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THE
TRUTH, THE WHOLE TRUTH, AND NOTHING BUT THE TRUTH

(or something like it)

I Made a Little List

Now, in the frigid and head-clearing morning of the new economy
after the New Economy, everyone seems to agree: Time Warner was had
by AOL.

That is, at the turn of the new millennium, the world's biggest and
arguably most influential media company merged itself with the
highflying online giant and central icon of the Internet boom for a
44 percent stake in the combined company. The problem was AOL's
business was soon to crater as that boom turned to bust, and its
once lofty stock would become almost worthless. In this simplistic
scenario, the trade of the century soon became known as the worst
deal in history.

This is most certainly the tale that has taken up residence in the
stony prison of conventional wisdom: A wheezing and increasingly
desperate traditional media company, scared of inevitable death (or
worse still, irrelevance) in the hot swirl of a digital revolution,
marries itself oV to the young, sexy and possibly sleazy starlet of
the new-media society.

Disaster ensues.

And this merger has most definitely qualified as a disaster of
belly flop proportions, by any measure you might care to use, which
AOL Time Warner's own magazine, Fortune, dubbed "one of the
greatest train wrecks in corporate history." The stock's 75 percent
drop within two years of the deal's completion, the vicious purge
of the top executives responsible for the merger, the
investigations into dicey accounting practices, the poisonous
atmosphere-all this has resulted in a constant barrage of ugly news
headlines and poor morale at the company.

As I sit here in 2003 surveying the carnage, it is hard not to feel
a bit queasy about the whole sorry mess. I had been following AOL's
history-and the course of the whole commercial Web revolution-from
early on, so it felt a bit like I was watching someone fall down a
flight of stairs in slow motion, and every bump and thump made me
wince. It made me reassess old ideas and wonder what I had gotten
wrong. And it left me deeply confused as to what had happened and,
more important, what was coming next.

That was certainly how one of the company's largest and most vocal
shareholders, Ted Turner, seemed to be feeling, too. Turner, the
legendary media entrepreneur who'd gained as much fame for his
headline-grabbing antics as for founding CNN, had begun ranting
regularly about AOL Time Warner CEO Gerald Levin not long after the
January 2000 merger announcement. In meetings, according to many
sources, he'd call Levin a "liar and a thief"-when, of course, he
wasn't discussing his separation and pending divorce from Hollywood
star Jane Fonda, which the couple had revealed just a few days
before the merger announcement.

Things got only worse after Turner had lost $7 billion in stock
value by the end of 2002. "I'm poor, but I'm proud," he'd say
loudly and often. And he took to showing up at the oYces of various
Time Warner executives, where he'd turn his pants pockets inside
out and cry out to anyone who would listen: "I was robbed."

Turner was perplexed. Perplexed at what had happened in the deal,
and perplexed at how he'd managed to lose more money in two years
than almost anyone in the world had ever possessed. In December
2002, on the fifth anniversary of his $1 billion pledge to the
United Nations, he announced to reporters, "I went from no money to
a pile of money, just as big as the World Trade Center." Unable to
stop himself despite the crassness of the comparison, he went on:
"Then-just like the World Trade Center-Poof! It was gone."

Possibly the most vexing part for Turner-though he never seemed to
admit it in all his angry outbursts-was the knowledge that he'd
done this to himself. Not only had he voted for the deal as a major
stockholder; he'd also declared, without any prompting, that he
"did it with as much or more excitement and enthusiasm as I did on
that night when I Wrst made love some forty-two years ago." As
much, okay. But more? No wonder he was suffering such postcoital
pique.

Turner's transformation-from sex-crazed teen to ranting, grumpy old
man-got me thinking about the whole deal. So I made a little list,
titled: Questions to Ask Ted Turner, If He Ever Agrees to Talk to
Me.

1.Were you really robbed?

2.If not, why are you saying you were?

3.What did Gerald Levin lie and cheat about?

4.Why did you and Jane Fonda break up?

(That last one was just for me personally.)

This led to another list, titled: Questions to Ask Gerald
Levin.

1.Do you think you robbed Ted Turner?

2.If so, where is his $7 billion?

3.Are you a liar and a cheat?

4.Why do you think he broke up with Jane Fonda?

I went, to tell the truth, a bit list-crazy, making them for
everyone involved-Steve Case, other executives, the investment
bankers, the Wall Street analysts, major institutional investors,
and on down the line to the smallest schmoo at the companies.

It seemed like an easy job then. I'd just take my many lists and
get some answers. Then I'd be able to explain what had
happened-which, even more important, would then go a long way
toward explaining what had happened in the whole Internet boom and
bust. Yes, this should be easy.

Or so I thought. But the mood in the business world as I began
doing interviews in the fall of 2002 was very ugly, and the
AOL-Time Warner deal was being held up as the biggest and stupidest
moment in the whole era. What I would soon learn was that this was
a story in which everyone was to blame, but no one was at fault.
And only a few would go on the record about what happened, although
everyone would tell you in detail why someone else screwed up.
Worst of all, so heavy is the stench of the fetid merger itself,
it's been nearly impossible to determine if the main idea of the
merger-the virtuous combination of old and new media to face the
inevitable digital future together-was ever a worthy one.

