From the perspective of any modern corporation, Steve Jobs was a misfit and never should have made it to the top of the world’s largest technology company.  Compared to his peers at AT&T, RIM, Hewlett-Packard, IBM, Samsung, LG, Lucent, Nokia, and even Google, one of these things is not like the others.  These people, while they are for the most part talented managers and/or innovators, are not brave and unconventional visionaries questioning — and challenging — the status quo.  The template of a contemporary CEO simply does not apply to Jobs.. yet it is safe to say that he created more shareholder value during his split tenure at the helm of Apple than all of these combined.

Jobs doesn’t fit as CEO material because, as I wrote a few years ago, the design of corporations systemically weeds out and ultimately purges people like Steve Jobs, tending to favour evolution over revolution; hedgehogs over foxes.  Insodoing these institutions prefer making incremental steps toward that which can be known and quantified versus embracing risk and opportunity to make great leaps forward.  HP or Microsoft would never have brought us the iPod.  Certainly not the iPhone.  And the efforts of Apple’s competitors in the tablet space?  Hmph.

The lesson with the greatest gravitas from Steve Jobs’ famous 2005 Commencement Address is in my opinion the following:

You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

So what made Steve special is that, having ascended to the top of the technology industry ecosystem, he was seemingly a fluke.  Those dots — The iPod led to the iTunes Music Store and to a flattening of media distribution and to the iPhone and iPad and beyond — all connected back to a single leap where a computer company decided to sell some portable music devices and see what happened.  Jobs made big bets all the way along and knew that the dots would somehow connect down the road, and staked his personal and corporate reputation on quality in every regard.  No focus group or market research could have supported the decision to place these bets, and so no other CEO did.

Many of us think that we have the courage to make big bets.  Far fewer among us are given the resources and leeway to execute these broadly.  Still fewer among those are actually successful in both ideation and execution.  Steve Jobs danced on that razor’s edge and always came away unscathed, teaching us all that it can be done and that the rewards for success await.

Steve Jobs created new markets and made us crave things we didn’t know we would need; he helped us consume information and ideas in ways we never knew we could; he literally tore apart the media business and set forth reshaping it to be more consumer-friendly.  All the while he dazzled us with things which are ‘insanely great’ like a magician entertaining a crowd of transfixed six-year-olds.

The saddest aspect of Steve Jobs’ passing is simply that without him it will be a long time before a similar revolutionary will ascend the treacherous climes of corporataucracy to lead another hugely successful company to create things which dazzle and inspire us.  If ever.

Here’s hoping there’s another Steve in the wings somewhere.  Until then, we’ll likely have to make do with a whole lot less magic in our world.

Over at NewTeeVee there’s an interesting post by Jackson on the struggle that the MPAA et al have had coming up with a specification for allowing you to make “managed copies” of your purchased content. Of course, the fact that each successive specification is cracked within weeks of its drafting would deter the efforts of any organization compelled by logic and customer responsiveness, but this is the MPAA we’re talking about.

The problem is that the RIAA/MPAA cabal have effectively tied their own hands, by petitioning the supreme court in their fruitless pursuit of Peer-to-Peer networks for a judgment. They may have, way back in 2005, gotten more than they bargained for when Supreme Court Justice David H. Souter said:

“We hold that one who distributes a device with the object of promoting its use to infringe copyright, as shown by clear expression or other affirmative steps taken to foster infringement, is liable for the resulting acts of infringement by third parties.”

Oops. Now the MPAA and electronics manufacturers, under such a sweeping definition, could themselves become liable for the copying and redistribution of material. In fact, they can’t produce a standard which they know has been haxx0red and unleash it on the market.

And as EFF’s Susan Crawford has pointed out, they’re in league with even the network carriers to take us all backward in time. In draft language, the FCC is asserting that it:

(a) has authority to adopt such regulations governing digital audio broadcast transmissions and digital audio receiving devices that are appropriate to control the unauthorized copying and redistribution of digital audio content by or over digital reception devices, related equipment, and digital networks, including regulations governing permissible copying and redistribution of such audio content….

This means that they will be ceaselessly back to the drawing board perfecting easily-hacked technologies, and layering their media with difficult to use interfaces, handshakes, and protocols (as I found out when I had my my run-in with HDCP). The result is that media coming through official retail channels such as Best Buy or the iTunes Music Store that you try to watch on your PVR or HD-DVD player will be more difficult to view and manipulate than the DIVX-encoded material you download by fiddling with a BitTorrent client.

P2P has traditionally existed aside from the mainstream by nature of the fact that it’s a fairly high-friction model for obtaining and viewing digital content. You might not have the right CODEC libraries to view your favourite British TV show, or you might have trouble configuring your linksys router so that all the P2P traffic passes through to the right computer in your house optimally, as examples.

Traditional media (DVDs, Cable TV, etc.) have always dominated the mainstream because they’ve been easy to handle, easy to watch, and of course easy to get. For some of us, that convenience in itself is the primary value of such media, and why lots of us still buy stuff at Best Buy even when we can and do also use file sharing networks like eDonkey.

But imagine if the stuff you bought at Best Buy no longer worked together without Herculean effort. Imagine if the HD-DVD you brought home or the Streamed HD Movie you paid for on your PVR were hobbled by characteristics that made them hard to use. Furthermore, ask yourself why, after ten years of Pay-Per-View Movies, we still have video rental stores?

The answer is the consumer market’s innate resistance to difficulty, and our desire to not have the means in which we consume information dictated by the CEO of some sandbagged, heretofore unknown, media company.

When the media companies set the barriers higher and higher for consuming their material the old-fashioned way, they’re practically begging the mainstream, using the Internet, to route right around them. When they make us all experts in HDCP handshaking, HDMI systems integration, and the finer nuances of Dolby versus DTS Surround Sound, they lower the barriers to grabbing and viewing our entertainment and information on that most dreaded of all platforms: the computer, and the internet.

And despite 20 solid years of effort, media companies have been profoundly unsuccessful in combating what we do on our computers once we get their stuff in our hands. And even with a Bush government, the DMCA, and legions of lawyers they have had little concrete impact except to increase the friction and lower the value of the mainstream consumer media.

