AOL's Pittman Resigns, Replaced by Time Warner Vets

Ending weeks of speculation, America Online (AOL) on Thursday said chief operating officer Robert Pittman, the man who had been chosen in April to revive its struggling online unit, had resigned.

The troubled media and entertainment giant said it has promoted HBO head Jeff Bewkes and Time Inc. head Don Logan, making the two veteran Time Warner execs Chief Executive Richard Parson's top deputies.

The resignation announcement comes at a time when questions are being raised about the quality of AOL's revenues. A Washington Post report Thursday said AOL boosted its revenue figures through "unconventional deals" from 2000 to 2002.

The company's recent troubles and its reshuffling adds to the perception that one of the most hyped mergers in the sector, with its promises for convergence and bringing together the Internet with old media like magazines, movies and television networks, has gone awry.

Many analysts were not surprised to see Pittman relinquish the No. 2 role at the company, even though he has been praised for his marketing and operating expertise.

"Sometimes management departure is therapeutic for a company," said SoundView Technology analyst Jordan Rohan. "As well-respected as Bob Pittman is, his depature may reinvigorate the other business units."

"Clearly, we need to recalibrate expectations for the online unit," Rohan said. "It will take a while to turn around. I'm sure Don Logan will see things differently than the way Bob Pittman did. The first thing that usually changes is the size of the business units. Layoffs are a natural part of any type of recalibration."

Pittman, who also steps down from his director post, will leave the company after completing the transition to a new CEO at the AOL unit.

The company said in a statement that Bewkes, 50, will become chairman of the new Entertainment and Networks Group, overseeing HBO, New Line Cinema, The WB, Turner Networks, Warner Bros. and Warner Music. These businesses are home to CNN and HBO, artists such as Madonna and shows like "The West Wing."

Bewkes, who has been with HBO since 1979, has been credited with reviving HBO with shows like Emmy-winning "The Sopranos" and "Sex and the City."

Logan, 58, has been named chairman of the new Media and Communications Group, which includes America Online, Time Inc. and Time Warner Cable, as well as the AOL Time Warner Book Group and Interactive Video unit.

Logan has been chief executive of the world's largest magazine publisher since 1994 and has been a part of Time Inc. since the group's 1985 purchase of Southern Progress Corp.

Ann Moore, a Time executive vice president, will replace Logan as Time Inc. chairman and CEO. Chris Albrecht, formerly president of HBO Original Programming, will replace Bewkes as HBO's Chairman and CEO.

Bill Nelson, formerly HBO's Executive Vice President in charge of finance, information and operations technology and business affairs, has been promoted to COO.

Many of the key executives associated with the merger have left. Former Chief Executive Gerald Levin, one of the principle architects of the deal, retired in May, and AOL Time Warner Chief Financial Officer Mike Kelly was replaced last year by Wayne Pace. Kelly was named chief operating role of AOL.

Parsons, who was the No. 2 executive at Time Warner prior to the merger, and AOL Time Warner Chairman and AOL co-founder Steve Case are the only two executives that had been part of creating the merger who are still in the top ranks.

Meanwhile, a report in The Washington Post said AOL boosted its revenue figures through "unconventional deals" from 2000 to 2002, before and after its acquisition of Time Warner Inc.

A chart printed in conjunction with the Post article shows a total of $270.1 million in unconventional deals. 

The newspaper said it reviewed hundreds of pages of confidential AOL documents and interviewed current and former company officials and their business partners to produce the report. 

A spokesman for AOL said the story was "flawed in its facts and analysis and misleading in its conclusion." 

According to the Post article: 

-- "AOL converted legal disputes into ad deals; 

-- "It negotiated a shift in revenue from one division to another, bolstering its online business. 

-- "It sold ads on behalf of online auction giant eBay Inc. , booking the sale of eBay's ads as AOL's own revenue. 

-- "AOL bartered ads for computer equipment in a deal with Sun Microsystems Inc. 

-- "AOL counted stock rights as ad and commerce revenue in a deal with a Las Vegas firm called Inc. 

"AOL also found ways to turn the dot-com collapse to its advantage, renegotiating long-term ad contracts it risked losing into short-term gains that boosted its quarterly revenue," the Post reported. 

The accounting and business practices resulted from worries over impending loss of advertising revenue and market unease over the health of Internet companies, the Post said. 

"In such an atmosphere, and with its takeover of Time Warner Inc. imminent, AOL sought to maintain its breakneck growth in advertising and commerce revenue," the newspaper reported. 

In October 2000, the Post said, just a week before AOL President Robert Pittman publicly denied that AOL was feeling an industry-wide slowdown in advertising, shares of Yahoo! Inc. tumbled 21 percent after that company, a key AOL competitor, said that strong ad growth could not be sustained. 

What's more, AOL's shares lost 17 percent the day before Pittman spoke, apparently on similar worries, the Post said. 

Robert O'Connor, then vice president of finance for AOL's advertising division, told the Post he outlined concerns in a series of meetings with top executives in 2001 and this year. 

"Clearly, a lot of what they were living on was revenue that was not of the highest quality. I don't know if they're still in denial, but there were some pretty big business issues they were not willing to face. 

"For nine months, I tried to get these guys out of denial. I tried to take the perfume off the pig," O'Connor told the newspaper. He resigned in March. 

In response to the Post investigation, AOL replied that "the deals were handled properly and the company 'maintained a strict and effective system of internal controls."' 

AOL also told the Post "the total revenue represented by all the deals reviewed by the Post were 'truly microscopic' -- less than 2 percent of AOL's overall revenue, including subscriber fees -- and therefore immaterial to the company's business." 

AOL Time Warner spokesman John Buckley told Reuters that accounting for the transactions differently "would have had no impact on the company's net income." 

"AOL's independent auditor, Ernst & Young, has confirmed in writing that the accounting and related financial statement disclosure for all of the transactions were appropriate and in accordance with Generally Accepted Accounting Principles," Buckley said.

Reuters and the Associated Press contributed to this report.