How Bad Is The Comcast Acquisition Of TimeWarner For Society?

In his 1995 article for Business On A Small Planet, Corporations and the Public Interest, Jonathan Rowe helped put the intent behind the rise of corporations into a perspective that has been lost over the decades. "When I was a law student in Philadelphia," he writes, "I was hired by the owner of a small local radio station to look into the original corporate charters of the Penn Central Railroad (originally the Pennsylvania Railroad). The Penn Central was in the process of ending its passenger service, and the man who hired me wondered if the railroad didn’t have a legal duty of some kind to continue it. What I found truly surprised me. The charter spelled out clearly that the corporation had an obligation to serve the public by providing passenger service. That was the condition for the privilege of operating in the corporate form, and also for the generous grants of land it received from the legislature."

This was true of the early corporations generally. Their charters asserted that they existed first and foremost to serve the public. That was their reason for being.

In fact, the first corporations in the Anglo-American tradition had nothing to do with profits. Much as it might cause free market fundamentalists to squirm, the original corporations were actually regulatory agencies, such as guilds, or local governments such as townships. (In New England, when you drive from one town into another you pass a sign that announces the year in which the town you are entering was "incorporated.")

Later, the British Crown adapted the corporate form to what we would call today a "public-private partnership." The Queen wanted to lay claim to the New World, but such ventures required huge amounts of capital, and were risky in the extreme. To amass the capital, there was a need to insulate investors from responsibility for the undertaking, beyond the amount of their investment. Thus the "joint stock company" was born.

Individual responsibility is one of the bedrock principles of common law. To dilute this principle was an extraordinary step, one that was conceivable only for a mission that presumably served the public good. In other words, there was a direct link between the exemption from individual responsibility for corporate investors (and later officers), and the public good that the corporation was chartered to carry out.

This legal tradition carried over to the American colonies. It gave rise to the corporate charters that the state legislatures bestowed one by one, and only for specific undertakings. (Think of Amtrak as a rough modern-day equivalent, including the subsidy.) This was the form of corporation the framers of the Constitution had experienced. It was totally a state matter, and nothing for the new federal Congress to worry about.

Predictably, there was a lot of patronage and corruption in the granting of charters, which in effect were private monopolies. There also were boondoggles of the first order, the railroad land grants being a prime example.

By the middle years of the 19th century, the nation’s commerce was bursting at the seams. What historians now call "Jacksonian Democracy" gave political expression to these impulses-- the resentment of special privilege and the explosive growth of commerce. Corporations became a prime target of political attack; not to curtail or abolish them, or to reinforce the original bargain, but rather to extend the privileges of incorporation to everyone.

Up close, this Jacksonian Democracy could look a lot like an S&L convention in the ’80s. One after another, the state legislatures enacted "free incorporation laws," which democratized the corporate form. No longer did legislatures have to charter corporations by special act. No longer were corporations limited to specific activities that served the public. Now anyone could form one, to do anything they wished. Market ideology said that simply seeking gain would, under the dispensation of the Invisible Hand, serve the public good.

Thus US Steel and Standard Oil and the like were born on a wave of what might be called today "liberal permissiveness." Several decades later, the Supreme Court completed the coup by declaring, with little basis in law or history, that the Fourteenth Amendment applied equally to corporations, making them legal "persons" with all the Constitutional rights and privileges of human beings.

The important point is that the free incorporation laws tore up the original bargain that was the basis of the corporate form. Corporations no longer had to serve the public. They could do anything they wanted. But they still enjoyed the extraordinary exemption from individual responsibility that they had obtained historically only because they would serve the public.

More recently, writing for Alternet, Thom Hartmann, an expert on the depredations of corporations-run-amuck, reminds us that doing business is a privilege, not a right: "In order to do business you, or you and a group of participants, must petition a Secretary of State for a business license."

If your petition is granted, you will be given to set of privileges ranging from the ability to deduct from your income taxes the costs of your meals (if you discuss business), to a whole variety of special tax breaks, incentives, and immunities from prosecution for things that, had you done them as an individual, you might otherwise go to prison for.

When we set up this country more than 200 years ago, we established some of these privileges, and associated with them some pretty heavy responsibilities.

Up until the 1890s, a corporation couldn’t last more than 40 years in any state-- which prevented them from being used as a tool to accumulate massive and multigenerational wealth. A corporation had to behave in the public interest, and when they weren’t, thousands of them every year were given the corporate death penalty, their assets dissolved and their stockholders losing everything (but nothing more than) they had invested.

Over the years, as the Supreme Court has given more and more power to wealthy individuals and corporations, these responsibilities receded so far into the background that in one state, Delaware, your articles of incorporation can be a single sentence stating that you intend to “Do whatever is legal in the state of Delaware.” Which is probably why more than half of all the companies listed on the New York Stock Exchange are Delaware corporations.

The reason we originally allowed businesses to do business in this country was that some benefit would come to society from it. But since the era of New Deal economics was replaced by Reaganomics, the principal rationalization we use to give limitations of liability and privileges to corporations and their masters has changed from, “What is best for society?” to, “How can somebody best get rich quick?”

This is a perversion of the entire concept of why nations allowed people and corporations to do business, and why we facilitate that activity by providing at public expense: stable currencies and a stable banking system; predictable and fair court systems; transportation, electrical, water, septic, and communications infrastructure; a criminal justice system to enforce the rules of the game of business; and a workforce educated at the public expense and protected with a public pension called Social Security. We do all these things so the business will provide some good to the public while, in the meantime, enriching its owners.

But a new business model has emerged in the United States. Companies still get the privileges, but they no longer have to conduct themselves in ways that inure a net positive to the public.

On Friday, Ken examined the TimeWarner/Comcast merger from the perspective of an intended victim of the deal: "My first thought," he wrote, "on hearing of Comcast's acquisition Time Warner Cable (which as far as I can tell is a more accurate description than a 'merger' of the country's no. 1 and no. 2 cable-TV companies) was: They're not gonna let that happen, are they? By 'they,' I guess I meant the FCC, the FTC, the Justice Department's Anti-Trust Division-- whoever would have to sign off on a corporate conglomeration that would turn two pretty powerful players in the cable industry into one behemoth. It's just not possible, is it? My second thought was: Well, they spent a lot of time and billable lawyer hours negotiating the deal, so they must think they can somehow slip it past the regulators?" Ken forgot to mention that the cable companies are determined to charge $200/month by 2020 and the merger will make that even easier.

As Ken pointed out, he's an East Coast victim of TimeWarner Cable; I'm a West Coast victim of TimeWarner Cable. I'm also a former divisional president of TimeWarner. In its heyday, employees had every reason in the world to be proud of the company, it's commitment to serving its employees, its customers and the public. The father of the company, Steve Ross, who died in 1992, was considered a visionary. He was also a sharp businessman who made his shareholders gigantic returns on their investments and built a gigantic company with an eye on sustainability. And for the people who worked for him, he had a very clear message. We would prosper so long as we took the interests of our shareholders, our employees, our artists, our customers and the society around us into account. I heard about the concept of stakeholders from Steve. And we took that seriously. His vision ended on January 10, 2000 when Jerry Levin and Dick Parsons sold the company to huckster and financial predator Steve Case of AOL. An aggressive gnat swallowed a whale and the stakeholders were suddenly the enemy. Within 15 minutes of meeting Steve Case for the first time I decided to retire at the ripe old age of 52. He had a vision too-- screwing the shareholders, the employees, the artists, the customers and society. Gone were the days that TimeWarner was the biggest contributor to the Democratic Party and to progressive initiatives in the United States. TimeWarner would never again be a force for good-- just a force for ripping off everyone it came in contact with. Last week a supervisor suggested to one of my neighbors that she dump her cable system and get DirectTV.

Friday, writing for AP, Ryan Nakashima explained the consumer outrage around the Comcast acquisition of TimeWarner Cable. "Comcast and Time Warner Cable regularly rank at the bottom of the pay TV industry when it comes to customer satisfaction. So it didn't take long for customers to vent frustrations online over high prices, spotty service and fears of a monopoly after Comcast announced its $45 billion purchase of Time Warner Cable… Consumers [and not just Ken] weren't buying the assertion of Comcast CEO Brian Roberts that the combination, which will have 30 million TV and Internet subscribers, would be 'pro-consumer and pro-competitive.'"

Using a contorted logic, the two companies are expected to argue to anti-trust regulators that the fact they don't directly compete against each other in many parts of America shows the deal won't reduce competition and therefore should be approved.