I can see this through to its logical conclusion. Computers, software, and the internet will increasingly transact our consumption of movies, music, and what we will one day say we used to call “TV shows”. The big media distribution companies will increasingly become unnecessary, and will have cut themselves out of the action.

And in my view, they’d deserve it.

-Ian.

-Ian.

—– http://story.news.yahoo.com/news?tmpl=story&cid04&ncids8&e=6&u=/ washpost/20030724/tc_washpost/a32817_2003jul23 AOL Subscribers Down by 846,000 Thu Jul 24,12:23 AM ET

Add Technology – washingtonpost.com to My Yahoo!

By David A. Vise, Washington Post Staff Writer

America Online’s subscriber base plunged by 846,000 in the second quarter, as hundreds of thousands left for cheaper or faster Internet connections and a similar number were dropped because they had been mistakenly counted in the past, AOL Time Warner Inc. disclosed yesterday.

In addition, new disclosures about a federal investigation into improper accounting at Northern Virginia-based America Online Inc. showed that the division’s legal problems are hurting other parts of the AOL Time Warner media empire.

AOL Time Warner said yesterday that the Securities and Exchange Commission ( news -web sites ) would not allow it to spin off a portion of its cable television unit until it resolves a dispute over how to account for hundreds of millions of dollars in questionable revenue from a complex deal with German media firm Bertelsmann AG ( news -web sites ).

AOL Time Warner also said it may restate previously reported profits and sales linked to the Bertelsmann transaction. And the company indicated that it could not determine how long the SEC and Justice Department ( news -web sites ) investigations into its bookkeeping practices will last.

The company said its profit increased to $1.1 billion (23 cents per share) in the second quarter, from $396 million (9 cents) in the second quarter of 2002. Revenue increased about 6 percent, to $10.8 billion. The profit figure included a number of substantial one-time gains from the settlement of a lawsuit with Microsoft Corp. and the sale of various businesses.

Despite solid results in divisions other than America Online, AOL Time Warner shares fell yesterday by $1.14, or 6.8 percent, to $15.71, as analysts and major investors reacted to the continuing uncertainty caused by the SEC investigation, the threat of increasingly costly shareholder lawsuits, the deterioration in America Online’s performance, and disappointment that the strength of AOL Time Warner’s film, publishing and cable television operations did not prompt the company to substantially increase its financial projections.

“Our goal for the remainder of this year is to keep laying the foundation that will enable us to exit 2003 with more momentum than we had when we entered it, with an eye toward achieving, strong sustainable growth next year and beyond,” said Richard D. Parsons, chairman and chief executive of AOL Time Warner.

AOL, the nation’s biggest Internet service provider, has shed a total of 1.2 million subscribers over the past year and now has 25.3 million subscribers in the United States.

The company said the total includes 2.2 million high-speed subscribers, an increase of 300,000 over the past three months. During that period, AOL launched an enhanced high-speed offering and promoted it with an advertising campaign titled, “AOL for Broadband: Welcome to the World Wide Wow.”

In addition to losing dial-up subscribers faster than expected, AOL is predicting that its online advertising revenue will drop about 40 percent in 2003. The decline is occurring even though the total dollars spent on advertising online is growing nationally, a trend that can be seen in the financial results of some of America Online’s competitors, including search engines Yahoo and Google and many specialized Web sites.

AOL Time Warner had sought to persuade SEC investigators that they were mistakenly challenging the accounting for the two-part Bertelsmann deal. But the company said yesterday that the commission has refused to back down.

“The company and its auditors continue to believe the accounting for those transactions is appropriate, but it is possible that the company may learn additional information as a result of its own review, discussions with the SEC and/or the SEC’s ongoing investigation that would lead [AOL Time Warner] to reconsider its views,” the firm disclosed.

The Bertelsmann deal involved AOL’s sale of roughly $400 million in advertising to Bertelsmann in connection with the purchase of Bertelsmann’s stake in AOL Europe.

AOL Time Warner released its second-quarter results prior to the opening of stock trading yesterday morning. Although it cut its projections for America Online, the company beat Wall Street estimates as its cable television, motion picture and publishing businesses thrived.

“Our solid results in this quarter and the first half of the year give us confidence that we can deliver on all of our 2003 financial objectives,” Parsons said. He added that the company is continuing to reduce its hefty debt through the sale of businesses and the spending of billions of dollars of excess cash generated by operations.

The Warner Brothers and New Line Cinema movie units generated $572 million and $239 million, respectively, at the box office in the United States. “The Matrix Reloaded” led the way among new releases, while “Harry Potter ( news -web sites ) and the Chamber of Secrets” boosted DVD and CD sales.

“On balance,” said Deutsche Bank, “we think this report is good news.”

In a conference call with analysts, Parsons said he was no longer counting on the sale of stock in Time Warner Cable to generate cash for debt reduction this year. Instead, he said, the handling of any cable spinoff will be determined by broader issues, including the best way to help that subsidiary grow.

“The specific timetable for executing an IPO will depend on strategic considerations, not balance sheet imperatives, as well as the status of our SEC investigations,” Parsons said.

But AOL will go down in history as a Ponzi scheme that makes 80s Junk Bonds look like chicken feed. Actually, I found a good backgrounder on Ponzi schemes here: http://www.mark-knutson.com/thescheme.html

-Ian.

——- http://www.fortune.com/fortune/investing/articles/0,15114,443065,00.html

AOL TIME WARNER Why AOL’s Accounting Problems Keep Popping Up The online giant created ad ‘revenues’ out of thin air. Now, it’s got scandals! FORTUNE Monday, April 14, 2003 By Carol J. Loomis

When there’s bad corporate news to be disclosed, the wise say, “Get it out and get it over with.” But that message hasn’t visibly permeated AOL Time Warner (parent of FORTUNE’s publisher) when it comes to accounting problems. Since last July, when the Washington Post did a biting two-part article about unsavory behavior at AOL, the company’s online division, the news hasn’t stopped. First the SEC moved in to investigate, and then came the Justice Department. Next, in August, AOL Time Warner’s CEO, Richard Parsons, certified the company’s financial statements–except for $49 million in AOL “revenues” that the company said it had just discovered maybe shouldn’t have been claimed as such. By October, when a “review” of that matter and others had been completed, the $49 million of nonrevenues had ballooned to $190 million (for unenumerated sins, most attributed to AOL), which the company said it would expunge by restating eight quarters of its 2000-02 financial statements. In the restatements, of course, profits vanished along with the revenues.

