- The Washington Times - Monday, January 13, 2003

AOL Time Warner Inc. Chairman Steve Case, co-founder of America Online and an architect of its merger with Time Warner Inc., will resign in May, the company said yesterday.
The surprise announcement of Mr. Case's departure comes two years after Internet giant AOL acquired Time Warner for $124 billion. But the disappointing results of that union may be the reason for Mr. Case's downfall. AOL's purchase of Time Warner has failed to provide investors the windfall they expected.
Mr. Case, a 44-year-old Hawaii native, said he decided to quit because "some shareholders continue to focus their disappointment with the company's post-merger performance on me personally." He helped start AOL, the world's biggest Internet service provider, in 1985. It now has 35 million subscribers worldwide.
Investors have wondered for months how long Mr. Case would last as the head of the company. AOL Time Warner executives said last month that Sterling, Va.-based America Online won't recover for months from lower advertising revenue.
Mr. Case will remain on the company's board of directors and continue to co-chair its strategy committee.
"This decision was personally very difficult for me, as I would love to serve as chairman of this great company for many years to come," he said.
When the companies announced their intent to join in January 2000, it was viewed as a groundbreaking business deal, bringing together a media company whose content could be marketed to millions of AOL subscribers and delivered online.
But the union hasn't worked according to plan.
Sales at America Online could drop by about 25 percent this year, and the company has said advertising revenue will fall as much as 50 percent this year. AOL Time Warner stock has plunged 68 percent since the merger. Its shares closed Friday at $14.88 on the New York Stock Exchange.
AOL Time Warner took a $54 billion charge after its first quarter last year to account for the decline in AOL's value since the merger. The company is expected to announce a $10 billion charge against earnings, perhaps as soon as this month, because of the continuing decline of the Internet unit's value.
AOL also has been under federal scrutiny for some business deals. It has concluded that it overstated revenue by $190 million over the past two years.
Mr. Case has borne the brunt of criticism for the failed merger. Ted Turner has been his biggest critic. Mr. Turner, who sold Turner Broadcasting System Inc. to Time Warner in 1995, initially was excited about the union. But the love affair with the deal soured in mid-2002 after news of the accounting scandal.
Mr. Case's departure leaves the company in the hands of executives from Time Warner, including Chief Executive Officer Richard Parsons.
Mr. Case said in December he planned to stay with the company in a less-active role after helping create a plan to revive growth at AOL, the world's largest Internet service. The strategy included adding more exclusive content and offering a new service for customers with high-speed Internet connections.
Mr. Case isn't the only one leaving AOL Time Warner.
Gerald Levin, the Time Warner chief executive at the time of the merger, retired in May, just a year and a half after AOL's purchase of Time Warner became final. Robert Pittman resigned as chief operating officer at AOL in July. Barry Schuler lost his job as AOL chief executive in April and was reassigned to a lower-profile position.
Mr. Case owned 10.3 million shares of AOL Time Warner as of Jan. 31. He was its second-largest shareholder after Mr. Turner, who owns 132.5 million shares, or 3.1 percent of the company.
Mr. Case tried his best last month to persuade investors that he wasn't leaving the company. During an investor conference in New York, he said that he intended to stay at the company for years.
He said that "as an architect of the merger I have felt it was important that I stay the course as chairman and help get things on track," but he added that distractions surrounding the company's stock performance were too great to overcome.
There was no announcement yesterday for a successor to Mr. Case, nor was there any indication when the company would name one.
AOL executives said that they plan to introduce more products and services, and increase the amount of Time Warner content available to high-speed subscribers to salvage the company's languishing stock.
But AOL is unlikely to rebound until 2004, and AOL Chief Executive Officer Jonathan Miller said 2003 will be the unit's bottoming-out year.
AOL's revenue from advertising, which reached $2.3 billion in 2001, will fall to an estimated $1.6 billion this year.
The unit's executives plan to focus on improving services for its 22.1 million U.S. subscribers and persuade them to migrate to high-speed broadband services. Among the new initiatives are plans to offer subscribers video from Cable News Network for free. Content from Time Inc. magazines also will be offered exclusively to them.
AOL also plans to introduce a voice-mail service and a cyber-commerce service, which it called an online liquidation marketplace. The goal is to create more shopping opportunities for AOL users and boost revenue through sales commissions.
Its executives plan to work harder to persuade dial-up customers to purchase broadband service. AOL has an agreement with Time Warner Cable, the nation's second-largest cable company, to market AOL service to its subscribers. The company also has an agreement to market broadband to AT&T; Comcast customers, but that effort has not yet started.
Only 2.7 million AOL subscribers are broadband users. AOL estimates 74.8 million households will be subscribing to broadband by 2006.

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