Exclusive Ad Age Interview


Don Logan Looks Back Over His First Year as Chief

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NEW YORK (AdAge.com) -- After a year as chairman of Time Warner's Media and Communications Group, Don Logan sat down for an interview with AdAge.com's Jon Fine on Dec. 10. Their discussions ranged across a variety of
Photo: Chris Cassidy
Don Logan, chairman of Time Warner's Media and Communications Group.
topics related to Time Inc. and the troubled America Online division that Mr. Logan oversees.

Some of his most noteworthy comments touched on:

  • The potential sale of AOL He said Time Warner would not consider selling the online service so long as it remains a "sustainable business."

  • Benchmarking AOL profit growth AOL is out of "free-fall" and Mr. Logan said he expects it to document profit growth in 2004 and 2005.

  • New print magazines Time Inc. expects to launch "live tests" of three or four new titles in 2004.

  • Acquisitions Time Warner has "a fair amount of money" available for investments in 2004, he said, adding that "we like cable."

  • The 'Rosie' magazine squabble It is his opinion that the deal with Rosie O'Donnell and Gruner & Jahr Publishing USA was "doomed" from the start.


AA: Philosophically, how does Time Warner in late 2003 differ from Time Warner in 1993 and AOL Time Warner in 2001?
Logan: Our company still believes in decentralized operations, because all of our businesses are very different, and compete in different industries. I don't think that's changed a lot. We are committed to making sure that when the opportunities are there we run with them, but if they're not we don't try to force them

AA: Sounds like a change from post-merger talk about synergy.
Logan: In the beginning a lot of people felt it was important that we work together and demonstrate that we were working together, whether the things we were working on were significant or not. Almost like managing for [Wall] Street expectations. ... Now, if it doesn't make sense we don't do it.

AA: On that point, why put Time Inc. content behind the curtain at AOL?
Logan: AOL gets unique content you can't get anyplace else. They have a relationship with editors who know about the world of entertainment. ... We were concerned about losing traffic, and concerned about not selling as many subscriptions over the Internet. But both of those things turned out to be not true. When a subscriber's subscription is about to expire and they find out they can't get access to the content on the Web, we find it helps them to renew the magazine. And it's going to generate additional incremental advertising as we put events and content together that we can monetize.

AA: Is there an incremental ad upside yet?
Logan: Not a lot. We sold enough to know it works. Probably by next year we can quantify it a little more. But it's going to be meaningful. It's not a tiny thing.

AA: How is AOL today not like Life in the '60s -- a dominant brand with a huge audience facing a vastly changing landscape that will make it obsolete?
Logan: Life was based on a model where network TV was not a player. The magazine existed to generate advertising, and circulation was given away. Life, Look, and the Saturday Evening Post all had 7 million to 8 million subscribers each, and they soaked up all the mass advertising. There was no network TV of any scale until the '60s. When that came, the problem with those magazines was their costs were so high they couldn't cut fast enough to offset the ad revenue decline.

With AOL, people aren't going to stop e-mailing. They aren't going to stop chatting. They aren't going to stop buying online. There is a need to connect customers in a way AOL has been very good at. AOL's also been very good at understanding consumer demand -- parental controls, things like that. They need to continue to be innovative. If they [continue to innovate] and stay on the top of the product side of the business, then they can migrate to new business formulas.

We recognized things have changed very quickly. With narrowband the strategy is to hang on to as much of the profit as we can while replacing it with other revenue streams. Could one envision a future in which all of that fails? You can come up with scenarios. We don't believe it will happen.

AOL has been in free-fall for a couple of years, primarily as a result of declining ad revenues -- the advertising that was sold in these long-term, multiyear big package deals. The second problem is the growth of broadband, which created some concern about the narrowband proposition: a lower speed at a premium price, compared to other providers. We were concerned about the drop in our subscriber count as a result of [people switching from narrowband to broadband.] We needed a new management team, and a new management infrastructure for decision-making. A lot of things had not developed the way it should have. So in December we put a plan and strategy together, and told everyone publicly what we planned on doing this year, and we pretty much accomplished all of it.

AA: Will subscriber drops continue?
Logan: The narrowband base will continue to erode. We would expect it to slow somewhat next year. But narrowband is more profitable than it was a year before, because we have been able to take out costs a little bit faster than we thought. We reduced network costs a lot. But it wasn't all about cost cutting. We spent a lot on product development. ... By year-end we [will] have 3 million paying customers on our broadband business, and that's climbing very nicely. There is another segment we are introducing for the first time this year -- the value segment. We are trying to match actual consumer behavior. And this year we actually began to sell more advertising. The backlog [of old deals] has burned off. Next year we expect our numbers to be up nicely.

AA: When did the advertising at AOL turn?
Logan: The third quarter.