Then, just as March ended, came the news that the company and the SEC were arguing over yet an additional $400 million of revenues that might not deserve the name. In short, the SEC is suggesting that the $190 million confession didn’t exhaust the bad stuff. Its investigation continues, as does the Justice Department’s. So AOL Time Warner has acknowledged that further restatements might become necessary.

There’s a stark explanation for this river of news, and it’s kin to an old saying: “To a man with a hammer, everything looks like a nail.” At the AOL division, the locus of the accounting troubles, the hammer was an insatiable desire to show growth in revenues–very particularly, in what AOL called “advertising and commerce”–and to book the Ebitda (earnings before interest, taxes, depreciation, and amortization) that tagged along. So to AOL every business deal, including the unlikeliest of candidates, looked like a way to get these revenues. AOL won an arbitration award that it negotiated into an advertising contract. A raft of dot-coms that AOL invested in round-tripped their money–and at least once, in the case of Homestore.com, apparently triangulated it–into advertising. Investing in a dot-com called PurchasePro, AOL bought warrants for $9 million, then marked up the investment to $27 million and booked the difference as revenues.

And in the latest revelation, AOL’s purchase of Bertelsmann’s half-interest in AOL Europe magically produced that $400 million in ad revenues that the SEC and AOL Time Warner are fighting over. Magically and invisibly, we might add. Outsiders never knew there was $400 million of advertising tied to the Bertelsmann deal until AOL Time Warner made that fact clear at the end of March.

So, yes, in Virginia, at AOL, there was an obsession to get advertising in the door. Consequently nobody there appears to have paid much attention to whether the business deals at issue were really producing ad “revenues” by any acceptable definition–or perhaps the insiders didn’t think outsiders would ever learn the details. Well, the outside world has now caught on, and so have a lot of plaintiffs lawyers. Besides tussling with Washington, AOL Time Warner is today the defendant in at least 40 shareholder suits, many of which sprang from the accounting legerdemain.

It is important to recognize that at AOL Time Warner, whose revenues last year were $42 billion, neither $190 million nor $400 million is a major figure. But in certain ways these tainted amounts (leaving aside other problems the regulators may still unearth) counted for a lot. That’s partly true because incremental advertising revenues at AOL don’t tend to be heavily burdened with costs. So these revenues generally cascade into profits. Specifically, AOL Time Warner has said that the $190 million in bogus revenues ($22 million of which went to company divisions other than AOL) produced $97 million of Ebitda and $46 million in net income. That net translated–until the restatements whisked it away–into a neat profit-to-revenues margin of 24%. As for the $400 million, what it produced in Ebitda and net income can’t be said, because the company has not disclosed that information.

The other reason that these incremental revenues mattered is that they helped AOL paint a deceptive picture of exactly what was happening in its advertising and commerce line of business. As 2000 began, bringing with it the amazing news that AOL and Time Warner were going to merge, this segment of operations was the bright hope for AOL. Its online subscription business, true, was significantly larger and still growing. It produced revenues in 2000 of $4.777 billion, against a reported, though now tainted, figure of $2.347 billion for advertising and commerce. But everyone expected that growth in subscriptions would eventually flatten out (which, in 2002, it did), and here was this advertising and commerce business whooshing up like crazy–roughly doubling every year, in fact.

We all know now that the Internet bubble burst in March 2000, but at the time that fact was not obvious. And at AOL, for sure, the announced ambitions for advertising and commerce were then still extraordinary. At a joint meeting of the AOL and Time Warner boards in July 2000, Robert Pittman, the highly confident chief operating officer of AOL (who is now gone from the company), said that by the year 2005, he expected this line of business to produce $7 billion in revenues!

In your dreams–including the ones that began exploding in 2001. That year’s picture was helped out by $88 million in revenues that AOL Time Warner now says were “inappropriately recognized” and by $122 million in contested Bertelsmann revenues. Even so, the advertising and commerce line grew that year only to $2.673 billion, a tepid rise of 14%. And in 2002 the trend rolled over abjectly–like a worn-out dog–and revenues fell by a huge 40%, to $1.606 billion. The amount would have been significantly lower still had it not included $6 million of inappropriately booked revenues and $274 million from the Bertelsmann deal. In any case, the punishing experience of 2002 proved the idiocy and uselessness of all the contortions that AOL had put itself through in its advertising business: It was trying to get from a place it never was to a place it never could be.

During all the accounting events that led up to the $190 million restatement, including those that took place after the consummation of the merger in early 2001, AOL people were in charge of what was happening at AOL. Steve Case was the boss; Bob Pittman was originally No. 2 and later was the AOL Time Warner executive who had responsibility for AOL; Michael Kelly was the hard-charging chief financial officer (first of AOL, then for a time of AOL Time Warner); and a man named David Colburn –fired last August–ran the business affairs department that negotiated many of the smelly deals. In the meantime, the old Time Warner executives–Gerald Levin, who became CEO of AOL Time Warner, and Richard Parsons, now CEO–were in New York City, sort of listening in. What they knew about the happenings at AOL is unclear.

But the $400 million deal done with Bertelsmann, the big German media company, is different from the $190 million in that it spanned a regime change, in which the AOL forces lost power and Time Warner gained it. So people like Levin and Parsons were on the Bertelsmann case at certain key moments. The deal’s strangeness therefore deserves special attention.

When AOL and Time Warner announced in January 2000 that they would merge, Bertelsmann and AOL had a skein of connections. Steve Case and Bertelsmann’s CEO, Thomas Middelhoff, were good friends; Middelhoff was on AOL’s board; Bertelsmann was a significant holder of AOL stock (though it had also been a significant seller in the late ’90s, reaping glorious profits at per-share prices ranging up to around $95); and the two companies jointly owned AOL Europe. After the merger announcement some of these things had to go, for the simple reason that Bertelsmann and Time Warner were competitive media giants and couldn’t be in bed together.

