Archives for March 2009

The media blogsphere is atwitter with the news about Tim Armstrong becoming AOL’s new CEO. The first flash was by Henry Blodget (@hblodget) of Silcon Valley Insider on Twitter followed immediately by Kara Swisher’s first interview with Armstrong on Boom Town in the Wall Street Journal’s All Things Digital blog.

Silicon Valley Insider, paidContent, Online Media Daily, Advertising Age, and Gawker’s Valleywag all rushed out with the news. They told the how, what, where, and when of the story but not the why.
Many blogs and news sites gave the facts and interviewed people who knew Armstrong or who had an opinion about Time Warner CEO Jeff Bewkes’ decision to hire Google’s head of sales. One site, Online Daily News, even published an interview by Diane Mermigas conducted with AOL CEO Randy Falco before he was dumped. But no one interviewed Bewkes and asked him why he fired Falco and COO Ron Grant and hired Armstrong – not that Bewkes would have agreed to an interview or would have revealed his reasons.
So, why did Jeff Bewkes hire Tim Armstrong? Let’s look at some clues. In his interview with Kara Swisher “Armstrong confirmed that the talks to take over at AOL had only started a few weeks ago, increasing in ‘intensity over the last week.’” Then, there’s the Advertising Age story, which is the only one that had the key to solving the riddle:

Google CEO Eric Schmidt released a statement: “Since arriving at Google eight and a half years ago, Tim Armstrong has been a critical force in Google’s advertiser-facing operations. We’re very sad to see him go, but would like to take this opportunity to wish Tim every success and good fortune in this new role at AOL — one of Google’s longest-standing partners. He’s one of the most creative, fun and respected leaders in the ad industry, and we have all loved working with him at Google. We’ll announce an internal candidate as Tim’s successor in the coming weeks and are delighted Tim will remain with Google for the next month to help oversee this transition.”
Google and AOL have had a close relationship over the years. Google powers AOL search, for example, and paid $1 billion for a 5% stake in the company in 2005. Last month Google wrote down the value of that stake by $726 million and exercised its right to have Time Warner buy back the stake at “fair market value” as of July 1, 2008, or take AOL public.

Does it seem reasonable to think that after making a series of colossally dumb personnel decisions by putting his cronies and suits in top jobs at HBO and AOL that all of a sudden Bewkes got smart? Look at the timing: Armstrong says he’d been talking Bewkes for “a few weeks” and a few weeks ago (a month ago) Google exercised its right to have Time Warner buy back its stake in AOL at fair market value (about $250 million) or take it public.
Don’t you think Bewkes had a conversation with Google’s CEO Eric Schmidt a month ago about the situation? I do. And here’s how I think the conversation might have gone:
Bewkes: “Are you going to exercise your put option on your $1 billion stake in AOL?”
Schmidt: “Of course. We had to take a $726 million write-down on that turkey. You owe us $250 million or have to take it public by July 1st. Plus we have to re-negotiate our search deal with you.”
Bewkes: “Gosh, we’re trying our hardest. Our relationship with Google is the most important relationship we have at AOL. What can I do to get this on the right track?”
Schmidt: “Get rid of Falco who’s a decent guy but knows nothing about the Internet, broom that prick Grant who everyone at AOL and in the business hates, and hire Tim Armstrong. He’s smart, knows the business, and is a genuinely nice person who the AOL people will love and respect. He’s bored here and we’re going to lose him to be a CEO of some big company. Hire him before someone else does. Also, I trust him. He’ll be able to work with us to get a new search deal done that’s fair to both of us. But I know Tim well enough to know he doesn’t want to work for you or the bureaucratic, screwed-up Time Warner. To get him you’ll have to promise to spin AOL off to become a public company, which, by the way is what we want too. Google doesn’t need $250 million because we have plenty of cash. The only hope we have of getting back our investment is for AOL to get away from Time Warner’s mismanagement and be a self-standing company run by someone who knows what he’s doing for a change.”
Bewkes: “Yes, Eric.”

The future has arrived. See it in this video of a presentation at the TED conference:

Once upon a time in the future, on January 1, 2010, The New York Times announced that it would charge $149 yearly for access to its online content. The company’s CEO, Arthur Sulzberger, Jr., also announced that the venerable “newspaper of record” would cease printing the paper and “from now on it will be available only on the Internet.”
“We did not make this decision lightly,” Sulzberger said in a press conference, choking back tears, “because, I, like my close friend Rupert Murdoch, was born with ink in my veins. But we could no longer ignore the economic realities. We are bleeding money as well as ink, Carlos Slim won’t lend us any more money, no one is dumb enough to do a sale-lease-back agreement on our printing presses, and Canada is running out of trees to cut down.”
“For our loyal, aging readers who don’t have computers or for those who just like the sensation of holding paper and getting their fingers dirty, we have a program we’ve developed jointly with HP to give them color printers so they can print out a specially formatted version of The Times.” In a typically lame attempt at humor, Sulzberger added, “we’ve transferred the addiction to and cost of paper and ink to our readers, should they chose to accept it”
A task force led by Sulzberger and Martin Neisenholz, senior vice president, digital operations, considered whether or not to charge for online content, how much to charge, and whether or not to continue printing the paper The task force sought the advice of leading newspaper, journalism, academic, and Internet experts before making a decision. Among those consulted was blogger Jeff Jarvis, the author of What Would Google Do? Jarvis has pontificated for years that content on the Internet should be free and that when companies contemplate an Internet strategy, they should ask “What Would Google Do?”
Apparently, Sulzberger did just that and called Google’s CEO, Eric Schmidt, who had gone on record in 2008 as indicating that it was important for The Times to survive. Sulzberger asked Schmidt that if Google owned The Times, what would it do. He asked this question after he asked Schmidt if Google would be interested in buying The Times and turning it into a non-profit organization.
Schmidt’s answer to the first question was, “Are you kidding,” and to the second question was, “Charge for your valuable content. Google would have gone out of business if we hadn’t figured out how to charge for our valuable search results.” Sulzberger was concerned that they would lose a lot of traffic and could therefore charge less for online advertising. However, Schmidt said that they would save enough by discontinuing the incredibly wasteful printing and distribution process to be able to survive.
Schmidt’s most persuasive comment was, “Look, you have no choice. Your content is valuable and by charging for it you will lose casual, free-loading readers who don’t really value your content. These readers are more than likely of less value to advertisers, so you can charge a higher rate for lower but more desirable ad impressions online. You will force people to make a choice between The Times and other publications that charge for subscriptions. Others will be hurt, not you.”
Sulzberger said that The Times had a bad experience charging for content with Times Select, which charged readers to access The Times’ columnists such as Maureen Dowd, Frank Rich, Paul Krugman, Gail Collins, David Brooks, Bob Herbert, Thomas Friedman, and Nicholas Kristof. Schmidt replied with uncharacteristic sarcasm, “Why are you surprised that few people were thrilled about paying to read Maureen Dowd? They might read her if it didn’t cost anything, but weren’t willing to pay for the privilege. That might be more of a comment on the quality of your columnists than on the willingness of people to pay for content. Lots of people who hate its editorial policy pay for the Wall Street Journal’s online content because overall they find it valuable.”
“It’s time to realize that the newspaper business is not in the manufacturing business. The Times has been run like General Motors too long, allowing the unions too much power. Get out of the printing business. Get into the news business – online.”
And so The New York Times stopped printing a paper, charged for its online content, and everyone expect those who liked dirty fingers lived happily ever after.