But it is that lack of overlap, and lack of choice, which is at the root of customer frustration, according America Customer Satisfaction Index managing director David VanAmburg. Cable companies that purposely don't compete against each other to provide fast Internet or reliable TV service can get away with not fully meeting customer needs in markets where they dominate.

"It's almost subconsciously built into their business model that they don't have to worry so much you're going to leave for a competitor," said VanAmburg. "It's definitely a big factor."

Most people think the Justice Department shouldn't allow the merger. Most people are right-- but that won't matter one jot. Michael Noll at cnet.com seemed more fatalistic about the ability to stop it and is hoping the Feds at least force a spin-off of the content business. Like everyone who doesn't get a fat paycheck from one of the two companies, he asserts that the claim that the merger will benefit consumers is "nonsense." That's got to be a contender for 2014's understatement of the year. "One perspective on this is the distinction between conduit and content. Verizon's optical fiber or Comcast's coaxial cable is the conduit over which video, Internet, and telephone services are carried to our homes. The television programs we watch are the video content.

At the local level, there is conduit competition between the cable company (Comcast or Time Warner Cable) and the telephone company (Verizon or AT&T). But there's no competition between Comcast and Time Warner Cable or between Verizon and AT&T. These supersize firms have carved up the United States, with each sharing the provision of the conduit with the other-- what is called a duopoly. Government believes duopoly is better than monopoly.

The problem is that the cable companies own content-- the telephone companies do not. For example, Comcast owns NBC, Universal Pictures, and cable networks; Time Warner Cable owns CNN, HBO, and Warner Brothers. An acquisition of Time Warner Cable by Comcast would create a gigantic content business with incredible control over content pricing, packaging, and programming. And this supercontent is what the telephone companies would be forced to purchase to resell to their customers.

Decades ago the cable television companies were allowed to own both the cable conduit and also content providers. Government allowed this as an incentive to the fledgling cable companies. But today cable companies are far from fledgling, and past polices need to be revisited in light of today's realities.

Another perspective on this is the use of the Internet to go directly to video content providers, thereby bypassing the video provided by the cable company. This is a threat to the lucrative video business of the cable company. One way to counter this threat is to own as many content providers as possible and stipulate and control access to the content. This proposed acquisition would create a supersize content provider with tremendous market domination and control.

Monopoly might be evil and duopoly a little better. But the combination of conduit and content on the scale of this proposed acquisition would truly be evil squared. Decades ago, movie theaters (the conduit) and movie producers (the content) had to be separated and broken apart. It is time again for government to separate conduit from content and break up the power of the cable companies. If government allows this acquisition, as a condition the content business must be spun off.

Is Mitt Romney A Job Creator-- Or A Job Destroyer?

Artists and clowns aren't always the same thing

When I retired a few years ago, I had worked my way up to being a divisional president of Warner Bros. I ran Reprise Records, the label founded by Frank Sinatra as an artists' refuge that could boast being home to Green Day, Eric Clapton, Morrissey, Neil Young, Depeche Mode, Joni Mitchell, Barenaked Ladies, Enya, Lou Reed, Wilco, Fleetwood Mac, Josh Groban, Alanis Morissette, the B-52s, Chris Isaak, Steely Dan, Candlebox and scores of other artists that probably made your heart dance at one time or another. I've written a great deal in the past about the disaster of the TimeWarner merger with AOL. The irresponsible, avaricious and predatory nature of AOL top management spelled doom for the merger from day one. It also spelled doom for the companies that had been built over the decades. And it got worse. Eventually a failing AOLTimeWarner sold off Warner Music-- which included the record divisions-- to a consortium of investors that included, prominently, Bain Capital, the vulture firm (that's actually what it's called) run by Mitt Romney, who hopes to propel himself to the White House by claiming to be a job creator. He wasn't; he was a job destroyer-- as a business strategy. In 2008 the Boston Globe explained the Bain strategy of slashing jobs.

A few weeks ago a much-diminished Warner Music sold itself to a Russian Mafia character (an oil billionaire)-- and inside player who was already on the Board-- who basically bought it for the debts it had accrued while Bain and the rest of the consortium destroyed what was once the world's greatest record company and turned it into nothing at all... shedding 4/5 of the employees in the process. That's the Romney job creation prowess. We had over 500 people working at Warner Records USA when Bain came along. Now there are less than 100. And, in the process, Bain made a fortune and everyone else lost, especially the artists and the public and... music. As the Globe explained, Bain "specializes in leveraged buyouts. Leveraged buyouts combine small amounts of investors' money with large amounts of borrowed money to buy established companies, increase their value, and resell them at a profit."

The primary objective, of course, was to make money. That meant every job couldn't be saved. Some strategies, such as a roll-ups, are designed at the outset to cut jobs. In roll-ups, similar firms in the same industry are acquired and combined to boost revenues while eliminating duplicative jobs, particularly in administrative areas such as payroll, personnel, and information technology.

Bain embarked on a roll-up after acquiring Ampad in 1992. Two years later, Ampad bought the office supplies division, including the Marion, Ind., plant, of typewriter maker Smith Corona. Ampad shuttered the Indiana plant in 1995, moving equipment and production to other Ampad factories.

In 1996, another Bain company, Dade International, a maker of medical diagnostic equipment, bought a similar unit of E.I. du Pont de Nemours and Co., of Wilmington, Del. Dade soon shut down two plants and cut more than 700 jobs, according to government filings. The next year, Dade merged with Behring Diagnostics, a German company, to form Dade Behring Inc. Dade Behring shut three US plants, affecting more than 1,000 workers, some of whom were offered transfers to other facilities.

Sometimes, Bain cut jobs to right underperforming companies. In 1997, after acquiring Live Entertainment, later known as Artisan Entertainment, the producer of the hit film Blair Witch Project, Bain slashed 40 jobs, about 25 percent of the workforce, according to the Hollywood Reporter. Midwest of Cannon Falls, Minn., a giftware distributor, cut 40 jobs, or about 10 percent of its workforce, less than a year after Bain bought a "significant" stake in the company.

In assessing deals, Romney and partners didn't consider whether they saved or created jobs, according to a former Bain employee who requested anonymity, citing confidentiality guidelines. When Bain partners discussed shutting down failing businesses in which they invested, Romney never suggested they had to do something to save workers' jobs. "It was very clinical," the former employee said. "Like a doctor. When the patient is dead, you just move on to the next patient."

While Bain Capital has one of the investment industry's best track records in terms of return to its investors, it did have failures. Companies acquired through leveraged buyouts are particularly vulnerable to changing conditions because of their heavy debt. Should cash flow diminish by a few percentage points, these companies can miss debt payments and plunge into bankruptcy.

Bain acquired GS Industries in 1993. The steelmaker borrowed heavily to modernize plants in Kansas City and North Carolina, as well as pay dividends to Bain investors. But as foreign competition increased and steel prices fell in the late 1990s, the company struggled to support the debt, according to Mark Essig, the former CEO. GS filed for bankruptcy in 2001, and shut down its money-losing Kansas City plant, throwing some 750 employees out of work.

Ampad, too, became squeezed between onerous debt that had financed acquisitions and falling prices for its office-supply products. Its biggest customers-- including Staples-- used their buying power and access to Asian suppliers to demand lower prices from Ampad.

Romney sat on Staples's board of directors at this time.

Creditors forced Ampad into bankruptcy in early 2000, and hundreds of workers lost jobs during Ampad's decline. Bain Capital and its investors, however, had already taken more than $100 million out of the company, in debt-financed dividends, management fees, and proceeds from selling shares on public stock exchanges.

By the time Ampad failed, Randy Johnson, the former union official in Marion, Ind., had moved on with his life. After the Indiana plant shut down, he worked nearly six months to help the workers find new jobs. He later took a job at the United Paperworkers union.
"What I remember the most," said Johnson, "were the guys in their 50s, breaking down and crying."

In his reply to Johnson's letter, Romney said the Ampad strike had hurt his 1994 bid to unseat Senator Edward M. Kennedy, and no one had a greater interest in seeing the strike settled than he.

"I was advised by counsel that I could not play a role in the dispute," Romney explained, adding, "I hope you understand I could not direct or order Ampad to settle the strike or keep the plant open or otherwise do what might be in my personal interest."

Hiding behind lawyers is an easy way out for CEOs. But it doesn't make for a good leader or good leadership. Lawyers gave me advice all the time-- like to drop Depeche Mode or Joni Mitchell or Eric Clapton because their last record wasn't performing up to par. I always listened politely and then did the right thing, never something I would have to explain was something some effin' lawyer told me to do.

