Levin with a thrilling vision that new-era growth would propel the merged

company far into the next decade, Richard Parsons, the C.E.O.-designate for AOL

Time Warner, formerly declared the dream dead.

It happened on Jan. 7, in a State of AOL Time Warner conference

call. "We expect revenue and EBITDA [industry parlance for 'cash flow'] growth

for the first quarter to be essentially flat ,"

Mr. Parsons said, putting extra emphasis on the last word. "Last year, we made

certain economic assumptions and ran right into a major recession," he

continued. "As a result, we got no credit for our achievements because of the

high expectations that we ourselves created. Going forward, our assumptions

about the economy will be more conservative. It simply is not prudent to

forecast the economy in a volatile world."

Bob Pittman, now the chief operating officer–designate for AOL

Time Warner, was sitting right next to Mr. Parsons during the call, and he

might well have cringed. For it was he and his fellow AOL alumnus, chief

financial officer J. Michael Kelly, who throughout 2000 and most of 2001 had

peddled a slick 30 percent growth message to an all-too-gullible Wall Street

community. AOL Time Warner was different, Mr. Pittman smoothly assured

investors as Internet and technology companies keeled over left and right. They

had 140 million–oddsubscribers-andthegreat growth engine itself in Dulles, Va.,

was still sucking in $23.90 apiece per month from 50 percent of logged-on

America.

Wall Street, though, caught on fast. A recession was a recession,

and AOL Time Warner, the biggest media company in America, couldn't be immune.

On the sell side, analysts downgraded their numbers. Merrill Lynch's

influential cable analyst, Jessica Reif Cohen, started the trend on Oct. 17

when she revised her rating on the company to neutral from buy-to the barely

suppressed ire of Mr. Kelly and Mr. Pittman. Even the queen of cheerleaders,

Morgan Stanley's Mary Meeker, took down her numbers last week; she maintained

her strong buy rating, of course, but raised some blunt questions about the

sustainability of the AOL growth model. The stock, at $32 and change, was an underperformer-far off its pre-merger high of

$91, and the province of short sellers far and wide.

So yes, the mood on the conference call was dour. Indeed, Mr.

Parsons, Mr. Levin and the newly appointed C.F.O., Wayne Pace, seemed eager to

get on with it and put up as gloomy a picture as possible. First off, they

would take a $60 billion charge to earnings in the first quarter, reflecting

the difference in the price that AOL paid for Time Warner in January of 2000

and the sharply reduced value of its assets now. They would also pay close to

$7 billion in cash to Bertelsmann in order to buy out their former partner's

stake in AOL Europe-which, it was disclosed, was losing $600 million a year.

And to top it all off, the forecast for revenue growth for the year would be a

snail-like 5 to 8 percent.

All of this dire news was delivered by C.E.O.-designate Mr.

Parsons and his doleful new C.F.O., Mr. Pace-both of whom are Time Warner men.

Mr. Parsons, a longtime Gerald Levin ally, has been a Time Warner board member

since 1991, and Mr. Pace is a former finance man for Turner Broadcasting

Systems.

The deep rumble of Mr. Parson's boardroom baritone set an

appropriate tone for the evening. Yes, here was a man who knew how to present

the hard facts of life. A protégé of Nelson Rockefeller, a member of Sanford I.

Weill's Citigroup board and President Bush's favorite media guy-he co-chaired

the President's Commission to Strengthen Social Security-the 6-foot-4 Mr.

Parson more than fills up a corner office with his gravitas. Even his choice of

words seemed apt for the moment: " Going

forward, we will be more conservative ….

It simply is not prudent " (a word few AOL executives have been heard to

utter). Blunt and reassuring, the tenor of Mr. Parson's remarks were in sharp

contrast to Mr. Pittman's; the only AOL representative on the phone call, Mr.

Pittman devoted most of his time to spinning reasons as to why AOL Time Warner

didn't hit its numbers.

"The advertising recession was the drag on our company's earnings

for 2001," he said. "If we had had just half

of the advertising that we had in the year 2000, we would have easily hit our

original guidance of 30 percent EBITDA growth for 2001." No doubt about it: Bob

Pittman is a man who is used to hitting his numbers, and one senses that he

still can't believe he missed them. But here's the thing: to plead if only is disingenuous to a fault. He

and his team were dishing out their forecasts as the advertising recession

built up before them like a massive tidal wave. As AOL's chief operating and

market executive, it was his job to see it coming and adjust his forecasts

accordingly-something he and his growth-obsessed AOL gang did not (and perhaps

could not) do.

Following Mr. Levin's surprise resignation, there was some

speculation that Mr. Parson's tenure at the helm would be a short one, and that

Mr. Pittman-now in charge of all the operating units-would shortly replace him,

finally concluding AOL's takeover of Time Warner. But the opposite now seems to

be the case. AOL's core dial-up Internet business has matured, while the small

pockets of growth to be found within the company are coming from Time Warner

units like the high-speed Internet services at Road Runner and the success of

movies like Harry Potter and the

Sorcerer's Stone and Lord of the

Rings , which between them have taken in a half-billion dollars domestically

so far.

In fact, the two major pieces of bad accounting news this week

hark directly back to AOL and its bygone glory days. The $60 billion charge

recognizes the fact that the AOL stock used to buy Time Warner was ludicrously

overvalued. And the contractual agreement to pay billions to Bertelsmann for

full control of an entity that bleeds a half-billion a year in losses follows

as well from a deal struck by AOL during the peak days of Internet fever.

In fact, there were many who felt that Mr. Levin's

resignation-particularly in view of the $60 billion charge-was his way of

saying Yes, I was seduced by those

snake-oil salesmen from Dulles. Steve Case put one over on me: AOL stock was

never worth 90 bucks, 70 bucks or even 50 bucks . Indeed, a recent report by

Morgan Stanley attaches a fair value of only 38 dollars to the stock. But all

the same, Mr. Levin got the last laugh: While Mr. Case remains ceremonial

chairman, it will be Jerry's man, Mr. Parsons, running the company. In Dick

Parsons, he has appointed a C.E.O. in perfect chime with dour economic times. A

realist and an accommodator who's as comfortable at a Lincoln Center opening as

he is lobbying regulators in Washington, a personal friend of a popular

President as well as of powerful Federal Communications Commission chairman

Michael Powell, Mr. Parsons is perfectly positioned to lead AOL Time Warner to

the next stage.

"I am 100 percent committed to the strategic vision that drove

Steve Case and Jerry Levin to fashion the merger of AOL Time Warner in the

first instance," Mr. Parsons stated

Monday. Fair enough-but it was never his deal to begin with, and what the

conference call this week brought into sharp relief is that the deal itself was

a drastically mispriced one.

Those who fashioned it-Mr. Levin and Mr. Case-are now in retreat;

those who hyped it-Mr. Pittman and his crowd-are still breaking a sweat. But

it's the man who inherited it, with realism and cold assessment-Dick

Parsons-who, for the time being, owns the AOL Time Warner stage. And it would

be genuinely surprising if he exits it anytime soon..