This was, in short, a bad deal in search of a big scapegoat.

Nobody Still Knows

As I started writing this book, the multiplicity of competing
agendas and few truly honest players quickly made it hard to sort
things out. Soon enough, I felt a bit like a spun top-which was, as
it turned out, an oddly familiar feeling. It was the same one I'd
had when I first started writing about the Internet years
ago.

"The truth is: Nobody knows" was the opening line of my first book,
aol.com: How Steve Case Beat Bill Gates, Nailed the Netheads, and
Made Millions in the War for the Web, which chronicled the rise of
an unlikely group of entrepreneurs on the edge of disaster to the
heights of status, power, and money. The line was meant to show how
few people understood the power of this entirely new and highly
disruptive online medium. And, more to the point, how fewer still
thought America Online, which had been left for dead many times on
its rocky journey, could ever amount to much at all.

That book was a story of the losers winning it all. With crazy
characters and huge hype, big-time moguls and risky deals, and
piles upon piles of money, the AOL story was a primer on the
dot-com revolution that electrified the country at the end of the
twentieth century. As the biggest player of them all, AOL sat at
the very top of this world when I completed the book in 1997.

And then, AOL somehow rose even higher, capping its lofty position
at the dawn of the new millennium with the announcement that it
would buy the world's most important media company, Time Warner,
rather than the other way around. The losers now stood ready to
transform the combined company into a place that would control much
of what Americans read, listened to, and watched, as well as how
they communicated.

Today, it's easy to forget how bullish the world was on the merger
news in January of 2000, because the context of that once hopeful
and perpetually frenzied time had vanished almost completely by
2003. The Web-will-change-the-world-and-make-us-filthy-rich cheer
had morphed rather abruptly into an
It-was-all-a-Ponzi-scheme-wasn't-it? shriek. But let us try to
remember anyway: When the merger was announced, it was hailed as
the new paradigm and few questioned its wisdom. Its key
executives-Steve Case, Jerry Levin, Bob Pittman, and, yes, Ted
Turner, too-were seen by many as rock star-like icons of the
future. The new sages of the business world, they were admired and
envied for their immense wealth, power, and seeming ability to
influence the future direction of the world. Mere mortals had
become accidental gods, as one Wall Street analyst had told me soon
after the deal was announced.

But now the losers are losers once again, having fallen Icarus-like
to earth after arrogance and hubris had brought them too close to
the sun. The merger of the century is seen as an abject failure.
Instead of high fives and dreams of perfect synergy, AOL Time
Warner has become a place of vicious boardroom infighting,
management coups, shaky morale, and a general feeling that the
whole effort to merge the old and new economies has been a farce.
There are, of course, lawsuits on top of lawsuits, as the molten
anger hardened into a much colder and more urgent need for revenge
and retribution.

As things started to teeter and then topple at the company, I, too,
found myself weirdly upset. First of all, there was an element of
self-interest in my discomfort. The column I wrote about the tech
sector for the Wall Street Journal was called "Boom Town." "Been
watching the NASDAQ. Think we should change the name to
'Bust-town'?" Journal managing editor Dan Hertzberg had written me
in an email on November 30, 2000, as the Net royalty started to
show major signs of wilting. When your boss starts making little
"jokes" like that, you know it's time to start looking for
answers.

But it wasn't just that. There was also the dirty little secret I
have continued to hold in these antidigital times: I am still a
believer. Maybe not in the AOL Time Warner merger anymore, but in
the essential idea at the heart of it-that someday the distinction
of old and new media will no longer exist. Despite the grave
dancing everyone's been doing about AOL Time Warner's fate, I still
believe we're at the very start of realizing the promise of the
many technical innovations that burst on the scene at the end of
the last century. Borrowing from Winston Churchill, I call it the
end of the beginning of the digital revolution.

By that, I mean that it is from the ashes of this bust that the
really important companies of the next era will emerge. And that
evolution will, I believe, be shaped by what happened-and what is
happening now-at AOL Time Warner. Because the moment the deal was
struck has become a kind of Internet Rubicon: It stopped the boom
that needed stopping and ushered the nascent industry into maturity
with a rough shove.

In the wake of the crash, true faith in the eventual dominance of
the Internet is not an easy thing to admit to. In fact, largely
because of this one disastrous deal, saying you believe in the
Internet as a revolutionary medium is now a bit like admitting to a
capital crime. It may even be one, if you also happen to express
conWdence in convergence-that longed-for mix of technology and
media that will someday enable consumers to get any kind of
information anytime and anywhere. And I won't even begin to imagine
how pilloried someone who also touts synergy-the fabled ability to
make a company worth more than the sum of its parts-would be.

But I still believe. And in order to find out what would happen
next, I needed to find the real story behind the failed merger, and
how we got here from there. That, and the answer to another
question:

Who really robbed Ted Turner?

Whodunit?

Excerpted from THERE MUST BE A PONY IN HERE SOMEWHERE ©
Copyright 2003 by Kara Swisher, with Lisa Dickey. Reprinted with
permission by Crown Business, a division of Random House, Inc. All
rights reserved.