AOL's Parsons: "This Isn't Terminal"

The CEO admits the media giant has problems. Solutions? Embrace broadband, spin off cable, pare debt, and shun silly deals

These are tough times for AOL Time Warner Chief Executive Officer Richard Parsons. The 53-year-old former lawyer took over the embattled company in May, with growth slowing at the AOL Internet service and a mushrooming investigation by the Securities & Exchange Commission just starting.

Yet Parsons, who's known for his easy manner and conciliatory management style, hasn't shied from the front lines. On Dec. 9, he appeared before investors and the press at the 30th annual UBS Warburg Media Week Conference, taking on issues ranging from AOL Time Warner's (AOL ) still towering debt to investors' loss of confidence. Here are some of Parsons' edited remarks from the question-and-answer period that followed:

Q: How will you handle investors' lack of trust?


We, like anyone who owns the company's stock, aren't happy. We had some things that I called anticipated spitballs that hover like dark clouds in the sky and block out the sun. Yes, there's an investigation by the Justice Dept. and the SEC. Those investigations are ongoing, and we're cooperating. But the important thing to do is to have a direct and straight talk [with investors], and a lot less hype and prognostication.

Q: How do you fix AOL?


We think the business will bottom out next year. We have a huge backlog of commerce and advertising deals, which are one-offs. They're not the way we are going to go forward or the way we want to do business. But we think that in 2004, the business grows.

This isn't terminal. It isn't in a free fall. But we're going to listen to our customers. And we're going to move away from the notion that broadband is something evil. Broadband is coming, and we've made some progress with signing on ISPs [Internet service providers] and cable companies. We do have a deal with AT&T (T ) and Comcast (CMCSA ), and we should close several other [cable-company] deals by the end of the year.

Q: Will you spin off AOL?


Could we spin it off? Yes. Would it be a good idea? No. The business -- put aside whether it makes sense for it to be inside AOL Time Warner or not -- first, you have to improve the business.

Q: How about the cable spin-off?


I was talking to Warren Buffett some time back, and he said to me, "You're too complicated to understand." And we have since decided to simplify ourselves so that people can understand us. We are unwinding the [Time Warner Entertainment] deal. We intend to do an IPO of that business. So that when the deal is over, we'll own 79% of a publicly traded company.... We will have an easy-to-understand cable company, so that at least that one objective of the investors will be addressed.

Q: What about the debt level?


We still have a lot of debt. It's a big number. But we intend to get it down.... We're still a BBB-plus rating, I think, although we're on credit watch. We want to have flexibility to take advantage of those opportunities when they come along.

Q: What are the next 12 months going to look like?


We intend to make our businesses run right. We're going to avoid any more transforming transactions that will take us in another direction or make it more difficult for investors to understand us.

There will be no more silly deals. The '90s were a decade of deals. We got paid for doing deals. We created opportunities to add value, but managing the assets got overlooked.

Now, my...people say that this is not a very exciting vision, but I tell them this isn't a circus, it's supposed to create value. We're industry leaders in all segments, but we need to run better. There are things that we can do to tease out values in our business that other companies who don't have our management or size can do. We probably have the best assets under one roof, and the best management.

By Ron Grover in New York

Edited by Edited by Patricia O'Connell

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