So Middelhoff resigned from AOL’s board. And then in March 2000 the two companies said they had agreed on a complex put-and-call deal by which AOL would potentially buy out Bertelsmann’s 49.5% interest in AOL Europe. This business was then, and is now, a losing operation. But the price negotiated by the CFO of AOL, Kelly, was a product of Internet frenzy and was to be a monster $6.75 billion (or under certain circumstances even more). One major investor in AOL Time Warner recently called that deal the “killer” for the merger, though it is probably wishful thinking on his part to believe that this one transaction could have made the difference in a coupling so fated to fail.

If a minimum price of $6.75 billion was set, the exact timing and terms were not. Most important, AOL Time Warner had the right to pay in cash, stock, or a combination. There was also a delay factor built into the deal, specifying that payment would not begin, at the earliest, until 2002.

By March 2001, though, with the merger completed, AOL’s Kelly and Bertelsmann were down to hard negotiations about just what kind of payment–cash or stock–would be made. Looking at AOL’s tumbling shares, then fluctuating around $40, Bertelsmann naturally wanted cash. You might think that AOL would want the opposite, since it was loaded with more than $20 billion in debt and sure to need more if it paid cash. But what AOL really cared about, above all things, was a quid pro quo. AOL offered cash if “in exchange” (words used in AOL’s recent disclosures about the deal) Bertelsmann would sign up for ads.

And in the end a kind of compromise was reached: AOL Time Warner would pay at least $2.45 billion in cash (with the form of payment for the remainder of the $6.75 billion to be settled later), and Bertelsmann would buy $125 million in ads. When the $2.45 billion arrangement was announced in AOL Time Warner’s first-quarter 10-Q filing with the SEC, nothing was said about a $125 million advertising deal tied to it.

Bertelsmann’s ads, for such things as music products and book clubs, began to run on AOL, in most cases dwarfing the amounts being spent in those categories by other advertisers. But one former Bertelsmann executive remembers behind-the-scenes dissension at his company about the deal. He, for one, saw no use in advertising on AOL but was forced to go out and do it. Fortunately for his bottom line, he says, headquarters absorbed the cost of the advertising on its books rather than allocating it down to the operating divisions.

By the end of 2001, most of Bertelsmann’s $125 million had been spent, and AOL and Bertelsmann were back to negotiating the next tranche of payment. Mike Kelly (who declined to talk to us) had at that point been moved out of the CFO’s job, becoming the operating head of AOL. But the word at AOL Time Warner’s offices in New York City is that he continued to be the negotiator on the Bertelsmann deal. And certainly the style of what developed looked familiar: This time AOL agreed that in 2002 it would pay the entire $6.75 billion in cash, and in exchange, Bertelsmann would buy $275 million more of advertising on AOL (almost all of which ran in 2002).

So, to sum up: To get cash, Bertelsmann was willing, in effect, to cut $400 million from the purchase price (and maybe more; who knows?). AOL could have accepted that cut straight out, reducing the price it had to pay to $6.35 billion–and thereby netting a crisp, clean saving of $400 million. Instead, it opted to get that much in advertising, which though it may not have carried much in costs, certainly carried some. So AOL Time Warner did not, in that arrangement, garner a full $400 million. It’s totally weird–unless you know that the only reason for doing things that way was to capture advertising and commerce revenues.

We come now to the role of Time Warner executives in all this. By late 2001 there had been a regime change, in which the Time Warner crew had taken power from AOL. Jerry Levin was retiring in May 2002 but had designated Dick Parsons, not Bob Pittman, as his successor. A new CFO, Wayne Pace, formerly at Turner Broadcasting, had been installed in November 2001 and had been widely accepted as an upright, tell-it-like-is executive. And this new team was stepping up to the job of reporting the company’s results.

So in the spring comes 10-K time, in which the company must file its annual report with the SEC. The Bertelsmann deal got a lot of ink in that 10-K: The company, the filing said, would pay $6.75 billion in 2002 and was borrowing to raise the cash needed. But was there any mention that the $6.75 billion was offset by a $400 million advertising deal? Absolutely not.

FORTUNE sought to ask AOL Time Warner management about this omission, as well as many other points having to do with the accounting problems. But management, pleading the Washington investigations, wouldn’t talk on the record, and this writer wouldn’t talk off the record. Company executives merely repeated what they had said before: “As we stated in our Form 10-K, the company and its auditors continue to believe that the Bertelsmann transactions have been accounted for correctly. But, as we disclosed, we are engaged in ongoing discussions with the SEC staff to consider their views and any additional information they may have as part of the company’s continuing efforts to cooperate with the SEC’s investigation.”

Because AOL Time Warner wouldn’t tell us why it had omitted the $400 million advertising deals from its SEC filings, we can only speculate about the reasons. Maybe management and its auditor, Ernst & Young, honestly thought there was no need to mention the advertising. Then again, maybe they recalled what had happened in the first-quarter 10-Q–no reference to the first advertising agreement–and thought it would be controversially inconsistent to suddenly be making admissions about the Bertelsmann ad deals.

Although investors might think AOL Time Warner had a duty to disclose the advertising deals, the SEC’s declared problem with the Bertelsmann matter is not about disclosure but rather about the accounting for the advertising. As AOL Time Warner has described things, the SEC has a “preliminary view” that at least some portion of the $400 million should not have become revenues but instead should have been recorded as a reduction in the price that the company paid Bertelsmann.

Neither AOL Time Warner nor Ernst & Young agree with this argument. How could they, given that they did not include the Bertelsmann deal in the bad stuff that they acknowledged in the $190 million confession? Indeed, FORTUNE has learned that when AOL Time Warner signed off on the $190 million in October, it did not know the SEC had any problems about Bertelsmann. The SEC, for that matter, didn’t then know it either, because only later did it become educated about the Bertelsmann affair.

AOL Time Warner and Ernst & Young are not only defending the accounting but have also explained to the SEC in writing why it was sound. FORTUNE asked to see a copy of the explanation but was refused. We then directly asked Ernst & Young to brief us about the accounting issues, and they refused that request as well, saying they could not “breach the confidentiality of client matters.”

