Conventional wisdom has it that Steve Case engineered one of the greatest business coups of all time when, just before the dot-com bubble popped, he bought media behemoth Time Warner with America Online’s inflated stock. Two years later, conventional wisdom holds that Time Warner shareholders — victimized to the tune of a $200 billion drop in “market value” — were royally screwed by Case, who announced on Sunday that he is “stepping down” as chairman.
So, two years ago, Steve Case was a masterful executive — but today, not only is his greatest triumph actually a failure, but press accounts regularly portray him as clueless, ineffectual and irrelevant to the day-to-day operations of the company.
The turnabout resurrects ancient memories from the mid-’90s, when the Internet old guard gaped at this bland, platitude-spewing former Procter & Gamble salesman and said, no way, this guy can’t possibly get the Internet. AOL will never succeed, rose the cry, especially under the leadership of someone as clearly unexceptional as Steve Case. If Bill Gates didn’t eat his lunch, the Internet surely would.
The Internet naysayers, as Wall Street Journal reporter Kara Swisher took pains to point out in “AOL.com,” her 1998 panegyric to all things AOLish, got it wrong. As Swisher’s subtitle hammered home — “How Steve Case Beat Bill Gates, Nailed the Netheads, and Made Millions in the War for the Web” — AOL and Case ended up on top. We were all fooled! Case’s bland exterior was a wily façade beneath which lurked an extraordinarily effective corporate warrior.
So who’s the real Steve Case, and what is his legacy? Is he one of the great businessmen of our time, forever resculpting the landscape of corporate America? Or is he the boardroom equivalent of Forrest Gump — someone who just happened to be in the right place at the right time? And after this latest setback, what next? Is Case lying low, in wait for his inevitable comeback? Or is he, having finally risen to the point where he was clearly out of his league, kaput, once and for all?
The answer may depend on how much one accepts “market value” as the be-all and end-all for assessing corporate excellence. If there’s one thing that everyone seems to agree on, it’s that the fall in AOL Time Warner’s shareholder value doomed Case. But to anyone who was awake during the dot-com bubble, the very idea that stock prices have some connection to actual value is preposterous. Market value is mob psychology. As any value investor will tell you, the time to buy is when the stock price is low compared to what you believe the real value of a public corporation to be. What are the company’s long-term prospects?
Steve Case’s personal “market value,” right now, would appear to be at an all-time low. But the guy, judging by his demeanor and rhetoric, is exactly the same as he’s ever been. The message, then, is clear: It must be time to buy — someone hire this guy, pronto!
Value investing, supposedly, is back, after years in which anyone who tried to make a rational investment decision based on such things as price/earnings ratios or actual revenues was derided as a hopelessly out-of-touch fuddy-duddy.
So, from a value perspective, was the merger a good idea? Steve Case, not surprisingly, believes it was. In an interview televised on CNBC, he noted, “There’s no question that this merger so far has been a disappointment … [but] if you look out 10 to 15 years, I think people will look back and have a different view on this merger.”
The statement is typical Case: milquetoasty, kind of boring, and almost impossible to prove or disprove. But what if he’s right? What if AOL Time Warner’s leadership figures out how to properly exploit the 35 million subscribers to AOL, in conjunction with the conglomerate’s stellar media and entertainment entities? What if, 10 years down the line, passing through some kind of AOL Time Warner gateway (dare we say “portal”?) to the computer-tainment universe is de rigueur for the online world?
A great deal will have to happen for such a future to materialize. AOL will need to successfully negotiate the exploding broadband market for Internet access. It will have to weather the current media/advertising recession. Most important, it will have to avoid being jettisoned by a board of directors who hope that striking the evil letters A-O-L from the corporate masthead will get Time Warner’s stock price back up where it belongs.
It will require, above all, management taking the long view. Which means being able to ignore short-term stock price fluctuations while pursuing a long-term strategy. We may well wonder whether any publicly traded corporation in America is capable of such behavior. But it’s clear that most of the mega-media corporations in the United States are looking for ways to pool content and distribution networks in precisely the way that AOL Time Warner has.
Right now, the Federal Communications Commission is deliberating whether to reduce restrictions on media ownership that prevent media conglomerates from owning too many outlets in the same market or more than a certain percentage of, for example, all the TV stations in the country. Under heavy lobbying pressure from major media corporations, and with the ideological backing of the Bush administration, the FCC appears extremely likely to lift, or greatly ease, such restrictions.
In other words, NewsCorp, Disney, Viacom and their peers all believe that their long-term strategy should be to get bigger, to control more of the means of media distribution than less. But AOL Time Warner is already there — thanks to Steve Case.
Maybe Murdoch, Redstone and Eisner are all wrong. Maybe bigger is not better for the bottom line. Certainly, from a democratic point of view, the consolidation of control over both content and distribution isn’t anything to be complacent about.
But the drop in share price for AOL Time Warner doesn’t appear to be a referendum on the value of a long-term strategy — it’s a reaction to short-term pain. It’s pissed-off executives watching their stock options and 401K plans get hammered. Steve Case is an obvious scapegoat, and maybe getting rid of him will ease some of the suffering. 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? Surely the board of directors of Time Warner had something to do with that.
Brilliant visionary or fumbling clod? That may depend on how much patience you have.