What's grating on Time Warner executives and investors is the collective belief that Case fleeced them, and yet here he is, day after day, hanging around headquarters, rubbing salt in their wounds, a constant reminder that they were taken.
Steve Case's Last Stand
With the departures of AOL Time Warner C.E.O. Gerald Levin and C.O.O. Robert Pittman, all the anger and hostility consuming the world's most powerful media company is focused on chairman Steve Case. Employees from the Time Warner side blame him for crippling their company (and destroying their retirement accounts). Top investors, including Ted Turner and Gordon Crawford, are calling for his head. His management style, his accounting practices, and his vision are under attack. How come he's still there? NINA MUNK goes into the trenches.
Grant Steve Case this: he may be a genius. One after another, people who have worked with Case say he's "really smart." They say they're awed by the way he handles information, by his ability to absorb, process, and sort huge amounts of complex data, and, finally, translate it all into a stripped-down concept anyone can grasp.
What else do people say about the 44-year-old chairman of AOL Time Warner-as a person? A senior company executive who has known Case for many years confided to me, "He spends a lot of time with his kids. He's very devoted to his family." Anything else? "He goes to his daughter's soccer games." Another longtime colleague, who considers himself a friend of Case's, confirmed this: "He does make sure he's at his kids' soccer games.... He's an extraordinarily strong family person-a devoted family person." When pressed, a former senior AOL executive, someone who has worked closely with Case since the mid-1990s, listed Case's personal interests for me: "He travels with his wife in the summer." Does he collect anything? Is he interested in politics? Does he speak foreign languages? (My line of questioning was growing desperate, as anyone can recognize.) "He likes good wine, I know that." A pause; then, as if he were overwhelmed by the impossible burden of humanizing Steve Case, the colleague concluded, "I don't know if he reads, I don't know if he goes to the movies, I don't know if he plays ball, I don't know if he's a sportsman. I don't have any idea. None. None."
We do know this: Case is aloof. He doesn't like making small talk. He's uncomfortable at parties, often appearing bewildered, as if he doesn't get the point of being there. In photo after photo, he looks past the camera with the same forced and frozen smile. "He doesn't create a warm and fuzzy," yet another AOL executive told me. He added, "One of the longest six hours I ever experienced was sitting next to him on a plane going across the country."
In the context of the ongoing battles at AOL Time Warner, Case's aloofness may turn out to be his fatal flaw. Having alienated one colleague after another, he is fighting to hold on to his position atop the world's most powerful media-and-entertainment conglomerate. In the three years since Case (then running AOL) and Jerry Levin (then C.E.O. of Time Warner) shook hands on the deal that created AOL Time Warner, Case has made few new friends or allies. In fact, many people on the Time Warner side of the company are hostile-they want Case out, now, as if his departure would magically solve the company's problems. Summing up the free-floating resentment of her colleagues, a Time Warner executive told me, "I don't see how he can survive-there's so much ill will towards him."
That ill will is not restricted to headquarters. Many of AOL Time Warner's biggest investors, most notably Ted Turner (whose more than 3 percent stake in the company makes him its largest individual shareholder), are convinced that the company would be better off without Case. "To me, it's a huge negative having Steve as the chairman of the company," another important AOL Time Warner shareholder told me.
Determined to stay put, Case has in recent months made himself visible at AOL Time Warner after a long period in which he had largely withdrawn from the company's day-to-day affairs; of late, he's been more available, outgoing, sometimes even accommodating. As co-chair with C.E.O. Dick Parsons of the board of directors' strategy committee, Case has been meeting with the various divisions and their leaders to figure out what the deeply troubled company should be doing. In February he attended Warner Music's Grammy Awards party, mingling awkwardly with Kid Rock, Linkin Park, and Matchbox Twenty at the Mondrian Hotel in West Hollywood. In September, at a party hosted by AOL Time Warner's HBO division, Case posed for photos with actor Tom Hanks. In October, onstage at New York's Avery Fisher Hall for the launch of AOL's version 8.0 software, Case labored to trade jokes and banter with comedian Dana Carvey. (In a rare moment of spontaneity, he was even seen making rabbit ears behind Ted Turner's head.) That same month, changing hats, he gave a luncheon speech at a Goldman Sachs investor conference and announced to the audience, "As chairman, my role is to run the board, partner with Dick Parsons, and roll up my sleeves and be helpful. And that's what I plan to do."