I Hope HuffPo's Merger With AOL Works Out Better Than The TimeWarner One Did

I've written about my experiences at Warner Bros Records when AOL bought TimeWarner several times in the past, particularly here and here. Had Arianna asked me, I would have suggested she read Nina Munk's incisive book, Fools Rush In, before making the deal with AOL. Of course HuffPo isn't TimeWarner and AOL is reputed to have changed a lot itself. Still, I can't imagine in my wildest dreams that the two corporate cultures have any chance whatsoever ever melding any more smoothly than the cultures at AOL and TimeWarner did.

That merger was an absolute catastrophe for all stakeholders except upper level management. I did well personally. Employees-- now reduced to about one-third of the number they were-- shareholders, artists, customers, society in general... were all ruthlessly ignored, if not preyed upon. Everyone got screwed except Case's smallish circle and a tiny handful of upper-level TimeWarner managers, almost all of whom, like myself, got out of Dodge at the first opportunity.

When the merger first started being discussed I was the only divisional president that I knew of who was actually enthusiastic-- very enthusiastic. I had identified digital downloads as the future of the music business-- one way or the other-- at a time when most top corporate managers in the music industry still considered computers something their secretaries typed on. (Some still do in 2012.) It was clear they/we were about to have our lunches eaten. My boss, the Chairman of Warner Bros Records, recognized the urgency as well. I had hired an aggressive young computer whiz kid as the very first Internet promo guy in the music biz. Everyone rolled their eyes-- except my boss. Now we asked him to come up with a system that would help us sell our artists' music.

He did. We brought it to AOL. I was sure they would love it. They stalled for months and finally told us... it's great and it's elegant but "we don't want to set any precedents." That was the end of Warner Music as a viable firm, and, to my thinking, the end of the Music Industry as it was. The kid who came up with the system went to work at Apple and was part of the team that developed iTunes. He's almost as rich as Hosni Mubarak.

As for HuffPo... I'm happy for my friends who are going to profit from this. And I hope their shared vision for what they've created will be in the future stays on course. Me... I'm looking forward to the comedy-oriented party I was invited to last week that I didn't know at the time was a celebration of the $315 million buy out that the NY Times called an "unlikely pairing."

The deal will allow AOL to greatly expand its news gathering and original content creation, areas that its chief executive, Tim Armstrong, views as vital to reversing a decade-long decline.

Arianna Huffington, the cable talk show pundit, author and doyenne of the political left, will take control of all of AOL’s editorial content as president and editor in chief of a newly created Huffington Post Media Group. The arrangement will give her oversight not only of AOL’s national, local and financial news operations, but also of the company’s other media enterprises like MapQuest and Moviefone.

By handing so much control over to Ms. Huffington and making her a public face of the company, AOL, which has been seen as apolitical, risks losing its nonpartisan image. Ms. Huffington said her politics would have no bearing on how she ran the new business.

The deal has the potential to create an enterprise that could reach more than 100 million visitors in the United States each month. For The Huffington Post, which began as a liberal blog with a small staff but now draws some 25 million visitors every month, the sale represents an opportunity to reach new audiences. For AOL, which has been looking for ways to bring in new revenue as its dial-up Internet access business declines, the millions of Huffington Post readers represent millions in potential advertising dollars.

...The sale means a huge payout for Huffington Post investors and holders of its stock and options, who stand to profit earlier than if the company had waited to grow large enough for an initial public offering.

While Huffington Post has been growing-- it now employs more than 200 people, a threefold increase in just the last few years-- AOL has been shrinking. Last year it eliminated close to 2,500 positions, roughly a third of its staff. Although its most recent earnings estimates beat Wall Street expectations, revenues for the fourth quarter were down 26 percent from a year earlier as dial-up customers continued to disappear. Ad revenue, which is seen as the company’s main business going forward, was down 29 percent from the year before.

Since 2009, the company has untangled itself from its ill-fated merger with Time Warner, a legacy media company with print magazines, a film studio and television channels. AOL, not fully a media company, not fully a technology company, never melded with its corporate partner.

...“The reason AOL is acquiring The Huffington Post is because we are absolutely passionate, big believers in the future of the Internet, big believers in the future of content,” Mr. Armstrong said.

In that sense, the deal carries a risk for the Huffington Post, which has had none of AOL’s troubles and is widely viewed as a business success with its own unique voice and identity. Now that it is to become part of a large corporate entity, what becomes of that unique character is an open question.

“The potential is great; it’s almost overwhelming,” said Howard Fineman, the Huffington Post’s senior political editor. “But the key will be to engage people who really want to be engaged, and make it hospitable to them, draw them in and expand the sense of community without losing them at the same time.”

I'm drowning in Déjà vu.

Jerry Levin-- Another Fake Apology

A few days ago, January 4, there was a marking of the 10th anniversary of the TimeWarner merger with AOL. I ran a division of the company at the time, Reprise Records, and I've written about the merger and the aftermath several times here at DWT. When I was president of Reprise, my boss was the chairman of Warner Bros Records. His boss was the chairman of the Warner Music Group and his boss was Jerry Levin. The times I interacted with Levin were pleasant enough. As you can see from the Squawk Box video below, he's a thoughtful, sensitive guy. He was easily suckered by predatory huckster Steve Case. I was only in one meeting with Case and one would have had to be deaf and dumb to miss what he was all about; I walked out of the meeting, aghast, and told my boss I was leaving the company. He said he was too and asked me to stick it out with him for a few more months. Last week, on the 10th anniversary of the merger that is widely considered the worst business deal in contemporary history, it was Levin, with the vicious predator sitting and watching passively, who stepped up to the plate and took some kind of phony responsibility and made the lamest apology for the lamest merger imaginable.

"I was the CEO; I was in charge. I'm really very sorry about the pain and suffering and loss that were caused. I take responsibility," he said. "It wasn't the Board [that isn't true]; it wasn't my colleagues at TimeWarner [also untrue]; it wasn't the bankers and lawyers-- there were a lot of them-- [sure, sure]; it was not Steve Case, who was a brilliant, young digital entrepreneur. It was just taking this magnificent concept and not being able to meld it into..." blah, blah, blah.

He's still sold on all the bullshit about Case. This "brilliant young digital entrepreneur" had a "magnificent concept" all right-- and it worked exactly how it was meant to work. Billions of shareholder dollars and corporate value went directly into Case's and his cronies' pockets (including into Levin's). His apology would be more meaningful if it meant something substantive-- like... oh, I don't know... say $50 million donated to a public trust for the shareholders who were fleeced and the employees whose careers and lives were ruined. Instead he said he hopes "business schools will teach values." Too late, that, for these two self-proclaimed Giants of Industry.

Yesterday's review of this farce by Jeffrey Sonnenfeld in the NY Times was as full of shit-- at least in terms of Levin-- as the apologia itself.

[T]his first business day of the new decade opened with a confession and apology that was quite different from the standard choreographed fare of a celebrity cornered over sexual misconduct or a rogue chief executive who plundered shareholder wealth. Instead, this acknowledgment of failure was from a respected business leader [says who?] who stepped back into the public spotlight to voluntarily assume responsibility for bad professional judgment.

You want to know what that merger and these players were really all about? Read Nina Monk's book, Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner. Levin was a naive sucker and Case was a crook and thug.



UPDATE: One Third Of All AOL Employees Being Fired

I guess Levin's apology was a preemptive strike.

Interns-- The New Slave Labor Of Corporate America?

My retirement was a well-planned and-- for me, at least-- a fairly joyous occasion. I eased myself out of the company over a six month period and even made a made a world tour to say good-bye to our affiliates in London, Hamburg, Paris, Milan, Bangkok, Tokyo and Hong Kong. There was a farewell party on the patio and I got my first watch since college, a Girard-Perregaux

Subsequent retirements weren't as emotionally smooth for the retirees as the company embarked on a series of rapid and drastic downsizes in response to a systematic looting of our parent company, TimeWarner, by AOL huckster Steve Case and his cronies. With the guidance of Mitt Romney's vulture capital company-- Bain Capital, one of the new owners-- senior employees with high salaries made good targets for cost-cutting, although soon departments were being eliminated and then whole floors. Eventually TimeWarner sold off the music division, which has accelerated the lay-offs to stave off the inevitable.

This week I spoke to one of my old friends who still works there, someone I had once hired as a secretary and is now the head of one of the company's most important divisions. He mentioned he shares a secretary with someone even more senior than himself. When I expressed disbelief, he told me nonchalantly that secretaries in the music business have gone the way of the victrola. Now everything is done by interns. And when he says interns, he isn't talking about people like Pirates pitcher Ross Ohlendorf, currently interning at the Department of Agriculture. No, what were talking about is a sinking company trying to stay afloat by replacing salaried positions with slave labor so that the few at the tippy-top can still get their seven-figure annual bonuses. Yesterday's NY Times scratched around the surface of the phenomenon, although missing some key points about major corporations exploiting what amounts to slave labor.

