01 Jul 2002

The internet counter-revolution - the firing of all those wunderkind new media CEOs who rose during the boom years and their replacement by old media or even non-media types - is underway. Nowadays, the market feels more comfortable if the new head of Vivendi Universal comes in from the pharmaceutical industry.

The faltering promise of convergence has already hammered stock prices. But beyond the short-term need to shore up balance sheets, does the clean-out of the rock 'n' roll CEOs mean that convergence is dead? Are global footprints a bad idea? And where are these pared down companies supposed to look for growth?

So it is that Bob Pittman, once the king of convergence and the man who was going to re-make Time Warner in the image of AOL, gives up his place to Richard Parsons, Don Logan and Jeff Bewkes, all from the 'old-media' Time Warner side of the company. New CEO Parsons' message so far has been to remind the market that "there is more in this house than an online service," a clear reversal from the idea that bundling Time Warner content with the AOL portal would boost revenues by a factor of seven - yes, they actually said that.

But does it now make sense for Time Warner to try and flog off AOL, which at the time of Pittman's resignation in mid-July had next to no value attributed to it in the company's stock price? It is true that the 'style' of Pittman and other senior AOL executives was more flamboyant (or, in the view of some, arrogant) than their 'old media' brethren. This was a function of the time as well as the personalities. In 2000, internet assets were king while content companies were considered 'boring'.

Meanwhile, it doesn't look any easier in another part of the world. The cocky Frenchman who was lauded for re-casting a boring water and waste company into a global media powerhouse met his Waterloo amid growing concerns about Vivendi Universal's balance sheet and growth prospects. In a quintessentially French denouement, VU's disenchanted board rallied around Claude Bebear, founder of insurance company Axa who had publically criticised Messier in April. Also known as the godfather of French finance, Bebear hand-picked Messier's succesor Jean-René Fourtou, the former head of pharmaceuticals group Aventis.

The way forward for VU is new lines of credit backed by asset disposals.

But where should the axe be wielded? I have a notion that Messier wasn't so much out of his head (although his ego had certainly taken on unwieldy proportions) as out of time. In many ways VU had a better chance of making the convergence thing sing than AOL Time Warner and this is largely because of Messier's vision and personal willpower. But however strong his rhetoric and his list of assets, Messier's Achilles heel was the unforgiving market.

What Messier lacked was time and something else: the Murdoch factor.

Rupert Murdoch has taken his empire to the brink several times, but he personally controls a large enough stake to buy time. AOL Time Warner's Levin lacked the Murdoch factor, as did Pittman. Leo Kirch in Germany thought he had it, but his ill-managed foray into pay-TV was too closely linked to the rest of the company, bringing the whole empire down in its wake. The latest casualty, Thomas Middelhoff of Bertelsmann, had been granted some protection from the market in that Bertelsmann is not a listed company (which it was Middelhoff's ambition to change). It is controlled by a management committee that includes company executives and descendants of its founding family, the Mohns. However, it seems, once again, to have been the prevailing conservatism of the German board that sealed the fate of its aggressive, expansionist CEO.

The mega-mergers that created AOL Time Warner, Disney ABC, Viacom CBS and even Vivendi Universal gives those companies a scale that makes continued growth a tough goal to achieve even in the best of markets. It gets even tougher when the market is impatient for results on a quarterly basis.

Middelhoff, before his abrupt departure, had enjoyed the luxury of being able to work out how to sell digitised media and entertainment products away from the harsh glare of Wall Street's scrutiny. Somewhat ironically, he seized on the prospect of a Bertelsmann IPO in 2005 as a powerful management tool to galvanise his troops, and it was this ambition that led to the boardroom dispute that sealed his fate.

In the long-run convergence advocates like Messier and Middelhoff must be right. It's just a matter of timing and how much you have to spend to get there.