AOL Time Warner boasts of its business units' reliance on subscription revenues. But the company is an advertising colossus that takes in 12 cents of every ad dollar spent in the U.S. on TV, magazines or the Internet, according to Advertising Age estimates.
While its ad-supported businesses, including publisher Time Inc.-which controls an even larger share of the magazine ad business-will continue to report through Chief Operating Officer Robert Pittman, it is Mr. Parsons who has ultimate control. And one of his primary challenges as he takes the reins from Mr. Levin, who steps down in May, is to deliver on the promise of the marriage a year ago of AOL and Time Warner. That merger was justified largely on the ability of the combined company to cross-promote and sell multimedia ad packages across its formidable portfolio.
"The only issue," said Chris Dixon, an analyst with UBS Warburg, "is how do you make sure you integrate all the various operating businesses, figure out how to cross-promote, and drive AOL to the promise of integrating all the business in this new converged age?"
After the deal closed, the company said it would increase revenue this year by an aggressive 10% to $40 billion. In September, the company conceded it would miss its target, having taken in only $27.6 billion for the first nine months of the year.
AOL has signed several cross-media deals with marketers such as Diageo's Burger King, Kraft Foods and DaimlerChrysler. Mr. Pittman said last week the company has sold more than $1 billion worth of such deals. But those dollars are spread across multiyear deals. And both rivals and industry observers had anticipated a more aggressive, coordinated attempt by the media giant to throw its weight around in the ad market.
"Too disconnected" is how Kevin Brown, managing director of WPP Group's Ford Motor Media buying unit, assesses AOL Time Warner's cross-media efforts. "The first year of the merger was like they were not merged," he said, although he acknowledged that "in our current discussions, they are melting this cold war."
"It's almost impossible to get all the people together in a room," said Gene DeWitt, CEO of Optimedia International, New York. He suggested, tongue in cheek, that AOL create an online game that would allow media buyers "to go in and see every bit of AOL Time Warner inventory and let us play with it."
Mr. Parsons, 53, who had been co-chief operating officer with Mr. Pittman, now ranks as one of the most powerful African-American executives. He will report not to AOL Time Warner Chairman Steve Case but directly to the board. And he brings formidable political clout in New York and Washington: He is on the transition team for New York City Mayor-Elect Mike Bloomberg and was thought to be up for a cabinet position in the Bush administration. Save for Mr. Levin, he's the longest sitting board member-since 1991-at the combined company, a fact some point to in explaining his ascension.
While few doubt Mr. Parsons' abilities, it does not escape notice that he lacks marketing experience and has done very little outreach to Wall Street-two de rigeur tasks for the modern media mogul.
"Dick certainly knows the advertising business," insisted Jamie Kellner, chairman-CEO of Turner Broadcasting System. "He's been at Time Warner for many years." Still, it was Mr. Pittman who oversaw the integration of the ad sales operations across company units. When Mr. Parsons becomes CEO, all AOL Time Warner divisions will report to Mr. Pittman.
AOL Time Warner draws 76% of its revenue from non-advertising sources.
Messrs. Parsons and Pittman declined repeated requests to comment for this article.
Challenges for Mr. Parsons and AOL Time Warner include reviving its Warner Music Group, resolving whether it needs a major broadcast network and calming analysts concerned over the failure to meet financial projections. The company's share price fell 5% Dec. 7 after Merrill Lynch lowered its revenue projection, in part because of concern about the retirement of Mr. Levin.
"Whenever you miss numbers, and had been as vocal as long as AOL Time Warner, obviously there are repercussions," said John Corcoran, an analyst with CIBC World Markets. The company did not revise estimates, but Mr. Corcoran pegged EBITDA at just over $10 billion on revenue of $38.2 billion.
At a media conference Dec. 4, Mr. Case said the company's failure to meet its target was "a disappointment." To hit expectations, he said the company-which slashed costs this year and shed thousands of jobs-would have had to cut investments vital for growth.
AOL Time Warner is also pursuing AT&T Broadband-which would give it a stranglehold on cable systems, with 25 million U.S. households. But for a possible $50 billion with another $5 billion to $8 billion in digital set top box improvement needed, the cost may be too high. Merging the two largest cable systems operators would face major regulatory hurdles.
Many were surprised by the timing of Mr. Levin's retirement and by the choice of Mr. Parsons. Mr. Pittman, the company's most visible executive, was viewed by many as the heir apparent.
But in retrospect, internal company memos may have foreshadowed the appointment.
AOL Time Warner employees had grown accustomed to philosophical emails from Messrs. Levin and Case. After Sept. 11, Mr. Parsons sent them, too. On Oct. 15, Mr. Parsons e-mailed an excerpt from a sermon delivered in 1939 by C.S. Lewis, about how "the search for knowledge and beauty" can't stop during crises and war.
"Of course, Steve, Jerry, Bob and I are doing everything to secure the safety of people and our business," the e-mail concluded. "Nevertheless, I think Lewis' admonition to his fellow citizens in war-torn England is equally relevant today."
"To me it was a little bit unusual," one employee said of the e-mail. "It's very much Levin's style." (Mr. Levin, in an internal memo announcing his retirement, quoted Ecclesiastes.) In retrospect, the staffer said, "It sounds like the board wanted to pick someone from [Mr. Levin's] mold."
Contributing: Mercedes M. Cardona, Wayne Friedman, David Goetzl, Jean Halliday.