Back in the heady days of the late 90s, before AOL bought up Time Warner, Case wasn't expected to spend his lunch hour justifying his paycheck to this one and that one. In those days, he was still being hailed as a prophet, a visionary of the Internet Age. Wall Street revered him: at its peak in late 1999, just before the Time Warner deal was announced, AOL, the company Case built in just 15 years, was worth more than General Motors and the Ford Motor Company combined. Despite his shortcomings as a manager, Case was held in awe, even loved (one hazards) by his employees, who didn't presume to expect that such an extraordinary man would make small talk and ask about their child's first day at school. "To the people at AOL ... AOL is not just a company, it's a religion," explained a longtime AOL executive, who, like most people I spoke to for this article, was reluctant to be quoted by name. "If AOL is your religion, Steve is your spiritual leader."
Compared with the true believers at AOL, people at Time Warner are cynics; they've never worshiped their leaders. On the contrary, Time Warner's fractious division heads have long interpreted any direction from headquarters as a hostile invasion. When it comes to Steve Case, however, they're mostly of one mind. To these people, Case represents everything that's gone wrong with the company in the past two years: a stock price that's down 70 percent from its peak of $58.51 in May 2001; a federal investigation into the company's accounting; an admission of having falsely inflated revenue by $190 million (so far); a $54 billion (and counting) write-down taken last April to reflect the declining value of the company; and, in the fiscal quarter that ended in September, a 30 percent drop in cash flow generated by the AOL division, once described breathlessly as the company's "crown jewel."
Above all, what Time Warner executives and investors resent is this: with a remarkable sense of timing, Case used AOL's then inflated stock to buy their company. That sleight of hand took place in January 2000, just two months before the meltdown of Internet stocks. For AOL shareholders, the Time Warner deal was a miracle: without it, according to numbers recently crunched by Newsweek columnist Allan Sloan, they'd be holding shares worth less than half AOL Time Warner's current $15 stock price. The people who lost out, and lost out big, were Time Warner's shareholders and employees. Ted Turner, for example, has seen the value of his shares drop from roughly $8 billion to $2 billion. As for Time Warner employees, the value of their retirement accounts has been destroyed, their stock options made worthless. If the AOL deal had never happened, their stock might now be worth $47; those are the sorts of figures his detractors throw out when they're sounding off about the evils of Steve Case.
"Steve understands and shares the frustration that other major shareholders have about the performance of the company since the merger," Kenneth Novack, an AOL Time Warner vice-chairman, a member of the AOL Time Warner board, and one of Case's closest confidants, told me when we spoke in late October. Does he really? Can he possibly? After all, in the decade since AOL went public, Case has exercised and sold about $700 million worth of AOL stock options, according to calculations based on S.E.C. filings compiled for me by Thompson Financial. Beyond that, Case continues to hold another $170 million worth of AOL Time Warner stock-plus another $130 million of old AOL options vested but not yet exercised. (He also has nearly four million unvested options that are worthless at the stock's current price.)
The movement to get rid of Steve Case isn't about just money lost and retirement accounts and stock options. It's deeply personal. What's grating on Time Warner executives and investors is the collective belief that Case fleeced them, and yet here he is, day after day, hanging around headquarters, rubbing salt in their wounds, a constant reminder that they were taken. As one of AOL Time Warner's biggest shareholders told me, "Here's the guy who conceived the deal; pitched the deal to Jerry [Levin]; got this deal, this catastrophic deal, to happen; brought in the guys who were his culture, his accounting, his company-it's just a big downer for everybody."
In retrospect, it may be that Case's first mistake was handing over the title of C.E.O. to Jerry Levin, and then withdrawing to the sidelines as chairman. According to people close to him, he liked playing an elder statesman: making informed speeches about the digital revolution, thinking big thoughts, tending to his charitable foundation. Besides, with the exception of Levin as C.E.O., the most senior corporate positions at the new company were generally occupied by loyal AOLers. But as time went by and the heady promises of the great AOL Time Warner deal faded-and with Case now being criticized for remaining aloof from the fray-the AOL side slowly lost control. One by one, the executives who'd initially played a role in bringing together AOL and Time Warner lost power: some of them were fired, others forced out, others marginalized. In December 2001, Levin himself was pushed out, replaced as C.E.O. by Dick Parsons (who, despite having helped negotiate the AOL deal as Levin's second-in-command, has been untainted by its catastrophic aftermath). Last July it was Bob Pittman's turn: the most senior AOL executive after Case, Pittman resigned as the company's chief operating officer when it became clear that his power base had eroded. Case is now the last man standing-a target for the accumulated ill will of employees and investors unappeased by the previous bloodlettings.