On-the-job training has its roots in the Middle Ages. Apprenticeship, it was called then, and it generally was for the young.

The new variation, now called an internship, is not the painstaking, multiyear experience it once was, but it still offers the same advantages: a chance for a worker to gain knowledge at little or no cost to the employer.

In boom times, companies with too much work for existing employees-- yet not enough work to justify another hire-- may have turned to temporary workers. But with the economy still in the doldrums, companies again are opting for unpaid or low-paid internships to get the extra work done.

It is a brilliant, recession-proof way to double your work force, said Drew McLellan, whose McLellan Marketing Group in Des Moines has long hired unpaid interns. “It’s more money to the bottom line for you.”

While there are no definitive numbers on how many internships exist or how many companies offer them, most are probably at smaller companies and nonprofit groups rather than large public companies, according to Internships.com, a placement service with some 13,000 listings. C. Mason Gates, the president and founder of Internships.com, said that with economic uncertainty, smaller businesses would continue to view interns as a source of growth, talent development and project-based work.

Internships have never been out of vogue, but the competition for positions is heating up, which is good news if you run a company needing economical, entry-level workers... While menial tasks often go with the territory, the best internships interpose photocopying with client meetings, true-life assignments and mentoring... While most interns receive no money-- and others slightly more than the $7.25 hourly minimum wage-- interns are not exactly free. At least initially, it is more efficient for managers to do something themselves than to train someone.

At least there haven't been the kinds of reports out of corportae America-- at least not yet-- about interns being preyed upon sexually, the way congressional interns, pages, have been. Gargantuan workplace power imbalances can lead to that when there are disturbed individuals involved.

Time Warner Dumps AOL

When AOL acquired TimeWarner in 2001 I was one of the only TimeWarner divisional presidents away from the New York headquarters cheering. Within months I had decided to start the process of easing myself into retirement. I was excited because after the death of TimeWarner's visionary founder, Steve Ross, the company quickly calcified and, at least on a corporate level, basically lost all sense of purpose. The only catastrophic mistake that I know of Steve Ross ever making was to allow an anti-charasmatic non-leader of men, Jerry Levin, to get in position to assume control of the company.

I've heard from other divisions that they were having similar problems to our own. By 2001 only the thickest and most vision-free Luddites in the world could have failed to see that the future of the entertainment industry was tied up with this new Internet thang. TimeWarner's reaction was fear and loathing, hiring clueless hacks to deal with "it," stifling innovation at every turn and, ultimately, buying a complete crock from a fast talking huckster, AOL's Steve Case, who basically "bought" the company for a song and dance-- a $147 billion deal that didn't really include anyone getting any money other than the $6 billion Case and his cronies were able to loot before being kicked out.

But when the "merger" was announced I had no idea how much worse my company was about to get. All I could think about was how AOL would "get" our need to start moving our business online. They didn't. To me the death knell for the music business will always be the long drawn-out response we got from the new AOL overseers to a proposal to start selling music by download. One of our sharpest young employees had developed an incredible model for this, and my boss, the Warner Bros chairman, and I urged it on corporate headquarters. The silence was deafening. We insisted. It took months, and they finally told us the idea was excellent and the interface "elegant," but that "we don't want to set any precedents."

By then I already saw that Steve Ross's ideas of running a company that could simultaneously benefit the shareholders, employees, artists, customers and community was "old think" and that "new think" was how to rip off everyone and concentrate wealth accumulation in the hands of top management. I told the sharp young employee that I was going to be leaving the company and that he should plan accordingly. He took his ideas to Apple and joined the team that developed iTunes and then the iPod. I retired and started DWT.

The business press is applauding today's announcement of the AOL and TimeWarner decoupling.

The $147 billion deal in which AOL bought Time Warner in 2001 epitomized the mind-boggling wealth created during the dot-com boom and quickly became one of the worst corporate combinations in history. In 2002 and 2003, Time Warner absorbed nearly $100 billion in charges to account for the rapidly diminishing value of the combined company. Time Warner even dropped AOL from its corporate name.

AOL once defined the Web for millions of people. But much of its original revenue came from providing dial-up access, a business that peaked for AOL in 2002 at 26.7 million subscribers, back when AOL commonly stuffed free trial CDs in magazines and mailboxes. The march of broadband ate away at that business, and AOL had just 6.3 million dial-up subscribers at the end of the last quarter.

AOL responded to the trend by giving away most of its services, like e-mail, to drive traffic to its free, ad-supported Web sites. It also laid off thousands of employees to try to streamline. But after a few strong quarters, ad growth slowed and then began declining.

The best study I've read of what went wrong was by Nina Munk, in a book called Fools Rush In: Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner, published in 2004 by Harper Collins. At the time, Vanity Fair offered an extensive excerpt, The Taking of Time Warner, which the New York Observer summed up more succinctly: "Fools Rush In really delivers in its vivid portrait of Jerry Levin, the perfect mark for the con of the century. " Meet the con:

In the spring of 1999, Steve Case was young (40), famous, and very rich (worth $1.5 billion). America Online, the company he'd built in only 15 years, was no longer a start-up or just another Internet company; it was one of America's most important companies, period. In a little over two years, AOL's split-adjusted stock had surged from $1.50 a share to about $75. Effortlessly, AOL had swallowed up Netscape, an icon of the Internet age, for $4.2 billion. Measured by market capitalization, AOL now ranked among the 25 biggest companies in the world, worth more than General Motors and Boeing combined.

...From Case's perspective, it was only a matter of time before someone noticed the lack of substance at AOL. He believed fully in the Internet revolution, but surely AOL's stock price couldn't keep rising; at some point, he reckoned, Internet mania, like other manias, would peak, and companies such as AOL would deflate. Quietly, Case and his top executives admitted the truth to one another: Internet stocks were way overpriced. "We didn't use the term 'bubble,'" remembered Barry Schuler, who was then president of AOL's interactive-services group. "But we did talk about a coming 'nuclear winter.'"

Something else: by 1999, Case had grown tired of running AOL. As he confided to someone close to him, he didn't want to go to the office every day. He wanted to devote more time to his family; he wanted his second marriage to last. Still, he had no intention of leaving his company in the hands of Robert Pittman, AOL's president. A smooth executive who'd turned around the last two companies he'd run, Pittman had arrived at AOL in 1996 in the middle of its worst crisis ever. Impatient with Case's long-term, dreamy, futurist thinking, and determined to make AOL profitable, Pittman had demanded short-term, tangible results. Before long, he was seen by outsiders as AOL's savior: in less than three years, between fiscal 1996 and 1999, AOL's revenues had grown from $1.1 billion to $4.8 billion. In Case's view, however, Pittman was an operator, not the man to lead AOL into the next century. He was a "windup C.E.O.," in the words of another AOLer close to Case.

It would take Case nine months to reach the decision to buy Time Warner. In his typically meticulous, unhurried manner, he brought together huge amounts of data and studied them; throughout 1999 he called meeting after meeting to weigh the options. With its giant market capitalization, AOL could buy anything it wanted, almost. The only question was what to buy.

...It was unrealistic, however, to imagine that an august, respected company such as Time Warner would be interested in a newcomer like AOL. What did Time Warner have to gain? What could AOL offer to Gerald Levin, Time Warner's chairman and C.E.O.? Asked what he thought of AOL's chances of doing a deal with Time Warner, [Salomon Smith Barney's Eduardo] Mestre told [AOL CFO Mike] Kelly, "To be honest, I can't see how it can be done. There is just no way they'll accept your currency."

That summer of 1999, a heat wave hit New York City. Day after day, week after week, relentlessly, the thermometer climbed over 100 degrees. There were widespread power failures. Subways stalled and summer schools were forced to close. But Jerry Levin had more urgent things to worry about than air conditioners and heatstroke. What about the future of Time Warner?

Levin had turned 60 that summer. Predictably for a man of his age and stature, his thoughts were turning to the legacy he'd leave to mankind. His son Jonathan had died in 1997; since then he had known that his own life lacked a higher purpose. Over the years, distancing himself from other media and entertainment moguls (the uncultivated and greedy ones), Levin had flaunted his high moral convictions and his learning. With easy allusions to the Bible (Ecclesiastes), to the French existentialist writer Albert Camus, and, in an interview with Architectural Digest, to Heracleitus, the pre-Socratic philosopher, Levin presented himself as a scholarly, upright man who just happened to be the C.E.O. of the world's largest media company. He didn't just want to be remembered as a C.E.O. who'd improved the bottom line; he aspired to be known for so much more.