AA: But didn't ad revenues fall in the third quarter?
Logan: What we are selling is increasing -- we still have backlog burning off. The absolute numbers of revenue reported year-over-year will start showing gains, probably, in the fourth quarter. We still don't know yet what churn rates are going to be long-term at our broadband product. But we said we wanted to restore growth, and bottom-line growth, and we are publicly announcing AOL will deliver double-digit growth next year. We got a lot of things good. I guess I would give us maybe a B.

AA: What about Time Inc.?
Logan: Time Inc. has had a tough year. It started out strong on the ad front in the first quarter, then ads slowed down the last nine months of the year. ... I won't say [Time is] struggling. The core businesses are still doing pretty well. The women's titles tended to do better than some of the men's this year. Sports Illustrated, Time, Fortune were hit a lot by the business-to-business slowdown.

AA: One can't help but notice Time Inc.'s long run of quarterly profit growth ended ...
Logan: Yup.

AA: ... with your successor.
Logan: For the reasons I just stated. All those things hit at one time. Ann [Moore, Time Inc.'s chairman-CEO] can now start her own new string. She gets it up to 40 [the total of consecutive profitable quarters Time Inc. posted], that'll be great.

AA: Are there more launches coming in 2004 beyond the Cottage Living announcement?
Logan: For sure we got a couple next year. It may migrate to three or four before the year's out ...

AA: As in, magazines that will appear in 2004?
Logan: Or maybe live tests, so it's not an abstract financial analysis done somewhere. There are a couple of good ones on the drawing board. You just have to find money to do that. Just like at AOL you had to find money to develop the product even though we were in cost-cutting mode.

AA: What do you like on the drawing board?
Logan: There's some I like a lot. But I am usually not the target market so they discount what I think a great deal.

AA: Which ones?
Logan: I don't do that. I read about 'em all the time, but you're not going to read about 'em from me.

AA: How aggressively can Time Warner play in the deal markets?
Logan: We committed to fixing our balance sheet, by getting overall debt down to roughly $20 billion by 2004. Looks like we're gonna be close to that by the end of 2003. We got a fair amount of money we can invest next year. A company of our size has to do that to continue to grow.

AA: What's especially ripe for acquisitions?
Logan: It depends on the deal. We like cable. We'd like to expand our footprint. We like the cable network business.

AA: Are there ways AOL can work more closely with Time Warner Cable?
Logan: We spend a lot of time looking at that. We haven't merged the two businesses together, the broadband business with Roadrunner. AOL is a national brand. Cable is an aggregation of a lot of local brands. Why would Comcast want to take the Roadrunner service somewhere? And our cable company only reaches 14% of the country. What do we do if our [broadband] service is dedicated and directed to this small segment of the market?

AA: These days movies have to be a hit their first week out. Magazines have to turn profitable quicker. In this context, how long do you have to turn around AOL?
Logan: We need to increase our profits next year over this year to demonstrate this is a business that has a future. And we need to do that the year after that. We need to turn this business now.

AA: Does it ever make sense to sell AOL?
Logan: It would only make sense if the company and the people at AOL believe they don't have a sustainable business model that allows us to grow in the future. This is a company committed to staying in the businesses that have sustainable growth models year after year, and are the leaders in the industries in which they compete. If it gets to the point where you can't do that, obviously you have concerns and have to look at other alternatives. But we will be up double digits next year, so it's not like something is wrong. AOL's undergoing fundamental changes and there are a lot of changes occurring in the marketplace. I think we're reacting to them. If we believe we can't, then we have to have a conversation about some of that. [But] that's a long time off.

AA: What did you think of the recent contretemps between Gruner & Jahr Publishing USA and Rosie O'Donnell over Rosie magazine?
Logan: I thought it was sort of doomed to happen from they day they announced it. I thought they were going to have problems. Rosie ... appears to be a rather unique individual. She didn't appear to be exactly the kind of person that you would have running a magazine in a G&J culture.

McCall's [the women's magazine that was changed into Rosie) always was a service magazine. Now, Martha knows how to cook. She knows how to decorate. She knows what looks good. Rosie's not really known for those things. And the [migration of] the customer base over to a different kind of magazine was going to be very, very hard. If they had been successful, it would have been a miracle.

[Martha Stewart and Oprah Winfrey] had TV shows and followings beforehand ...

AA: Rosie did, too.
Logan: She did. But it didn't relate to the magazine -- that's my point. What Rosie stood for, in TV shows and all the other things, wasn't what the magazine is supposed to be about. Oprah's is. Martha's is. Rosie's was something else. She had the TV name and she had the awareness, but they were trying to produce a service magazine with Rosie O'Donnell. And no one would ever accuse her of being an expert in those fields.

I think [G&J] just got seduced into the notion of having the power of TV promoting [the magazine], and getting all the subscriptions from there, and that things would be ... rosy.

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