So we turned to some outside accounting experts. One, Jack Ciesielski, publishes the highly regarded Analyst’s Accounting Observer and is also a member of the Financial Accounting Standards Board’s emerging-issues task force. To Ciesielski, there’s no gray area to this issue at all. “I agree with the SEC,” he says. “The timing of the advertising contracts indicates they were part of the deal.” So what he sees is a “rebate” that should never have been accounted for as revenues but rather as an offset to the cost of the deal.

A sharper opinion still comes from Walter Schuetze, a former KPMG partner who also served as a board member of FASB, chief accountant of the SEC, and chief accountant of its enforcement division. “I suspect,” he says, “that the SEC staff is saying to AOL that only the fair value of the advertising that Bertelsmann bought can be booked as revenue. But that is such a diaphanous number that I wouldn’t put much stock in it. I think the entire $400 million should be credited to the purchase price.”

He refers to Bertelsmann’s buy of advertising as a “forced purchase,” similar to many others that AOL had cranked onto its books. As for Ernst & Young, Schuetze is not respectful. He says that on AOL, it has been the “most pliable auditor” he’s ever seen: “AOL’s accounting has been rubbish,” he says, “and Ernst & Young agreed to rubbish accounting.”

It is hard to follow an act like that, so we won’t try.

nairda3 writes us with a real good scoop if this deal turns out to be real: “Crikey.com.au recently reported that it ‘doesn’t break many global stories but here’s one we got from a well-connected music industry insider in LA: The world’s largest chipmaker, wants to diversify into the copyright business and is negotiating to buy Warner/Chappell Music, the music publishing business of AOL-Time Warner, in a $US2 billion all cash deal to be announced in three weeks. The sale of Warner/Chappell, the second biggest music publishing company in the world by market share (to EMI Music Publishing), would represent one of the largest efforts to alleviate AOL-Time Warner’s worrying $45 billion debt problem. “If true, the acquisition would be the first effort by a large tech company to invest in the business of protecting content copyrights, following the recent agreement between major tech firms and Congress that they would self-regulate copyrights with customer hardware. The acquisition would leave Murdoch’s News Corp one step closer to becoming the world’s largest media company. Without their copyright business, AOL Time Warner could possibly merge its recorded music division with EMI and avoid the anti-trust concerns that it once experienced. The Inquirer and Guardian both quote Crikey on this one and eventually the truth of the matter will emerge. Ultimately, this rumour could likely become fact in view that Intel may now need content to leverage its just announced Trusted Platform Module. This platform seems to be build upon the new Trusted Computing Group’s open standards that involve the tech industry’s largest players. This group will perhaps end in failure as did the very similar SDMI initiative.

“What will possibly submerge is Intel’s shareholder value when their encryption is inevitably cracked by unemployed (non-Indian) software engineers tinkering with their Intel chips and relive the open-season days of Napster. An alternative is Sun chief scientist Bill Joy’s idea of having record labels ‘ship me a box with all their music in it, and then I could license what I wanted from them.’ Like Cringely’s idea, mine is for free content no matter what its delivery and providing an efficient way for optional payments.”

eewittme writes in with a similar story: “The Los Angeles Times is reporting that Apple Corp. may spend as much as $6 billion to acquire Universal from its flagging parent, Vivendi Universal. If completed, the deal would instantly make Steve Jobs the world’s biggest music mogul, as well as completely reshape the record industry almost instantly. Visions of a Def Jam parent-owning Jobs wearing a fur coat and chatting on his cellphone as he drives his fly honeys around Cupertino in his Escalade are already dancing in my head. Universal’s roster includes U2, 50 Cent, Shania Twain and Luciano Pavarotti. Can Ellen Feiss be far behind? The Times report says the deal’s been in the exploration phase for a while, but a sale could come by April 29. All of this, the Times reports, would dovetail nicely with Apple’s plans to roll out a new fee-for-song music download service, for which Jobs has already secured deals with four of the Big Five.”

The problem is Time Warner Cable. It’s doubtful that any U.S. RBOC wants to talk to AOL because of the fear of creating an 800-lb. gorilla that also has Cable assets. ILECs hate their cable counterparts. Moreover, they fear them.

So, one might think that the logic is to spin off or sell off Time Warner Cable. But wait — isn’t that a profitable business? Can’t do that right now… the mother ship needs to maintain as much margin as it can for reporting.

Hmm… maybe they should spin off AOL. Now, since it was AOL that actually bought all the other assets in the first place, wouldn’t that be ironic?

🙂

-Ian.

—- http://story.news.yahoo.com/news?tmpl=story&ncidX2&e=3&cidX2&u=/nm/ 20021122/wr_nm/media_parsons_dc

AOL Time Warner CEO to Sullen Execs: ‘Get Over It’ Fri Nov 22, 6:58 PM ET

Add Technology – Reuters Internet Report to My Yahoo!

By Reshma Kapadia

NEW YORK (Reuters) – “Get over it.” That is what AOL Time Warner Inc. (NYSE:AOL – news) Chief Executive Richard Parsons has told company executives angered by the decline in the media giant’s stock price as he tries to refocus them on the future.

Some employees inside the world’s largest media company could be characterized about six months ago as “sullen but not mutinous” amid disappointment over AOL’s $106.2 billion purchase of Time Warner but now many of them are moving to acceptance, Parsons said at a Variety media conference here.

Parsons said he has had various conversations with executives who feel they have been “screwed” by the deal as the value of their portfolios and options sink amid the 55 percent drop in the company’s stock this year.

“I say to them you have to get over it because you can’t go back and undo the past,” Parsons said. “The challenge we all have is how to figure out how to build value back in the company. If you really really can’t get past that, then you have to go somewhere else.”

The company has suffered from weakness at its America Online unit, which has been mired in slow advertising spending and subscriber growth and federal accounting probes, as well as the failure to deliver on the promises made after the merger.

Many AOL Time Warner employees have left, especially AOL veterans, but Parsons said the company is making progress on priorities he set out this summer including regaining credibility with investors, simplifying the company and fixing America Online.

“Getting (AOL) back on track –stabilizing the business and putting it back on the growth track — we think we are at a point where we have confidence we can do that,” Parsons said, ahead of a Dec. 3 meeting when executives try to convince Wall Street. “But then there is the execution part.”