Levin couldn't help but measure himself against Henry Luce, the visionary founder of Time Inc. Levin had read biographies of the great man; now, thinking about his own parting legacy, Levin sifted through Luce's speeches and letters catalogued in the Time Inc. archives. Luce had had it all: he was an intellectual, a gifted writer (whose prose, Levin noted, possessed "Presbyterian muscularity"), an innovator, and a brilliant businessman; even more, Luce was guided by a fine-tuned moral compass.

Levin didn't only share Luce's moral compass; he believed that, like Luce, he was ahead of his time. It occurred to Levin that just as Luce had harnessed new photographic technology to create Life magazine in 1936, so Levin would bring together media and the Internet to lead Time Warner through the digital revolution.

When Levin evangelized at internal meetings, preaching the good word about the digital future, the company's division heads listened politely, then ordered their mid-level managers to devise clever Internet strategies and launch Web sites here, there, and everywhere. But nothing much changed. In the spring of 1999, Levin had been forced to disband Time Inc.'s disastrous Pathfinder "portal," which compiled articles from the company's various magazines -- but not before it had swallowed up something in the range of $80 to $100 million. From its inception, no one had really grasped the reason for Pathfinder's existence, nor had anyone figured out how to make money from the Web site. The magazines that were meant to provide Pathfinder's content offered as little cooperation as they could.

From Levin's point of view, his inspired, visionary plans for Time Warner were being undermined by the dull people around him. For heaven's sake, it was the summer of 1999! By now everyone who mattered on Wall Street had embraced the digital revolution or was riding on its coattails; yet in the small, blinkered minds of Levin's executives, the Internet barely figured. Some division heads didn't even use e-mail! "They were too embedded in the analog world" is how Levin explained it to me.

Earlier that year, all of the company's division heads had presented Levin and Richard Parsons, Time Warner's president, with their latest five-year plans. Sitting through endless, tedious PowerPoint displays, slide shows, and strategic reports, Levin was overcome with despair. It was hopeless. Not one of Time Warner's divisions had come up with a convincing Internet initiative or strategy -- not even the music division, which everyone knew was losing sales to free online music-exchange services such as Napster. Terry Semel's presentation, glitzy and fast-paced, had tried to prove that Warner Bros.' film and music divisions, of which he was co-C.E.O., were on the cutting edge of the Digital Age. But when Levin asked Semel for specifics, there were none; in Levin's eyes, Semel didn't have a clue [and was he ever right about that!]. What were these men thinking?, Levin asked himself. What planet were they on? He wanted to grab his executives by their overpriced collars and scream: The Internet is here and it's real and it's passing us by! Don't you get it?

In the sweltering summer of 1999, Levin decided to take matters into his own capable hands. And why shouldn't he? After all, he reminded himself, he'd always forged his own path, and more often than not he'd been right. It was not for nothing that early in his career at Time Inc. he'd been dubbed the company's "resident genius": He, Gerald Levin, had had the prescience to put HBO on satellite in 1975. As C.E.O. in the early 1990s, he'd embraced cable when it was still out of favor on Wall Street. And, yes, he had engineered the brilliant takeover of Turner Broadcasting in 1996. Now he would lead Time Warner into the Digital Age. Suggesting his absolute commitment to the Internet ethos, Levin ditched his suits that summer; from that time forth, he'd wear the prep-school uniform of Silicon Valley: pleated khakis and open-collared shirts. "I was determined to transform the company -- and to do it internally," he later explained to me. If his divisions couldn't get it together, he'd force the matter from headquarters.

...The phone rang in Levin's office at 75 Rockefeller Plaza. "Steve Case is on the line," Nan Miller, Levin's longtime secretary, told her boss. As Levin later recalled, Case didn't waste time with small talk; he went straight to the point: "Jerry? I've been thinking: we should put our two companies together. What do you think? Any interest?" Levin was caught off guard. Of course he was interested, but he knew better than to respond to such a question over the phone. The law was clear on such matters: if Case did offer to buy Time Warner, Levin could be forced to disclose the offer publicly, or at least disclose it to his board of directors.

Before Levin could catch his breath, Case threw out the bait: if America Online and Time Warner came together, he promised, Levin would of course be C.E.O. of the new giant company, while Case would be chairman. "I'm not interested in being an operating guy," Case told Levin confidingly. "You understand this business, Jerry. If we merge our companies, you should be the man in charge. I work better at this sort of strategic level."

Levin didn't bite the first time round. He replied cautiously: "I don't think so, Steve. But I'll think about it."

In retrospect, Case's offering Levin the position of C.E.O. was the deciding factor in the creation of AOL Time Warner. "If he'd said anything else, there's no fucking way I would have gone ahead," Levin would later tell me, remembering the substance of that October phone call. "There was no way AOL was going to run Time Warner."

But Case had called his bluff; having made one painless concession to Levin's ego, Case would now take him to the cleaners. Armed with months and months of meticulous research, Case and his advisers knew how to build the perfect trap. In the words of Kenneth Novack, AOL's vice-chairman and Case's closest adviser, "We believed that the only basis on which Time Warner would be prepared to do a merger with us was if Jerry was the C.E.O. and it was perceived as a merger of equals."

As soon as he was off the phone with Case, Levin summoned Dick Parsons, Richard Bressler, head of Time Warner's new digital-media division, and Christopher Bogart, Time Warner's deputy general counsel, into his office. Levin was intrigued by Case's proposal. It was the perfect solution to Time Warner's lack of a digital strategy! America Online wasn't only a successful Internet company; it was a real business. The men who ran America Online didn't play Foosball at the office or allow employees to bring dogs and parrots to work; they had M.B.A.'s and wore Italian suits. What's more, Levin observed, AOL had a "blue chip" board of directors that included some of the very people he'd hoped to recruit to Time Warner's board -- people such as retired general Colin Powell and Marjorie Scardino, C.E.O. of Pearson P.L.C., publisher of the Financial Times and Penguin books.

Still, Levin was not naïve. After what he'd gone through in 1989 fending off a hostile bid from Paramount during the merger that created Time Warner, he was cautious, conditioned to assume that Case was secretly planning a takeover. America Online was worth so much more than Time Warner that a takeover attempt, either friendly or hostile, was a distinct possibility. But Levin would not hand over Time Warner to just anyone, he vowed, especially not an upstart such as America Online. Thinking out loud, he said to his advisers, "Time Warner is not for sale." Parsons, Bressler, and Bogart nodded solemnly in agreement.

Nevertheless, the men agreed, a battle plan had to be drawn up; otherwise Case might catch them unawares. He was wily. Levin and his sophisticated advisers were pretty confident they could prevent a takeover. If Case was determined to do a deal, the only option was a merger -- "a merger of equals." And so it was agreed: Levin would hear Case out; he'd listen to him and digest whatever he had to say. But on no account would he say or do anything that might encourage Case to mount a takeover.

A few days later, on Monday, October 25, Levin called Case back. "I've given your proposal some thought, Steve, and I just don't see it," he began casually. "But maybe you and I should get together, not to talk about a deal, but just to talk about what you're trying to accomplish, what your values are, and to get to know each other." A week later, Case flew to New York to meet Levin for a private dinner. To avoid being spotted together, they booked a suite at Manhattan's Rihga Royal Hotel, right around the corner from Time Warner's headquarters, and ordered room service.

It was an unforgettable evening. Getting to know each other, Case and Levin talked the night away. They had so much in common—a love of fine wines, for example. More crucially, they were on a common mission. Business was not just about making money, they agreed; it was also about integrity and values and the greater good and making a difference. Both men steered their courses by a moral compass. With conviction, Case described the AOL Foundation, whose purpose was to empower the disadvantaged and disenfranchised and dispossessed by means of the Internet. He described an AOL-funded venture called Helping.org, whose purpose was to match volunteers and donors with nonprofit groups. AOL's My Government was out there, too, helping ordinary citizens connect to their elected officials. More and more, Case told Levin, America Online could help people control their destinies and change their lives.

That kind of high-minded talk resonated big with Levin. By using the new technology to give people access to news and information, and to one another, Time Warner could reduce ignorance, intolerance, and injustice. "I've been building networks all my life," Levin boasted.

As they uncorked a bottle of red wine, Levin felt a deep kinship with the young man seated across the table. He told Case about the painful depression he'd gone through after his son was murdered. Over time, he explained to Case, it had occurred to him that devoting his life to others was the best way to serve his son's memory -- and what better way to effect change than from his platform as C.E.O. of the world's most powerful news-and-entertainment company? "Henry Luce never apologized for being a businessman, and neither do I," Levin said to Case. "Making profits is not incompatible with making a real difference in our society." Case would drink to that.