If Case survives the purges, it won't be the first time he's beaten the odds through sheer tenacity and resolve. Throughout much of the 1990s, according to the media and Wall Street, AOL was on the way out. If competing Internet-service providers didn't finish it off, the thinking went, surely Microsoft would. Nonetheless, Case's belief in the future of AOL was unshakable. "Since the early 1990s, Steve has had this burn in his belly that what he was creating with AOL was not just something you did with your computer-like word processing. It was something huge and something that would one day be as big and pervasive as the telephone or the television," explained an AOL executive who has worked with Case for more than a decade. "That belief of his burns inside of him like radioactive uranium. It's ever present-it's the drive that propels him."
Likewise, the setbacks of the past three years have not changed Case's faith in the future of AOL Time Warner. Without irony, he continues to use such late-90s buzzwords as "convergence" and "interactivity" to describe his business model. In his view, all creative content-music, movies, cartoons, TV shows, books, and magazines-will eventually be converted from analog to digital; using high-speed Internet connections, people will then access AOL Time Warner's proprietary content in all sorts of unforeseen ways. "This wave is going to crest-you don't know how high it'll be, or when it'll come, but it's inevitable" is how Ted Leonsis, vice-chairman of the AOL division, explained Case's view to me. Drawing out the surfing metaphor, Leonsis concluded: you either ride the wave of the digital revolution or it drowns you. In other words, to survive, AOL Time Warner must figure out how to make money in entirely new ways.
Few people dispute Case's view of the digital future: as visions go, it's become commonplace. But some people on the Time Warner side don't think it will arrive as quickly or universally as Case imagines. (For instance, will enough people get wired for or be willing to pay for high-speed Internet access?) That debate aside, what repels Case's detractors within the company isn't the vision itself but the raw, confrontational style of management he uses to get his points across-his lack of "warm and fuzzy." The way Case typically makes decisions, colleagues say, is to play devil's advocate: an executive proposes an idea, and Case responds by arguing forcefully, logically, against it; the executive, who can't be sure just where Case stands on the issue, then has to prove that he truly backs the idea and believes in it. If the executive buckles under the pressure and recants, he has lost the game.
"Darwinian management" is how one AOL executive described Case's style to me. You've got to be thick-skinned to survive in his business world. According to several admiring AOL executives, this Darwinian style is an intellectual exercise, used by Case to help him work through an idea and, at the same time, to test his managers' independence. It's a mind game. "If you say 'Yes' all the time to him, he'll stop working with you," explains another AOL executive. "If you are a peer, you have to tell him that he's wrong-if you think he's wrong-and you have to tell him exactly what you think." There's only one problem with this approach: "If you didn't know him, you'd be insulted."
Indeed, Case has offended Time Warner executives on more than one occasion. During a strategy meeting, as recounted to me by someone who was present, Case bluntly told Warner Bros. executives: You guys will be out of business. The Internet's going to steal all your copyrighted material. What are you going to do? The Warner executives apparently took umbrage: they were being second-guessed, aggressively, by someone who, in their opinion, knew nothing about their business. "He thinks he's challenging people to do their best, to think creatively. But it doesn't motivate people-it pisses them off," the executive who attended the meeting told me.
Something else ticks these people off: Case's refusal to admit defeat. Instead of being admired for his steadfastness and determination, Case is described as "stubborn" and "tone deaf" by people on the Time Warner side. "He doesn't second-guess himself or have regrets" is how a senior AOLer describes Case's messianism. In Case's view, the current problems at AOL Time Warner are minor and temporary; they may look like setbacks, they may be painful, but really they're nothing more than the zigs and zags you'd expect when a sailboat is on course and tacking. Anyone who disagrees hasn't seen the light yet, or isn't being logical, or hasn't weighed the facts, or is myopic. "Remember: Courage through analysis," Case preached in a recent Instant Message to his colleague Leonsis.
To the extent that he does acknowledge that the AOL Time Warner deal has so far been a fiasco, Case has portrayed himself as a victim of other people's incompetence. "He had this vision. They did this grand deal. Then the guys running it screwed it up." That's how one major shareholder described the explanation Case gave him. The shareholder didn't swallow the story: "I would feel a lot better about it if Steve said that he made a bunch of mistakes."
