AOL's Parsons expects no honeymoon

"Maybe one day it will be the crown jewel, but right now it's desperately in need of help."

Michael Florin, an analyst at US Trust Co

AOL Time Warner Inc's Richard Parsons said he knows not to expect a honeymoon from investors when he takes over as chief executive officer of the world's biggest media and Internet company this week.

"I didn't even get any wedding presents," Parsons quipped at a conference this month. AOL Time Warner said in December that Parsons, now co-chief operating officer, would succeed Gerald Levin, who is retiring 14 months after the company was created in the biggest corporate acquisition ever. Parsons becomes CEO Thursday at the company's annual meeting in New York.

Since last year's gathering, AOL Time Warner shares have plunged 67 percent on lower advertising sales and slower subscriber growth at America Online. The Internet business, called the company's "jewel in the crown" by Levin a year ago, is now dragging down the stock, investors said. For Parsons, conditions may get worse before they get better, they said.

``I don't think America Online has hit a bottom yet,'' said Allison Shaw, vice president at asset management firm Independence Investors, a unit of John Hancock Funds, which owns AOL Time Warner shares.

Advertising at America Online fell 31 percent in the first quarter, its second straight decline. Ad sales fell 7.1 percent in the fourth quarter.

"Maybe one day it will be the crown jewel, but right now it's desperately in need of help," said Michael Florin, an analyst at US Trust Co, which manages US$93 billion and owned 14.6 million AOL Time Warner shares in March, according to federal filings. One of the "most important things now for Parsons to do is to provide some visibility that the problems at the division can be fixed."

AOL Time Warner shares fell US$00.82 to US$16.98 on Friday. The stock has fallen 47 percent so far this year.

Some expressed concern that online ad sales will never return to the record levels of the late 1990s and 2000. And they said America Online may not be able to repeat the success it's had in "dial-up," or Internet connections over regular telephone lines, in the growing market for "broadband," or high-speed Internet service.

"Negotiating the transition from dial-up to broadband is probably the single most important thing for Parsons and his team," said Charles Crane, a strategist at Victory SBSF Capital Management. The firm owns 3.6 million AOL Time Warner shares and manages US$4.5 billion.

That transition involves reaching agreements to run the America Online service over rival companies' cable-TV lines, analysts said. AOL Time Warner owns the second-largest US group of cable systems with about 12.7 million subscribers.

"They need access to cable operators," Florin said. "As [dial-up] customers migrate to broadband, they need to be in a good position to capture that migration. It's one of, if not the most, important issue that AOL Time Warner has right now."

Parsons said that pushing America Online back on a "growth track" will be among his top goals during his first six months as CEO. He has said he wants to simplify the company's balance sheet and its Time Warner Entertainment partnership with AT&T Corp.

Parsons trained as a lawyer and worked as a political aide to former New York Governor Nelson Rockefeller and former President Gerald Ford. He was also chairman and CEO of Dime Savings Bank of New York.

Parsons to manage investor expectations better than his predecessor. AOL Time Warner has cut its financial forecasts at least three times since the company was formed in January 2001.