By the end of the evening, they were of one mind. Together they could create the world's most powerful and respected Internet-driven media-and-entertainment company. And they'd make the world a better place.

So much for lofty ideals and sentiment. If Case and Levin were to bring their companies together, they would have to agree on terms. Sorting out management issues seemed easy enough: the new board of directors would be split equally, with eight members from AOL and eight from Time Warner. Case would be chairman, Levin would be C.E.O., and the position of chief operating officer would be shared by Dick Parsons and Bob Pittman.

When it came to the subject of ownership, however, the two sides weren't even talking the same language. Yes, Case and Levin had agreed that it would be a "merger of equals," but what did that mean? Were the two companies equal in size, in value, in power? Time Warner, with revenues of $27 billion, had 70,000 employees. By contrast, AOL was tiny, with less than $5 billion in revenues and fewer than 15,000 employees. In another era, a less manic one, Time Warner might have swallowed up AOL without blinking. But the late 1990s were not normal times. And from the perspective of the stock market (what other perspective mattered then?), AOL, a company with one-fifth the revenues of Time Warner, was worth almost twice as much: $175 billion versus $90 billion.

AOL's bankers were perfectly clear on what the figures meant. If the two companies combined, AOL would account for 65 percent of the new company, Time Warner 35 percent. But Levin wouldn't buy the math. From his perspective and that of his advisers, the deal's exchange ratio -- the number of shares a shareholder in one company would receive in the new, combined company -- should be based, at least partly, on revenues, or cash flow, in which case Time Warner's shareholders would have as much as 85 percent of the new company. The difference between AOL's proposed ratio and Time Warner's seemed insurmountable.

Back and forth, back and forth, the two sides went, each time making the smallest possible concessions. Still, no real progress was made. "It was like trying to mate a horse with a dog," one of the negotiators told me.

A week before Thanksgiving, on November 17, Case was in New York; first he met with Ted Turner, then with Levin. As Time Warner's biggest individual shareholder, with about 10 percent of the shares, Turner had to be sold on the deal. But Turner was unimpressed. It's not that he was opposed to the concept of merging Time Warner and AOL, but he was suspicious of Internet valuations and he had other priorities. Levin, as usual, didn't pay a lot of attention to Turner, but even he was starting to think that a deal with AOL was impossible. No matter how badly he wanted a merger, he would never take less than half of the new combined company. "The deal's off," Levin told Case. "I'm sorry."

Frustrated, Case returned to Dulles... On December 13, another negotiating session took place, and on December 23 yet another, this time at Novack's office in Boston. Reflecting the absolute seriousness of the talks, Bressler and Novack were joined by all the top brass: Dick Parsons; Time Warner's banker, Paul Taubman of Morgan Stanley; AOL's chief financial officer, Mike Kelly; and AOL's banker, Eduardo Mestre. By now, Levin was offering to make the deal a clean 50/50, a real "merger of equals." In response, Case had lowered his former demands, but only slightly, proposing a 60/40 split. "I was prepared to pay a premium," Case later told the New York Times, "but there was only so far I could go."

Jerry Levin was torn. On the one hand, a deal with AOL was a matter of self-preservation. On the other, Levin wasn't a sucker. Case would have to pay a massive premium for Time Warner's shares; he, Levin, would take AOL for all it was worth. No matter how much he wanted to do the deal, he would never, ever take less than half of the new, combined company-it was an affront, an insult to his intelligence, asking him to accept 40 percent!

As Christmas approached, it seemed to the companies' negotiators that the two sides would never reach an agreement. As with all negotiations, the final concession is the hardest one to make, and no one would budge.

Levin spent the holidays in Vermont, at his 9,000-square-foot country house, built of thick wooden beams salvaged from old barns and decorated in Southwestern style by his wife, Barbara Riley. Surrounded by Navajo textiles, Mexican fiesta masks, and 19th-century tobacco pouches, Levin tried to think clearly. Mostly, like Thoreau at Walden Pond, he spent his days alone. He took long walks in the woods behind the house. In the afternoons he retreated to his small, book-lined study.

Almost every day, he spoke with Bressler by phone. Time Warner's fourth-quarter results were coming in, and they didn't look especially good. Already, the company's stock had fallen nearly 17 percent from its 52-week high in April; it would go lower still when these earnings were released, Levin had to assume. Time Warner's traditional lines of business were slowing down, and, for all its hype, the new digital-media division was going nowhere. Meanwhile, AOL's stock price had just hit its all-time high, $95.81; in the past 12 months, AOL's shares had climbed a staggering 329 percent. It could not have escaped Levin's notice that the Wall Street Journal, calculating that AOL's stock had risen nearly 80,000 percent in the past decade, named AOL the "Biggest Gainer of the '90s," over Microsoft and General Electric, among others.

The situation was obvious: Levin had to do something bold, and the boldest act of all was to merge with AOL. No matter how Levin looked at it, owning less than half of a combined AOL Time Warner had to be worth more than owning 100 percent of a sinking Time Warner. What other choice did he have? Alone in his study, Levin made up his mind. He would accept 45 percent of a combined AOL Time Warner, and nothing would stop him. In the long run, who would remember that Jerry Levin had accepted less than half of the new company?

Over and over, Levin rationalized his decision. His vision would drive the new company. After all, he'd been promised the job of C.E.O. Officially, on paper, if you cared to study the numbers, AOL would be buying Time Warner, but as far as Levin was concerned, the deal was unquestionably a merger. "I realized that it didn't matter what the numbers were, because we were equals" is how Levin later recalled his thinking.

At midnight on December 31, 1999, as the champagne corks popped, Levin made two resolutions for the year 2000: he'd shave off the mustache he'd worn for 35 years, and he'd become Steve Case's business partner. It was a new millennium, and Jerry Levin was a new man.

Monday, January 3, 2000: the first working day of the new millennium. It was unusually mild in New York City, somewhere in the mid-50s. Riding the elevator up to his office, on the 29th floor of 75 Rock, Levin felt easy for the first time in months. Meeting Dick Parsons, Rich Bressler, and Chris Bogart, Time Warner's newly named general counsel, for their weekly lunch in one of Time Warner's executive dining rooms, Levin declared himself. "We're going to do this deal," he said once they had been seated. "I've thought about it and I'm prepared to accept less than half."

Logic and high-school mathematics didn't apply to this groundbreaking deal, Levin explained. What he was proposing was the biggest corporate merger in history, and there was no way he'd let it fall through because of an inconsequential 5 percent here and 5 percent there. The crucial thing to remember was this: he would be C.E.O. of the new company, and fully half of the new board of directors would be his own people. Everything else was a red herring.

Three days later, on Thursday, January 6, Levin and Bressler took the Time Warner plane from New York to Virginia for a dinner meeting with Steve Case and Ken Novack. Now that Levin had agreed to accept 45 percent of the new, combined company, Case had to be persuaded to accept the remaining 55 percent. Neither Bressler nor Levin was convinced that Case would meet their terms, but they'd do everything in their power to sway him.

Sitting around Case's living room, the four men glided on social surfaces; they chatted about hockey and The Sopranos. Then they moved to the dining room, where dinner was served. Before long, when the time was right, Levin made Case a firm offer: Levin was prepared to settle for a 45 percent stake in the new company, but not a fraction less. Case was delighted; recognizing that Levin had just made the ultimate concession, he called up a rare bottle of 1990 Château Léoville-Las Cases from his wine cellar. It was just after midnight when the men finished their chocolate mousse and shook hands. The deal was done.

...Levin and Case were determined to sew up the deal as quickly as possible, before word could get out. If news of the merger leaked, the damage could be irreparable. For one thing, their companies' stock prices would go wild, thereby undermining the agreed-upon exchange ratio. And more: Levin and Case wanted total control in shaping coverage of the merger. As soon as the media got even a hint of the deal, second-guessing would start. Levin and Case still needed the deal to be approved by their boards of directors and by their shareholders; federal regulators too would have to sign off on the merger... To appreciate the reactions of some of Time Warner's top people, you have to know something about Levin's strategy and stealth. With the exception of Parsons, Bogart, Bressler, and Rob Marcus, who worked for Bressler, no one at Time Warner, no one at all, had a clue about the ongoing talks with AOL. The first time a select group of Time Warner employees knew about the imminent merger was that Friday morning at 10.

"We've agreed to a merger with America Online," Chris Bogart announced to the two dozen executives gathered around the massive mahogany conference table. "That's the good news. The bad news is that you're all sequestered until Monday. We've got three days to put this deal together, and until we do, you can't tell a soul what's going on, not even your families."

