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AOL Time Warner to Slash More Than 2,000 Jobs [Lots of little cuts in lots of places]

By Reshma Kapadia

NEW YORK (Reuters) - Newly merged AOL Time Warner Inc., the world's largest media company, will cut more than 2,000 jobs in a move to slim down operations and deliver on promises to Wall Street, a company official said Wednesday.

Combined with previously announced plans to lay off 400 people at the CNN News Group, the total cuts amount to about three percent of the company's work force of 85,000.

Wall Street had expected AOL Time Warner to slash jobs and streamline operations ahead of an analysts' meeting Jan. 31 when executives will presumably detail how the company will generate the $40 billion in revenues and $11 billion in cash flow, or earnings before interest, tax and amortization, it promised last year.

Of the 2,000 job cuts, 725 will come from AOL Inc., which operates the company's flagship Internet service. The cuts come from efficiencies and shared technology infrastructure created by the merger between AOL, the No. 1 Internet service provider, and Time Warner, the No. 2 U.S. cable provider.

The cuts at AOL, which represent about 5 percent of staff, are among the largest in AOL's corporate history.

An additional 100 jobs will be cut at AOL Time Warner's corporate operations, a source close to the company said.

As expected, many of the cuts will come from Time Warner's media operations. About 600 of 13,000 jobs will be cut at Warner Music Group, the home of pop diva Madonna (news - web sites) and rapper Busta Rhymes.

The cuts at Warner Music, which will be focused in infrastructure areas rather than the front-line creative part of the division, will come over time and mostly through attrition and early retirement, AOL Times Warner said.

At Time Inc., the home of People and Sports Illustrated, the company said it will cut about 400 jobs.

The majority of the cuts will come from moving fulfillment operations from Birmingham, Ala., to existing customer service operations in Tampa, Fla. Part of the cuts will also include layoffs at its Time Life books direct marketing operations in Alexandria, Va. About 50 of those cuts will come from those editing and producing Time Life books, the company said.

At Warner Bros. Film, about 100 jobs will be cut largely as a result of merging AOL entertainment site Entertaindom with Warner Bros. online. Warner Bros. has a total of about 11,000 employees, not including the WB television network.

Without offering a time frame, the company also plans to sell or exit its Warner Brothers retail stores.

New Line Cinema, producer of Adam Sandler's ``Little Nicky,'' said it will cut about 100 of the 600 jobs as part of a creative realignment following the departure of production president Michael De Luca last week, AOL Time Warner said.

For employees surviving the cuts, the company said it is changing its compensation structure to put more emphasis on equity and make almost all employees eligible for stock options. Previously, only about 3 to 5 percent of AOL Time Warner's staff received stock options.

``Based on this and other announcements, this is clearly going to be an aggressive integration. One that will undoubtedly ruffle some feathers, but that should also quickly demonstrate senior management's seriousness about delivering on its performance targets,'' said Merrill Lynch analyst Henry Blodget in a research note.

The compensation shift reflects a shift from a traditional media company's typical practice of cash salary and bonus based on divisional performance to that of a technology company, Blodget added.

``It's not about cost cutting for the sake of cost-cutting. The organizational changes we've made are to sharpen our focus, capture synergies for growth and strengthen integration of the company,'' a company spokesman said.

The slowing economy and the decline in ad spending has created a more cautious tone among many media companies. Even Time Warner said last month it expect slower fourth-quarter growth and cited a advertising as one of the reasons.

But JP Morgan Chase analyst Paul Noglows said in a research note he views the job cuts as a pro-active move that addresses the bottom line rather than as a reactionary move related to the ad environment.

AOL Time Warner shares were up nearly 3 percent, or $1.47, at $55.62 in late morning trading, off more than 20 percent from highs reached before the deal was announced in early January 2000.

-- (perry@ofuzzy1.com), January 24, 2001