TASTES GREAT, LESS FILLING

Going forward Parsons said the priorities include running the businesses well and improving collaboration between the divisions — from America Online, music and publishing to the networks, film and cable systems — instead of each unit’s management trying to protect their own profit/loss.

“To some extent this is a tough turn to make because the media either wants to put you in two categories: it tastes great or it’s less filling,” Parsons said. “What we need to do is run business and run well and extract additional value out of the portfolio of businesses. That’s the challenge for us.”

Much has been said about the company’s failure to date of getting its many fiefdoms to work together, but Parsons said AOL Time Warner has to create an understanding of what it is trying to achieve overall so each unit understands — instead of forcing “synergies” down each division.

“We can’t order them (to collaborate), but can we make the case to employees that if they do things this way the result will better for all,” said Parsons, often characterized in the industry as a consensus builder.

Avoiding deals that would complicate its corporate structure and reducing its $28 billion in debt are also Parsons’ priorities as he tries to turnaround the company.

Parsons, a former Time Warner veteran who took the helm this summer after Gerald Levin resigned, sought to distance himself a bit from his predecessors.

He acknowledged that he had some doubts about the 30 percent growth targets set out after the merger — the targets the company severely missed and that have led to much of the investor discontent.

“(In the 1990s) growth became this enormously important thing and (people) would throw out growth targets without looking at what was under that. You can’t grow a company our size with $40 billion in revenue and a target of growing it 30 percent a year. That’s not the real world (news – Y! TV).”

———–

Not only is the Canadian government treading into uncharted waters with a tax on a medium that they are ill-equipped to understand, but they’re merely serving to further entrench a music industry that has steadfastly refused to accept change.

This is the same music industry that has inhibited Canadian artists in their quest to find worldwide audiences for decades because of their own assumption that all Canadian musicians benefit exclusively from the 30% CanCon rule to a much greater degree than their own talent.

In the era of digital convergence what IS or ISN’T a “music playing device”?? I can guarantee you that this language in law will be clumsy and open to vastly varying interpretations. Those loopholes in definitions will be used by the RIAA to punish everyone from PC makers to Set Top Box manufacturers to car stereo manufacturers.

How much of this tax will get back to the artists who are supposedly being victimized by the technology? Probably none: it’s a win-win deal for government and the RIAA — the bureaucrats get to line their wallets and the RIAA gets to further inhibit the growth in diversity in how we access music.

I think it’s fair to say that the RIAA and Artists ARE losing money because of digital replication technologies. But it’s appropriate to ask whether this is because we as consumers have malicious intent in copying music for free or whether this is because we as consumers want to explore music through diverse media and the industry steadfastly refuses to alter their ideology to meet that need?

The music industry, powered by its own arrogance, thinks that it rules the market. MP3 and other media are examples where the consumers have voiced their discontent with the music industry’s definition of “choice”. Perhaps we ought to let RIAA members, and Artists who work within that system, starve under rampant piracy until they learn that their model of distribution and copyright is fundamentally broken. Only then might they adopt strategies that reflect the desires of the music-consuming public.

-Ian.

———- Forwarded message ———- Date: Fri, 15 Mar 2002 08:56:38 -0800 (PST) From: Salim Virani Reply-To: me [at] salimvirani [dot] com To: info [at] digitalconsumer [dot] org Cc: webmaster [at] digitalconsumer [dot] org Subject: Canadian Content

It seems that we Canadians are paving the way for the RIAA and others. If you havent heard already, the Canadian Government has legislated a new tax of $21CDN ($13US)/GB on non-removable storage in music playing devices.

Of course, with enough attention, this can be reversed. They are entertaining reactions until May 8th.

Read: http://news.dmusic.com/article/4580

And please make this information available on your site as well as adding a Canadian option to the Get Active section. If the site could fire off an email similar to the fax you have prepared, that would be a great start.

The Canadian Government contact (from the link above) is: CLAUDE MAJEAU Secretary General 56 Sparks Street, Suite 800 Ottawa, Ontario K1A 0C9 (613) 952-8621 (Telephone) (613) 952-8630 (Facsimile) majeau.claude [at] cb-cda.gc [dot] ca (Electronic mail)

Let me know how it goes. Thanks.

Salim Virani

—— End of Forwarded Message

———- Forwarded message ———- Date: Fri, 15 Mar 2002 09:46:35 -0800 (PST) From: Salim Virani Reply-To: me [at] salimvirani [dot] com To: majeau.claude [at] cb-cda.gc [dot] ca Subject: New Media Tarrifs and Fair Use Rights

As a constituent and an ardent consumer of digital media, I write today to urge you to support a Consumer Technology Bill of Rights, and to express my concerns about the recent trend toward allowing one-sided copyright laws to eliminate my Fair Use rights. I am also writing to oppose the new levies and tarrifs placed on recordable media, specifically those placed on hard drives and flash memory.

These tarrifs have not been thought through. They will simply remove our rights as consumers in the short term and shift the portable music hardware industry to more tax-sensible media in the long-term. For instance, the Rio Volt stores MP3s on a CD so I can lower the tarrif I pay by simply storing MP3s on a CD instead of a hard-drive-based player. Or wait a year, and you’ll see hard-drive-based player being sold with no hard-drive at all. You can just pick up a tarrif-free hard drive at the computer store and plug it in. This approach in ineffective. All you are doing is slowing innovation in the media industry without making a dent in the piracy problem.

Historically, our country has enjoyed a balance between the rights of copyright holders and the rights of citizens who legally acquire copyrighted works. Generally speaking, rights holders have the exclusive right to distribute and profit from artistic works. Consumers like me who legally acquire these works are free to use them in most noncommercial ways. Unfortunately, this balance has shifted dramatically in recent years, much to the detriment of consumers.

To prevent further erosion of my rights, I would like to add my voice to support the consumer rights supported by DigitalConsumer.org in the U.S. in calling for a “consumer technology bill of rights”. It is simply an attempt to assert positively the public’s personal use rights. These rights are not new; they are historic rights granted in previous legislation and court rulings that have over the last four years been whittled away.