The executives didn't know what to think. On the one hand, the news was awesome. This would be the biggest deal in history, it was all being done in a weekend, and the people in that room were part of it. On the other hand, "we were shocked, shocked," one attendee told me, still shaken by the memory of that January meeting. "Never ever would I have guessed. I barely knew AOL. I mean, if the deal had been with Disney or any other media company, I might have understood. But AOL?"

People who did know AOL were no less shocked. Timothy Boggs, Time Warner's senior lobbyist, had spent the past year countering AOL's demands that regulators force Time Warner to open access to its cable systems. "I was stunned at the news," he told me. "I knew the AOL people well-- we were in battle with them. They were slippery and very aggressive. These were not people of quality-- not in my mind. I was stunned."

Edward Adler, head of Time Warner public relations, and Joan Nicolais Sumner, head of investor relations, sat together during the meeting. They were speechless. This giant deal, this monumental deal, has been unfolding for months and no one told us about it? Joseph Ripp, the company's chief financial officer, was numb. A no-nonsense numbers man, Ripp had dedicated his entire career to Time Inc. and then Time Warner -- and Levin hadn't consulted him!

Then there was Peter Haje, the company's longtime general counsel, one of the most accomplished and respected corporate lawyers in the country; his career had been devoted to Time Warner. On hearing about the AOL deal, Haje was enraged. Even more, he felt sickened by Levin's lack of respect for him. True, Haje had announced his retirement; as of January 1, 2000, he'd been succeeded by Bogart. But still, all through 1999, when the AOL deal was brewing, Haje had been the company's top lawyer. Why would Levin have frozen him out? If in the past Haje had ever had reservations about Levin, if he'd ever questioned Levin's abilities as C.E.O. (and he had), Haje had always kept his thoughts to himself. No longer. Now Haje told friends that the AOL deal was a disaster in the making; he wished only the worst for Levin.

If it occurred to Levin that executives such as Ripp and Haje would feel betrayed, he probably assumed that the damage would be short-lived. In the words of one executive, Levin was the company's "switchboard": he had long maintained power at Time Warner by controlling the flow of information.

As Chris Bogart outlined the terms of the AOL deal in full during the fateful Friday-morning meeting, his audience had more and more questions. "Why exactly are we doing this? What's the point?" asked one of the V.P.'s. "How long have the discussions with AOL been going on?" asked another. "Will we lose our jobs?" "Who's going to be running the company?" "How long will it take for the deal to close?"

At last, someone asked the overwhelming question: "You're telling us this is a merger of equals, but it doesn't sound like a merger. It sounds like AOL is buying us. How can that be good for us?" The question hung in the air like a swarm of gnats. Then the moment of recognition: Levin has sold us out. For reasons they could not fathom, Time Warner had been betrayed -- double-crossed by its own C.E.O. "You've got to be fucking kidding!" shouted Time Inc.'s C.E.O., Don Logan, when Dick Parsons called to give him the news. "That's the dumbest thing I've ever heard in my life. I hope you're joking."

Eduardo Mestre, AOL's banker, got word of the impending agreement as he was getting ready for bed on Thursday night. Mike Kelly called him at home: "How fast can you get your due diligence done, Eduardo?" There were mounds of documents to plow through, data to be sorted, meetings with executives to be scheduled. Proper financial forecasts had to be made. Mestre also needed to write up his bank's fairness opinion on the deal. In order to help AOL's directors vote on the proposed merger, he would have to make a convincing presentation to the board.

"We need a week, Mike, maybe 10 days."

"Forget it," said Kelly. "We're announcing on Monday. You've got three days."

"Surreal" was the word most people used to describe the atmosphere that Friday morning in AOL's "Malibu" conference room in Dulles, where two dozen of the company's top executives had gathered. Was this really happening? Were they actually buying the world's largest and most powerful media-and-entertainment company? In the words of one senior vice president who attended the meeting, "I was floored. It was wild. I'm like, 'Wow!'"

Mike Kelly conducted the briefing on the deal; as if he were planning a military invasion, he mapped out each piece of the strategy for completing the due diligence. "All of you in this room are leaving for New York first thing tomorrow morning. You can pick two of your best people to help on this stuff, but don't let them breathe a word to anyone. Got it?"

On Saturday, January 8, at eight a.m., two Gulfstream IVs packed with AOL executives took off from Hawthorne, a private airport near Dulles. David Colburn, Myer Berlow, and other top AOLers, overstuffed briefcases in hand, were on their way to New York to complete the biggest corporate acquisition the world had ever seen. They were pumped. They were psyched. We're buying Time Warner!

For three days, from Friday, January 7, to Monday, January 10, about 50 Time Warner executives, bankers, lawyers, and accountants took over the 48th and 49th floors of Cravath, Swaine & Moore's New York office, on Eighth Avenue at 50th Street. Meanwhile, across town, AOL had set up shop on the top two floors of Simpson Thacher & Bartlett, on Lexington Avenue between 43rd and 44th Streets.

Three days. There was no way on this earth that proper due diligence could be done in such a limited time. For a merger of this magnitude, a week's worth of due diligence would have been more appropriate. "If you do a deal over a weekend, you take shortcuts," one of the bankers involved told me later, acknowledging privately what he could not say in public. "In hindsight, it was sloppy."

"It really was a joke," one AOL lawyer remarked. "It was a done deal. We were just going through the motions so there wouldn't be any shareholder lawsuits. I got the feeling that no matter what I uncovered this deal was going to happen."

Both sides had to be sure they understood each other's businesses, and, more, that assumptions being made about their future together were based on concrete evidence and real numbers. Typically, that sort of information is written down and studied at someone's leisure; in this rushed case, however, most of the due diligence was conducted orally. Back-to-back, day and night, dozens of sessions were held in which AOL executives interrogated their counterparts at Time Warner, and vice versa. The pressure was intense. Time was running out, and there were still vast quantities of information to process. Mental and physical exhaustion set in.

As the weekend wore on and people wore out, the two sides bickered openly. Like a general, Mike Kelly barked out orders to his troops. Faster, faster. "What a prick," people on the Time Warner side whispered to one another. Treated like a servant by more than one AOLer, Rich Bressler was struck by the crudeness of it all. David Colburn and Myer Berlow were busy making locker-room jokes-anything to get a reaction from the uptight, plodding, well-mannered Time Warner executives, who, for their part, were offended by the AOL team's lack of decorum.

It occurred to more than one member of the Time Warner team that the tension building that weekend might be a sign of things to come -- that, after all, the AOL Time Warner partnership might be unworkable. Had they witnessed the fight that took place between Jerry Levin and Steve Case, their suspicions would have been confirmed.

It was shortly after noon on Sunday, January 9, less than two hours before Time Warner's board was scheduled to vote on the merger. Despite the pressures and time constraints, Bressler and Novack were still on the phone, haggling over details in yet another draft of the merger agreement. Novack was focusing on one key aspect of the document: the job descriptions of top management in the new company. Pointedly, Case was being described as "non-executive chairman."

"Is this right, Rich?" Novack asked, his Boston accent especially pronounced.

"Absolutely," replied Bressler. "That's what Jerry and Steve agreed on."

"Really? It doesn't sound right to me. Let me talk to Steve and get back to you."

Novack called Case at home. "They're saying you're going to be a non-executive chairman, Steve. Did you agree to that?"

"What the ... ?!" Case exploded. "That's bullshit! I never agreed to that. You tell Bressler that if Jerry wants me to be non-executive chairman the deal's off."

Case had never agreed to be a non-executive chairman, he insisted loudly. Why would he have agreed to that? To have no role in the combined company other than presiding over board meetings? The situation was unthinkable. It was nuts for Levin and Bressler to imagine it! AOL was Case's baby, his company, his genius; he had conceived of the merger with Time Warner, for heaven's sake! Sure, Case wanted to spend more time with his family, he didn't want to report to work every day, and he was glad to leave the day-to-day operations to Levin. But Case wasn't stepping down -- no way! He intended to play an active role in seeing his strategy put into operation. He was going to be involved. What sort of crap was Levin trying to pull, anyway? Case instructed Novack, "There's no way I'm going to be some figurehead, Ken, not in a million years. You tell them that."

Novack called Bressler back: "Listen, Rich. I just spoke to Steve. We've got a problem, and if it can't be resolved, Steve says the deal's off. He's not backing down on this."

"O.K.," said Bressler. "I'll call the old man and get back to you. But I'm warning you: I don't think this point is negotiable."

