You've Got ... a Company to Fix!

Jeff Bewkes wasn't very good at keeping his comments to himself. In 2000, when Bewkes was the CEO of HBO, he was critical of America Online's plan to purchase his network's parent company, Time Warner, for $182 billion in stock. The Internet bubble began bursting and deflated the worth of the new-media/old-media marriage before the deal was even official. (It ultimately shed more than $200 billion in shareholder value.) "You had to wonder if it were a good idea" to proceed, Bewkes tells NEWSWEEK. In 2001, while still at HBO, he piped up again when AOL started losing subscribers who wanted high-speed service. Bewkes pushed AOL to embrace broadband, but corporate bosses didn't heed his advice.

So who better than Bewkes, who rose through Time Warner's ranks to become its COO last year, to oversee the plan to salvage AOL? Last week he and AOL CEO Jon Miller announced that the company would give its services away to anyone with a broadband connection. They also told 5,000 employees--a quarter of the work force--that they would be out of jobs by early next year, a move AOL expects will chop $1 billion in annual costs. Time Warner is betting that this savings, plus increased online ad revenue, will raise AOL's earnings even as paying subscribers quit. About 9 million have defected in the past four years; AOL has just under 18 million customers who pay monthly charges of $9.95 to $25.90 for dial-up access.

AOL's success depends on whether marketers flock to it to reach the new users it expects to lure with free offerings. They include "in-studio" performances by musicians, video shorts, e-mail and instant messaging--a "tremendous set of services," says Bewkes. AOL also owns Moviefone, MapQuest and, which broke the story about Mel Gibson's drunken-driving arrest. "I believe the strategy ... is quite sound," Richard Parsons, Time Warner's CEO, told reporters. "The board joined me in giving it their full endorsement." And there was ample reason to be encouraged about AOL's appeal as an advertising forum. In reporting second-quarter profits of $1 billion (up from a $409 million loss a year ago) before unveiling the new strategy, Parsons noted that ad sales had soared 40 percent, though earnings of $505 million were down slightly. Bewkes says AOL can take a piece of the roughly $17 billion online ad market, though he's unsure of just how big a piece. Time Warner's already got a strategic ad partnership with Google, which last year acquired 5 percent of AOL for $1 billion. Still, not everyone is convinced. "We believe AOL remains a 'show-me' story," Merrill Lynch analyst Jessica Reif Cohen advised clients.

Bewkes, 54, has helped a company redefine itself before. During his seven-year tenure at HBO, he got the network to focus on original programming after rival networks like Showtime and upstarts like Starz moved against HBO's Hollywood movie franchise. The result: pop culture phenomena like "The Sopranos" and "Sex and the City" that made HBO the most profitable entertainment network in TV. The trades took to calling him "the real Mr. Big" after the "Sex" character. He had even more clout after his 2002 promotion to Time Warner corporate. Bewkes oversaw the company's Hollywood outposts (Warner Bros. and New Line studios) and television networks (the former WB and cable outlets CNN, TBS and HBO) before his promotion to COO last December. Could his next title be CEO? Maybe, but first he has to fix AOL.