Under the guise of “preventing illegal copying” I believe Hollywood is vilifying their customers – people like me – and using the legislative process to create new lines of business at my expense. Their goal is to create a legal system that takes away my long-cherished personal use rights and then to charge me an additional fee to regain those rights!

I understand the intention of your approach. Apply a tarrif on media in the player to cover an (alleged) loss of income from copyrighted material. First of all, if you take an unbiased look at the data, you will find evidence indicating that sharing services increase legitimate sales. Until this trend is clearly reversed, these measures are premature.

But even if we assume it is true that this new technology is causing the media companies to lose revenue, it is their business model which is outdated. In this case, these new tarrifs can only be considered progress if you also force the businesses out of their old model. You must then allow copyrighted material to move freely, knowing that the compensation is taken care of by the tarrifs placed on the player. You cant charge me twice for the same thing. I’ve already paid for the album at the CD store so I shouldn’t have to pay for it again just to listen to it while I’m jogging. That is my right.

Do not allow the media companies to rest on their laurels at the cost of my Fair Use Rights. Every other industry is adopting new technology and innovating. They are improving the way they do business and evolving with the Information Age. The media industry is asking you to let them be an exception. Why should they be? And why at the cost of consumer rights?

Copy protection, especially to prevent overseas piracy for illicit sale, is an important issue. But before you consider yet another change in the law at the behest of the copyright holders, I urge you in the strongest possible terms to protect my Fair Use rights.

Thank you very much for your attention to this important matter.

—

Netscape: We’re in media, not browser business now

By Reshma Kapadia

NEW YORK, June 6 (Reuters) – AOL Time Warner Inc (NYSE:AOL – news) is remaking its pioneering Netscape software business into an Internet media hub brimming with Time Warner artists and publications, aimed at office workers and Web purists not already using AOL services. ADVERTISEMENT

“The browser is a crown jewel. However, six months from now, you won’t consider Netscape to be a browser company,” Netscape President Jim Bankoff told Reuters in an interview, referring to its early role in creating the first popular tool for surfing the Web.

The shift recognises the overwhelming dominance of the Internet Explorer (IE) browser produced by arch-rival Microsoft Corp (NasdaqNM:MSFT – news), and frees AOL to focus on new media markets now taking shape on computers, phones and television.

The revved-up Netscape media strategy signals that AOL Time Warner is stepping up the integration of its varied business units following the completion of AOL’s $106.2 billion purchase of Time Warner Inc in January.

Netscape, which plans to embark on a brand advertising campaign later this year, wants to act as a hub for the wide array of core Time Warner media properties — such as Fortune and Time magazines and the 24-hour cable news network CNN.

So far about 18 Time Warner publication and programming sites, including CNNfn financial news and CNN.com, have been embedded in the toolbar that runs along the top of the Netscape media site.

NETSCAPE SOFTWARE TO ACT AS COMPONENTS FOR MEDIA SERVICES

Netscape is by no means a rejection of its software legacy, as components of its browser technology will continue to power new features of Netscape’s media services aimed at office workers, small businesses and sophisticated Web users.

“We have all been waiting to see if they stake the crown on the technology, on the name, or on the parent and it become more of an extension of a grander thing,” said Lydia Loizides, analyst at Internet research firm Jupiter Media Metrix.

“It’s not going to be Netscape, but rather Netscape.com,” Loizides said.

AOL Time Warner’s retreat from creating distinct Netscape browsing software figures in the on-again, off-again talks the company is holding with Microsoft to renegotiate its licence to embed the Internet Explorer in its AOL service.

The talks, which broke down last week but are said to have since resumed, would extend a five-year AOL-Microsoft browser deal that expired in January of this year, among other topics.

But in an industry that does not know how to stand still, the rivalry has shifted to instant-messaging services that incorporate browser-like Web surfing features with the capacity to swap messages rapidly among friends and colleagues.

Microsoft is incorporating an instant-message service it calls Windows Messenger into the next version of its operating system software known as Windows XP that offers audio and video conferencing, file transfers and text messaging. This change means customers of alternative instant messaging and Web browsers would have to go to extra effort to use such systems.

The expired Microsoft pact had allowed AOL’s software to feature on the desktops of many Windows PCs, helping fuel the growth of AOL services. AOL still relies on Internet Explorer as the built-in browser for its now 29 million subscribers.

Bankoff said Netscape’s strategy will not be altered regardless of which way the talks with Microsoft are resolved.

He confirmed that AOL has been testing “Komodo” software, which would let AOL and CompuServe Internet services support multiple Web browsers, including Netscape, as well as perform various other functions.

Netscape is also trying to increase the reach of its technology platform and has struck recent deals for its browser to be used in Sony Corp’s PlayStation 2 and direct computer seller Gateway Inc’s (NYSE:GTW – news) Touchpad.

“We are finding demand for more than the Internet browser in the marketplace,” Bankoff said, contrasting Netscape’s partnering moves to what he considers Microsoft’s winner-take-all model. “You will see more pacts like the one struck with PlayStation.”

NETSCAPE, THE ALTERNATIVE MEDIA BRAND IN THE AOL STABLE

The historic transformation of Netscape into media property has been underway since AOL bought Netscape in 1999 and Time Warner in 2000 to form the world’s largest media company, with interests ranging from music to film and across the Internet.

Netscape.com’s base of registered users has grown 37 percent to more than 40 million worldwide from 15 million in February 2000, the company said.

The Netscape target user typically surfs the Web at work, often on high-speed connections, and resists the packaged online experience AOL creates to draw mainstream audiences who find wide-open Web surfing confusing or overly complex.

“We call them the ‘a la carte’ crowd. (Netscape users) have a perceived interest in finding their own things,” Bankoff said.

Bruce Kasrel, a Forrester Research analyst who had yet to be briefed on the new Netscape plans, said ahead of the announcement last week that Netscape needed to pursue a hybrid media and software akin to that of Microsoft’s MSN Explorer.

MSN allows users to custom design the mix of Web searching, news updates, communication features and other services using Internet Explorer technology. Similarly, he predicted AOL Time Warner would fold Netscape software into its media properties.