That isn't likely. "Steve continues to believe in the potential of the merger," Ken Novack told me. "And he's determined not to let the noise-which is generated by a few people and then fed by the press-distract him or distract us."
Stephen McConnell Case was born in Honolulu on August 21, 1958, the third of four children. Although he grew up in the turbulent 60s and 70s, his childhood reflects the cozy clichŽs of a yellowing copy of Ladies' Home Journal. "Aloha from The Cases" is the message printed on a Christmas card from 1971, featuring all four Case children, smiling brightly, along with their corgis, Tuffy and Tabe.
Steve Case's mother, Carol, was an elementary-school teacher who stayed at home to raise the children. His father, Daniel Case Jr., a corporate lawyer, represented the state's powerful sugar and pineapple companies. The Case children had paper routes and limeade stands; while they were still teenagers, Steve and his older brother, Dan III, established a company called Case Enterprises, selling Christmas cards, seeds, and wristwatches door-to-door.
Steve Case was not your typical upper-middle-class suburban boy; he was too single-minded for that. Scott Lankford, who roomed with Case for three years in the late 70s at Williams College, recalled, "He knew he was going to be a businessman from the moment he walked into Williams. He didn't care particularly about grades. He would shoot for C's and he knew why he was shooting for C's.... He knew that the game was not 'Get an A'; the game was 'Take over the world.'"
If Case was not a dedicated student ("I would not want to reveal his grade," James MacGregor Burns, professor emeritus of government at Williams, told me elegantly, "but he was among my median students"), it was because his full-time campus occupation was to start and then promote one business venture after another. "He was a yuppie before the word existed," said Lankford. Using his dorm room as an office, and signing up roommates as business partners, Case launched Williams Fruitbaskets, offering parents a way to send their children a healthy snack during exams. He also started a record label, Purple Cow Records, whose only known LP, a Simon and Garfunkel-influenced compilation entitled The Best of Williams Volume One-1978, sold for $4. Case took control of Magic Bus, a student-run shuttle that transported students from Williams to the Albany airport at the end of each semester. From a haphazard operation, Magic Bus turned into an efficient one.
Despite his efforts, Case never made much money at Williams. He lost at least $350 on a for-profit Saturday Night Fever party he helped organize. And as co-chairman of the All-College Entertainment Committee, he spent so much of the school's money hiring big-name acts such as Don McLean, Livingston Taylor, and Southside Johnny and the Asbury Jukes that he was accused of "deliberate mismanagement" of funds by the school paper. After one sparsely attended concert, a writer for the Williams Record reported, "Sprawled on a foam rubber cushion between sets, a distraught Steve Case ... estimated that total losses would probably approach five thousand dollars or more, necessitating the cancellation of Homecoming concert plans."
After graduating from Williams in 1980 with a degree in political science, Case joined Procter & Gamble as an assistant brand manager. Restless after two years at P&G, Case joined Pizza Hut as a manager of new development.
It was during his time at Pizza Hut, living by himself in a rental apartment in Wichita, Kansas, that Case was granted his epiphany, the revelation that led to AOL. Described time and again, in almost every in-depth interview Case has given, as well as on his personal Web site and in his speeches, the now mythic story goes like this: Case bought himself a Kaypro II personal computer and a primitive modem; he then paid $100 to subscribe to the Source, the first on-line service for consumers. The year was 1982, a lifetime ago in the history of computing. (Case's Kaypro II weighed 26 pounds, despite being described as a "personal portable computer," and featured a nine-inch green phosphor screen.) "When I finally logged in and found myself linked to people all over the country from this sorry little apartment in Wichita, it was just exhilarating," Case is quoted as saying by Kara Swisher in her 1998 book, AOL.com.
One year later, at a 1983 Consumer Electronics Show in Las Vegas, Case's brother Dan, who was working for the investment bank Hambrecht & Quist, introduced Steve to the man who had created the Source, William Von Meister. A consummate inventor and entrepreneur, Von Meister was then running Control Video Corporation, whose sole product was something called GameLine, which allowed subscribers to download video games onto their Atari 2600 home game machines. At the 1983 electronics show, Von Meister and his chief technologist, Marc Seriff, took orders for tens of thousands of units. On the spot they also hired Steve Case, aged 25, as a marketing consultant. "He had no credentials. He was a pizza-marketing guy," recalled Seriff. But Case was enthusiastic and bright and optimistic; what is more, his brother Dan-or, rather, Dan's firm-had invested in Control Video.
