Structural Issues Addressed At Aoltw

With the appointment of former HBO chairman/CEO Jeff Bewkes as chairman of the new entertainment and networks group within AOL Time Warner (AOLTW), oversight of the Warner Music Group (WMG) falls to a creative-minded executive. Yet keeping the creative businesses on track may be the least of the concerns for Bewkes and other AOLTW brass, who continue to grapple with structural and financial problems.

Bewkes' appointment was part of a larger restructuring at AOLTW that includes the departure of COO (and former AOL exec) Robert Pittman, to whom WMG chairman/CEO Roger Ames had been reporting since May (Billboard, July 27). Bewkes also gains oversight of AOLTW's film and TV assets. Don Logan, formerly head of Time Inc., now chairs a media and communications group that includes AOL, Time Warner Cable, and Time Inc.

In a memo to employees, AOLTW CEO Dick Parsons wrote that achieving "unity of vision and execution" within AOLTW "has proven harder than we first thought," but that "the appointments of Don and Jeff mark a true turning point."

Bewkes, Parsons added, "blends financial expertise with a deep appreciation of the creative process." He began at HBO in 1979, becoming chairman/CEO in 1995. Thanks to such programs as Six Feet Under and Sex and the City, HBO—which now boasts about 38 million subscribers—recently garnered 93 Emmy Award nominations, more than any other network.

Through a spokeswoman, Ames calls Bewkes "a strong operational executive in a creative business. He has a tremendous interest in music and knowledge of the industry. I look forward to his contributions to [WMG] as we continue to grow our business and face the industry's challenges."

Despite an industry-wide sales decline, WMG had second-quarter revenue of $972 million—up 4% from the same period last year, in large part as a result of its January acquisition of Word Entertainment. Thanks to cost cuts, earnings before interest, taxes, depreciation, and amortization rose 17.2%, to $102 million.

AOLTW's biggest challenge is flagging growth at AOL itself. Yet thanks to film revenue, as well as continued strength in the publishing and cable divisions, AOLTW posted second-quarter revenue of $10.6 billion, a 14% increase from a year ago. It had net income of $394 million, or 9 cents per share, compared to a net loss of $734 million, or 17 cents per share last year, when it recorded $1.78 billion in amortization charges.

But a new headache emerged July 24, when Parsons said the Securities & Exchange Commission had begun a fact-finding inquiry into issues raised by a recent Washington Post report on certain accounting methods at AOL. Parsons called the allegations "without merit" but said AOLTW would cooperate fully.