The media hub strategy gives Netscape a chance to sell advertising across its many properties — something AOL Time Warner is well known for doing — and to test the waters for subscriptions rather than just free services, Loizides said.

“Because they are repositioning themselves, they are a bit freer to experiment than Yahoo! or other services,” she added. “Things they could test include subscriptions services” for unique Time Warner programming or special Web software.

The formula of using Netscape to create a central Internet meeting place for Time Warner magazine readers and broadcast viewers echoes in certain respects the push by Time Warner in the first half of the 1990s to draw users to a single site. That site, known as Pathfinder, failed to keep Time Warner readers within the site and eventually closed.

Netscape can tap an unprecedented wealth of exclusive media content ranging from music pop star Madonna to the hit crime-family drama “The Sopranos” now running on U.S. cable television, Loizides said.

-Ian.

——— http://dailynews.yahoo.com/htx/cn/20010516/tc/mandatory_e-mail_at_aol_1.html

Wednesday May 16 12:00 PM EDT

Mandatory e-mail at AOL By Jim Hu CNET News.com

AOL Time Warner employees are getting religion.

The media giant’s writers, film producers, newshounds and broadcasting bigwigs will soon be hearing the ubiquitous “You’ve got mail” greeting every time they fire up their e-mail. That’s because all 86,000 employees of AOL Time Warner have been told to use e-mail powered by the America Online service.

AOL Time Warner’s corporate headquarters and its Time division have begun transitioning over to AOL e-mail. Eventually, all employees will use the system.

“We’re rolling it out to all divisions in the company,” said Tricia Primrose, an AOL spokeswoman.

Since merging in January, AOL and Time Warner have taken steps to weave AOL’s Internet services throughout the company. Executives refer to AOL Time Warner as an “Internet powered media company” to stress the mandate.

Changes have already begun. As one cost-saving measure, the company has integrated all of its Web sites–Netscape.com, Time.com, Warner Bros. Online–into the same network infrastructure. Meanwhile, many of these sites have begun adopting a common toolbar that links to Netscape.com and features download links to AOL services such as AOL Instant Messenger and Netscape’s free e-mail.

The recent e-mail mandate means employees will have to load AOL service to check e-mail. Unlike many companies that use corporate e-mail management software, such as Microsoft’s Outlook, IBM’s Lotus Notes or Qualcomm’s Eudora, AOL Time Warner employees will use the same e-mail service as general AOL subscribers.

Primrose added that employees from other divisions can retain their current e-mail addresses. But messages will be routed into their AOL e-mail accounts.

-Ian.

———- http://dailynews.yahoo.com/h/ap/20010409/tc/nbc_internet_3.html

Monday April 9 12:45 PM ET NBC Is Shutting Down NBC Internet

By SETH SUTEL, AP Business Writer

NEW YORK (AP) – NBC is shutting down its loss-ridden Internet subsidiary, acknowledging that any hopes of it becoming profitable had vaporized along with the online advertising market. Many of the 300 jobs there will be eliminated as the unit’s assets are integrated into NBC.

The announcement Monday marks the latest move by a major media company to drastically scale back its Internet ambitions. The Walt Disney Co. and News Corp. have also absorbed their online units, and other media players have pulled plans to sell shares in their online operations to the public.

Senior executives at NBC and NBC Internet told The Associated Press that they had been weighing alternatives for the subsidiary since the beginning of the year, including a sale, a merger with another company, or liquidation.

“The sharp declines in the Internet advertising market convinced us that it didn’t make sense to pursue a portal strategy,” NBC’s chief financial officer Mark Begor said. “We wanted to find a way to maximize shareholder value and wind down the business in the best way possible.”

Like many companies that rely on online advertising, NBC Internet has been losing a staggering amount of money. In the three-month period ending in December, it posted a net loss of $245 million on revenues of $31 million. Excluding asset write-downs or restructuring charges, it would have lost $47 million for the quarter.

NBC, a subsidiary of General Electric Co., will pay $2.19 in cash for each publicly held share of NBC Internet, a premium of 46 percent over the closing share price of $1.50 on Friday. NBC currently owns 39 percent of the company, which was formed in the fall of 1999 in a multipart deal with CNET and other Internet companies.

Shares of NBC Internet jumped 64 cents to $2.14 in early trading Monday on the Nasdaq Stock Market. Shares of NBC’s parent company GE rose $1.19 to $42.36 on the New York Stock Exchange.

NBC Internet’s assets will be absorbed back into NBC, but it’s not yet clear how they will be used. The NBC.com Web site will fall under the jurisdiction of Scott Sassa, the chief of NBC’s West Coast operations.

Still to be determined are the fate of some dozen companies, such as Flyswat, GlobalBrain or AllBusiness, that NBC Internet acquired for stock over the course of a $500 million buying binge.

“There’s no question that we’ll dramatically reduce the scope of the operations and sell some assets,” said NBC Internet’s chief executive Will Lansing. “But first we’ll see how it fits into the NBC strategy.”

The purchase will cost NBC about $85 million in cash and places a value of about $150 million on the Internet subsidiary. That’s a far cry from the roughly $5.7 billion value that investors assigned to NBC Internet back in January 2000, when its shares closed at a high of just above $100.

NBC has been trying to turn around its Internet subsidiary for some time. Last year it installed Lansing, a former GE executive, to implement fiscal discipline and revamp the company’s blurred marketing strategy, which employed a number of different brands and Web sites such as Snap and Xoom.

NBC Internet has been trimming its payrolls over the past nine months from a high of 850 last August to 300 now. Begor said NBC would “significantly reduce” the head count as NBC Internet is integrated back into the network, but he declined to be more specific.

Despite backing from the NBC network, including $220 million in advertising credits, NBC Internet had always struggled and didn’t get to share the success of NBC’s strong cable brands MSNBC and CNBC.

MSNBC.com remains one of the top news sites on the Internet, but that site, like the cable channel it is associated with, is a 50-50 joint venture between NBC and Microsoft and was never part of NBC Internet. Likewise the Web site for CNBC, which has been a runaway hit on cable with its financial coverage, had only a minor participation in NBC Internet.

Lansing will leave the company after seeing it through a transition period. The deal is expected to close in the summer.