A few months later, the home-video-game industry collapsed, and Atari teetered on the edge of bankruptcy. Of the 50,000 or so GameLine modules made, almost all of them ended up in a Dumpster behind Control Video's offices in Tysons Corner, Virginia. Determined to salvage their investment, the company's backers pushed Von Meister out and installed Jim Kimsey as C.E.O., although Kimsey knew almost nothing about computing. He was a decorated veteran of the Vietnam War whose only business experience was running a string of successful bars in Washington, D.C. But he was an old and trusted friend of venture capitalist Frank Caufield, one of Control Video's largest investors; the two men had been at West Point together. With Marc Seriff in charge of technology and Steve Case responsible for marketing, Kimsey started over, using the core idea behind GameLine to launch Quantum Computer Services. The company offered an on-line service for Commodore 64 computers called Q-Link, introduced in 1985. This was the beginning of what would become AOL.
Case had heard the prophetic call. "More and more, it became sort of religious," said Kimsey, describing those early years to me. "I was driven more by everybody telling me, 'It can't be done.' ... Steve was driven by a much longer-term vision." Seriff, who left AOL in 1996, concurred: "This is going to sound so corny, but Steve is one of those destiny kind of guys. He knew what was going to happen. He didn't grandstand-he just went and made it happen."
Most famously, what Case made happen was a deal with Apple Computer, a deal so unfathomable that, in the words of an AOLer who witnessed it, it was "like grabbing a gumball out of the crocodile's mouth." Rather than compete directly for consumers with the industry's big players (the Source, then owned by Reader's Digest; H&R Block's CompuServe; and General Electric's GEnie), Quantum started out by building proprietary on-line services for computer manufacturers. Still, common sense dictated that if Apple wanted such a service, and it did, Apple would do a deal with one of the bigger companies. Quantum was not just unknown; it was a tiny, poorly financed company with a shaky history and, in Commodore, only one customer.
Unintimidated by the odds, and establishing a pattern that would become typical for him, Case was going to do a deal with Apple, and nothing would deter him-nothing. In late 1986 he packed a suitcase, got on a plane, and moved into a rental apartment just down the road from Apple's headquarters in Cupertino, California. Every day for three months, obsessively, patiently, he focused on only one thing: wearing down Apple's resistance. After the deal was signed, Case returned to Quantum as a conquering hero. Then he pulled off a string of miraculous deals, one after another, and his colleagues became convinced that Case was superhuman: he walked on water and changed it into wine. "The deals he did-there was no logical reason for them to be done," Seriff told me. "Apple, Tandy, IBM. None of them should have happened. We were a nobody."
Officially, Kimsey was still the company's C.E.O. But inside the company (whose name was changed to America Online in 1991) it was clear that Case had become the leader. Fueled by the belief that he was building something that would change the world, Case was working 15-hour days, inspiring his employees to do the same. "It was intoxicating," said Randy Dean, who joined the company in 1988. "How many people can say that they go to work and do something that nobody's ever done before? We were saying that every day."
In 1991, Case was named C.E.O. He was 33. One year later, Case was forced to give back the C.E.O. title to Kimsey on practical grounds: AOL was getting ready to go public, and in the view of its board of directors, Case was too young to give the company the credibility needed for an initial public offering. Kimsey told me, "So I took him to lunch at Clyde's in Tysons Corner. I remember the Elmer Fudd look on his face. We sat there for two hours and I really had to go through it. I will tell you, I admire him tremendously for how he took it and how he conducted himself.... You know, he could have said, 'Screw you, I'm outta here.' He could have been petulant. He could have tried to undermine me. He was a good dude. He took it. I know it killed him. It had to." Wasn't Kimsey worried that Case might quit? "I knew he was too psychically invested to do that," Kimsey confided. Not long after AOL's I.P.O., in March 1992, Case got his title back.
Kimsey also told me the story of how Case, in Paris for a business meeting with Minitel, an early on-line service owned by the French government, refused to stop in at the Louvre. "That just tells you everything you need to know about Steve," said Kimsey. "He was so focused on going to the Minitel thing, he didn't even want to stop for two minutes and look at the Louvre."
