleled array of assets for AOL to transition to broadband," he said.

Out of the spotlight for two years and counting, Case has set his sights on other pastures. While still a member of Time Warner's board of directors, Case said he's turning his back on tech and the Internet for now, and focusing on new ventures. He's interested in health care, especially preventative medicine and wellness, and is dabbling in real estate. He's working on philanthropic issues and spending a lot of time in Hawaii, where he grew up.

Case wants to continue investing his time and money in "disruptive" businesses, but he remained mum on his plans.

"I don't particularly miss it," he said about the technology business. "I feel like I've been there, done that, and I'm interested in new things."