Levin, "the old man," was furious when Bressler called him. Where did Case get off trying to change the rule book at the eleventh hour? Up and down, Levin swore to Bressler: Case had agreed to be non-executive chairman, period. That was the premise on which the deal had been made. Remember that phone call back in October, when Case had promised to make Levin C.E.O.? That's when the two men had agreed that Case would not have an operating role in the new company, Levin explained to Bressler; he was absolutely sure of that. Otherwise, he would never have moved forward.

The clock was ticking. Time Warner's board was scheduled to meet in less than an hour. Novack waited to hear back from Bressler. He wasn't sure the deal would even happen; he'd known Case long enough and well enough to realize that Case wasn't going to back down, not an inch.

By the time Levin and Case actually spoke to each other by phone, Time Warner's board was assembling; it was just before two p.m. "Go take a jog, Steve," Levin blurted out, his head pounding. "You agreed to take a non-executive role." Levin's carefully devised scheme was crumbling. To make this deal work, Case had to be persuaded to take a non-executive position; how else could Levin maintain control of the new company? Sharing power was not an option, as Levin knew from hard experience. He had to have been reminded of Warner's Steve Ross and Time Inc.'s Nick Nicholas battling for control of Time Warner in the early 1990s. Yet what could Levin really do at this point? He was trapped. In his heart and soul and ego, the AOL deal was done. Levin was fully invested in it.

To anyone who knew the two men, what happened next was entirely predictable. Case stood his ground, stubborn and unshakable. Convinced as always that he was right, he told Levin that he would not take a non-executive role; unless his condition was met, the deal was off, now. And he meant it. Levin, by contrast, despite his tough, smart, New York talk, withered in the face of this last-minute confrontation. He had way too much to lose. Attempting to bully Case into submission, Levin had started off aggressively. ("You've got to have brass balls" was the crude expression favored by Levin and his closest associates when discussing their negotiating tactics.) Then, as soon as he was challenged by his calm and determined opponent, Levin had to back down.

The standoff between Levin and Case lasted only a few minutes. As it turned out, Case would not be a non-executive chairman. Far from it. He'd have specific areas of authority in the new company, including global public policy, technology policy, venture-type investments, philanthropy, and "future innovations." That wasn't the only concession that Levin agreed to at the last trump. In a most unusual arrangement for a company's chairman, Case would have a handful of top executives reporting directly to him and bypassing Levin.

If for a fleeting moment Levin had ever imagined he'd sideline Case and maintain total control of the new company, he should have known better by now. AOL was buying Time Warner; that was the reality of the situation. It was one hell of a way to begin a marriage of equals....

As for the investors and employees who lost billions and billions of dollars... well, by that time George W. Bush was president and his administration was very friendly to corporate managers and very unfriendly to actual business, investors and, obviously, employees.

Today's Barron's, calling the merger "one of tech's greatest disasters" (instead of, say, "another colossal failure of deregulatory-mad Republicans and the Bush Regime to protect shareholders from financial predators and campaign-contributing flim flam men"), assures us that this latest spin-off they're cheerleading "should benefit shareholders." Now I'm worried. "As Barron's tech guru Eric Savitz reminds us, the tie-up of Time Warner and AOL was valued at $106 billion when it closed in January 2001... but this Frankenmedia outfit today is worth just $27 billion. The good news is that this should create a leaner, meaner Time Warner." LOL!

And Barron's is urging people to buy it, calling one of the worst-run companies in the history of American business "a solid, undervalued media gem that should see a pickup in growth when the economic recovery finally rolls around." DWT's outlook: Caveat emptor.

Tim Geithner Worked Out Just Fine For Me... Today

I know I wasn't a typical corporate executive. As president of Reprise Records, a division of TimeWarner and, horribly, AOLTimeWarner for a brief but fatal moment in time, I had access to one of the company's corporate jets. They're very comfy and convenient, especially for international travel. I sometimes flew with other CEOs and chairmen and presidents on them. But they cost tens of thousands of dollars to operate on flights across country so I asked to use one exactly zero times. Never, not once. Just contemplating the idea made me nauseous. All that money that could be used for so many more worthwhile things... and what a colossal rip-off of the shareholders!

And rip-offs like that are small potatoes. Nina Munk's definitive book on the AOL TimeWarner merger, Fools Rush In-- Steve Case, Jerry Levin, and the Unmaking of AOL Time Warner, exposes what a real full blooded rip off is all about.

On Monday, January 10, 2000, America Online announced that it was buying Time Warner for $163 billion. The news was crazy, incredible. The biggest merger ever, it was, according to the media, an "awesome megadeal" and "a fusion of guts and glory. It was "the deal of the century" and a "mega-marriage of earth and cyberspace." An internet upstart, AOL, was buying the world's most powerful media and entertainment company. "A company that isn't old enough to buy beer," marveled the Wall Street Journal, "has, essentially swallowed an ancien regime media conglomerate that took most of a century to construct.

Two years later, after the smoke had cleared, $200 billion of shareholder value had vanished into cyberspace. One the trail of a possible fraud, the SEC and the Justice Department started investigating AOL Time Warner's accounting practices. Meanwhile, a civil war had broken out inside the company, complete with backstabbing and personal betrayals. Before long, every major player was out of the company, discredited, and humiliated. Jerry Levin, Time Warner's "resident genius," lost his job, lost his reputation, and, in the view of some people, simply "lost it." Steve Case, the visionary leader of AOL, for forced out of the company he had created.

Neither went to prison. No one did. And that "$200 billion of shareholder value [that] had vanished into cyberspace?" Oh, that. Well, estimates when all is said and done, are that Case and his cronies only looted a mere $6 billion for themselves. And what's $6 billion or so between oligarchs?-- not much compared to the Enron Scandal and the other too numerous to remember corporate hallmarks of the Bush Regime...

But from time to time I get a letter from some court or other telling me that another piece of one of the class action suits I'm involved in against Time Warner has borne some fruit. One of those letters came a few days ago.

In 2003, a class action lawsuit under the Employee Retirement Income Security Act (ERISA) was brought against Time Warner on behalf of certain Time Warner Savings Plan participants who held units in the Company stock fund in their 401(k) account. Time Warner reached a settlement to resolve this matter and, as a result, you will soon receive s pro-rata share of the settlement.

Specifically, Friday morning at 3AM. I had a feeling this wasn't the lawsuit that was addressing my loss of $10,000,000 (give or take) in now worthless stock options. I can't say I really understood what this one was about but I spent a couple of hours on the phone Wednesday and Thursday trying to find out from the program administrator, Fidelity. No luck. But I did find out that on Friday at around 3AM (in some time zone) they would deposit an undisclosed amount into my Fidelity account.

It dawned on me that the stock market has been crashing by hundreds of points per day-- down around 50% since Bush first stole the White House-- and that I needed to know what Fidelity account they would be dumping the undisclosed sum into. More hours of frustrating time on the phone with Fidelity. Finally someone, apparently in the hope of getting me out of her hair, agreed to change the designation for the incoming funds from "Growth Fund" (something that could easily lose 5-10% of it's value on the day it was deposited) to a cash account.

It felt like Christmas without the tree when I tiptoed downstairs this morning at around 5:30AM and called Fidelity to see what had happened. The settlement, or my part in it, was ok-- more than enough to pay for my trip to Mali, not enough to buy Roland his new house-- but I flipped out when they told me it had been deposited in "Growth Fund." And there was nothing they could do about it until the 4PM close of the trading day. That meant my money would rise or fall with the market today.

I long ago stopped following the market. I couldn't tell you where CNBC is on the dial if my life depended on it. But I heard the Asian markets had rebounded from yesterday's mayhem and it was expected that the U.S. markets would follow suit. When I left the house to do some chores, the market had gone up a little, down a little and was holding steady (in the toilet) and I was still hoping Hillary would become Senate Majority Leader, Wes Clark Secretary of State, Bill Richardson Secretary of Commerce and Anybody-But-Larry Summers Secretary of the Treasury. The phone rings; it's my financial advisor-- who knows nothing about the Time Warner drama-- and he says the market is exploding. "Why?" The Market is ecstatic about Hillary, Richardson and Geithner. "Hillary?" So that's when I found out that she's going to be Secretary of State after all, and that Richardson will be Commerce Secretary and Tim Geithner, not Larry Summers, was going to Treasury. Summers will work in the White House, giving Obama bad advise, which he can take or not. Conventional wisdom is that Geithner was the best choice of everyone Obama was said to be considering.

The market closed up 494 points-- about what it lost on Thursday-- but I cleaned up on my one day "investment," which is now safely in a money market-- at least until Obama names the rest of his economic team.