Case does have what's called a personal life. In 1985 he married Joanne Barker at a church in her hometown of Rumson, New Jersey. They'd met at Williams, where Barker, a student at Smith College, had spent a year. She became a schoolteacher. They had three children. In retrospect, it's probably not surprising that this first marriage unraveled somehow, or that his second wife, Jean Villanueva, would be a senior executive at AOL. Day and night, there was nothing for Case but AOL; it was all-consuming. As Randy Dean, who concedes that he himself had more than one love affair with a fellow AOLer, put it to me, "You didn't have any other social life." In 1998, two years after taking their office romance public, Case and Villanueva were pronounced man and wife by Billy Graham in a small ceremony at Case's home in Virginia.
By this time the world was beginning to understand Case's vision. Since going public in 1992, AOL had seen its revenue grow from $38 million to more than $1 billion. Case had buried the old competition by promoting AOL as a simple on-line service for the masses, by demystifying it and making it so innocuous that no one was intimidated by the underlying bauds and megabytes. Clever marketing didn't hurt: every household in the country, it seemed, had received by mail at least one copy of AOL's free software, along with the promise of a free month of service. It was hard to resist the digital future on those terms.
And then, even more quickly than it had risen, AOL had found itself spinning out of control. More and more, the cost of those millions and millions of free software discs was outpacing the revenue they brought in. Meanwhile, a huge number of users were abandoning AOL and its high hourly rates for other, brand-new Internet-service providers that offered cheap flat rates and unlimited access. There were legal problems, too, with the Federal Trade Commission and various state attorneys general investigating the company's billing policies. Between May and October of 1996, AOL's stock price dropped nearly 70 percent.
The crisis at AOL Time Warner may be bad, but it's nothing compared with what AOL faced back then. "The company was in tremendous turmoil. The press was saying we were going to die," remembered an AOLer who was there at the time. "People [at AOL] were hurting. They wanted someone to stand up and comfort them." That person was not to be Steve Case.
Ignoring the static by tuning out, Case isolated himself from his employees, focusing narrowly on the primary question: should AOL move to flat-rate pricing? With Bob Pittman, the former C.E.O. of MTV, now on hand to be responsible for the quotidian, Case could become a full-time seer. Hiding out in his office, communicating largely by E-mail and Instant Messages, Case finally made a decision in October 1996: AOL announced a flat $19.95 monthly fee. The response to the flat fee was overwhelming, literally: when customers stampeded to sign up, AOL's computer servers, its central nervous system, collapsed. But soon AOL's customers were spending more and more of their day on-line. Over the course of just six months, they went from using AOL for a combined 46 million hours a month to a remarkable 125 million hours a month. Case's reputation as a seer was etched in stone. "Steve just kept making the right decisions," said Jack Daggitt, a former AOL executive. "One time, two times-you could chalk that up to luck. But when you keep doing it, it moves into the realm of skill."
In 1998, in a clear sign of its dominance of the on-line industry, AOL acquired CompuServe. One year later, AOL paid $10 billion in stock for Netscape Communications, an icon of the Internet Age. From trading at around $2 a share (split-adjusted) in early 1997, AOL's stock hit an all-time high of $94 on December 13, 1999. Less than a month later, AOL announced that it was buying Time Warner for $164 billion in stock.
It had taken Case many long months to make the decision to buy Time Warner. In typical fashion, he assembled vast amounts of data, examined all the options, and, throughout 1999, held meeting after meeting about the future of AOL. All things were in flux. More and more, Microsoft's MSN on-line service was encroaching on AOL. As for AOL's stock price, it couldn't keep rising forever; at some point, reasoned Case, Internet frenzy had to abate. To seize the day, the company needed to use its inflated stock to buy something huge-something that would make AOL less vulnerable to Microsoft, and, at the same time, less susceptible to a deflation of Internet stocks. According to investment bankers hired by AOL, Case considered making a deal with WorldCom or AT&T; he looked at merging with eBay; he discussed hooking up with Citigroup; he approached Disney. But the more Case weighed the possibilities, the more he focused on Time Warner.
In late September 1999, Case flew to Shanghai to attend a global-business forum hosted by Fortune, a Time Warner publication. Not that he was strictly interested in global business: Case flew to China because one of the hosts of the conference was Jerry Levin. It was love at first sight. "He was taken by Jerry's perspective on the world," someone who accompanied Case on that fateful trip told me. "Jerry had a prominent position there. He was greeted by officials in China basically as an equal."
