‘Economy has reached an absolute bottom…’: AOL chief

Reshma Kapadia

NEW YORK: AOL Time Warner Inc. chairman Steve Case said Tuesday he feels that

the Internet sector, the economy and the country have reached a bottom following

the September attacks on the Pentagon and the World Trade Center.

"I can't predict that it is an absolute bottom, but it feels like it

will be up from here," Case said at a Goldman Sachs conference in New York.

"I'm taking a little bit of comfort in that things got difficult, that

people are taking a step back and people are reassessing."

The world's largest Internet and media giant, which is home to cable

networks, such as CNN and HBO, and magazines, such as Time and People, said last

week that its 2001 and 2002 earnings would fall short of expectations, citing

the advertising climate and the Sept. 11 hijacked jetliner attacks.

The devastating events have heightened economic uncertainty and worsened an

already dismal advertising picture as companies curtail spending. Many media

companies have also incurred additional expenses in the wake of the attacks as

they try to provide comprehensive coverage of new developments.

Case said AOL "reluctantly" had had to reset its financial targets

because, despite its hopes, the advertising market was not coming back in the

fall, or any time soon. He said one of the company's top priorities had been to

instill discipline about making its predicted numbers.

"Even though it was getting more difficult, we were really trying to

hold our numbers," Case said. "And only recently it became clear that

however hard we tried - that while it wasn't impossible, it was very difficult.

And the price to pay to make the numbers in the short run would be to limit

investments that would fuel growth in the long run."

Case said he took comfort in the diversified nature of AOL Time Warner's

business, however, noting that only 24 per cent of the company's total revenue

came from advertising.

He added that, given the current climate, the company, whose fall film

releases include "Harry Potter and the Sorcerer's Stone," might

benefit from consumers' desire to "cocoon" by staying close to home

and watching more television, or going to the movies.

At the conference, Case outlined several other priorities, including AOL Time

Warner's desire to expand its footprint globally, so that international revenues

contribute 50 per cent of total revenues over the next decade, up from 20

percent currently.

Not an A+, but maybe an A-



"Overall, we didn't get an A+, but certainly a B+, or maybe an A-,"
Case said, evaluating the performance of AOL Time Warner in the last nine months

since the completion of its merger. "We are off to a good start and,

obviously, it's more difficult to do with this kind of difficult economy."

He said the company had done a good job in integrating the two companies'

cultures and employees, with relatively few changes to the overall team. The

company, which employs nearly 90,000 people, cut 2,400 jobs in January and cut

another 1,000 people at its flagship Internet unit.

In reviewing the period since the completion of AOL's $106.2 billion purchase

of Time Warner, Case said he had expected the company to be further along in the

development of digital music.

He said, however, that development had been slowed largely because of the

litigation involving song-swapping firm Napster and the need for companies to

collaborate on common standards.

Case also said he expected high-speed services, or broadband, to come

together in the next five years. He added that the difficulty was more about

building bridges between different devices than the technology itself.

Although it sounded weird, he said, given current stock prices, he believed

the difficult economic climate might prove to be helpful because it was forcing

more cross-divisional collaboration.

"Whatever fluctuations the market may experience in the coming days,

weeks and months and whatever challenges we face in the coming conflict to rid

our world of terrorism, these trends toward convergence are irreversible and

they will shape the future of media and communication and reshape our

lives," Case said.

Referring to the company's well-publicized rivalry with Microsoft Corp. ,

Case said the software giant was getting more traction on some of its Internet

services.

Meanwhile, he said, he believed a government solution was necessary to handle

any problems with Microsoft's operating system and he would prefer a settlement

to litigation, which would likely prolong a resolution.

Shares of AOL Time Warner fell 1per cent, or 34 cents, to $32.44, down about

5.7 per cent from pre-attack levels.

(C) Reuters Limited 2001.