Levin wasn't just a powerful man with worldwide connections; in Case's eyes he was a sensitive man, concerned with fairness and the greater good of shareholders. "Steve and Jerry spent a great deal of time talking about their view of the world-about companies that serve to create value for shareholders and operate in the public interest," I was told by the person who was on the trip. "They shared the same set of values."
After the conference in Shanghai, Case and Levin went on to Beijing, where they attended celebrations for the 50th anniversary of Communist rule in China. On October 1, 1999, as 500,000 soldiers and civilians paraded machine-like through Tiananmen Square along with rows of tanks and patriotic floats, Case apparently made up his mind: Jerry Levin would be his partner. Together they'd change history. That night Beijing was illuminated by fireworks. It was blinding.
Fast-forward three years. The smoke has cleared, the lights are out. Jerry Levin has lost his job as C.E.O. of the world's most powerful media-and-entertainment company. As for Steve Case, the pressure on him to quit is building day by day.
Case's troubles began in earnest last July, when a series of investigative articles in The Washington Post accused AOL of having falsely inflated advertising revenue in the period leading up to the consummation of the Time Warner deal. Two of AOL Time Warner's biggest, most powerful shareholders-Ted Turner, a vice-chairman and a director of AOL Time Warner, and money manager Gordon Crawford of Capital Research & Management-reacted by turning on Case. Turner had already proved his mettle; as I reported in this magazine last July, he had been instrumental in forcing Levin out of AOL Time Warner. Crawford, though not as well known as Turner, carries tremendous weight on Wall Street. For three decades he has been one of the country's most admired and mimicked media-and-entertainment investors, owning massive positions in such companies as Viacom, News Corporation, and USA Interactive. At last count, his Los Angeles-based firm owned around 8 percent of AOL Time Warner.
Using their considerable influence, Turner and Crawford began lobbying other major shareholders and directors to demand Case's resignation. Late last summer, Crawford even met with Case in New York, telling him he should resign. The next day, according to someone close to Crawford, Case called Crawford to ask what he could do to patch up their relationship. "Not very much" was the matter-of-fact answer.
By September 2002, shortly before a scheduled AOL Time Warner board meeting, reports in The New York Times and the New York Post suggested that the company's directors might vote to fire Case. At AOL's headquarters, where any attack on Case is taken personally by the devoted employees, flyers started appearing in hallways and elevators, stuck up with tape. They read, "We support Steve". On one of the flyers the word "strongly" had been added by hand, as in we strongly support steve. So intense was media speculation about Case's future that on September 19, once AOL Time Warner's board meeting had ended without a formal change in Case's employment status, a company spokesperson took the unusual step of telling reporters, "Steve Case is the company's chairman and he will remain so.... Steve Case's role at the company was not on the [board's] agenda and not discussed."
That announcement has done nothing to stop the intrigue and ill will at AOL Time Warner. Some people inside and outside the company have gone as far as to argue that the merger should be undone and AOL spun off. According to a recent report in The Wall Street Journal, even Case himself has had thoughts about spinning off AOL. That's not likely to happen, though, mainly because the prevailing view inside the company is that things are so bad they can't get much worse, and, indeed, since hitting a low of $8.70 last July, AOL Time Warner's stock has climbed sharply, hovering around $15 as this article went to press.
As for Case: "The odds are heavily stacked against him surviving, because leaders get picked or elected by the acclaim of their constituencies-and he has no constituency," one of AOL Time Warner's large institutional shareholders told me recently. "There's no shareholder in the company of any substance that wants him around.... There's nobody at the Time Warner companies that wants him around. I don't believe Dick Parsons wants him around. I don't think the majority of the board wants him around. So his only constituency is the AOL board members.... That's all that stands between him and the door."
That's bullshit" is how Ken Novack responded to my suggestion that Case's only remaining allies were board members who came from the old AOL. "Steve's got very strong support from Dick and the overwhelming support of our board."
This is the bottom line: the AOL Time Warner board includes seven directors from the old Time Warner board and seven from AOL. Under the terms of the merger, Case can be fired only if three-quarters of the board votes against him. That's a high hurdle-which is why, more and more, the only chance to get rid of Case may be to convince him to leave on his own, to persuade him to sacrifice his position for the glory of the digital future. What are the odds of that? Case himself wouldn't talk to me, but a top AOL executive who is close to him said, "Steve will endure any amount of misery. They will have to carry that boy out in chains-he will never ever leave on his own."