On January 11 2000, when America Online chief Steve Case and his Time Warner counterpart Gerry Levin embraced on a stage after announcing a record-breaking merger, they thought they were ushering in a new era. "This is an historic moment," crowed Case to an audience of journalists afterwards. He was right, of course, although not quite in the way he imagined. Eighteen months after that announcement and six months after the deal was concluded, Washington Post reporter Alec Klein received an anonymous tip-off from an AOL insider that a company employee had been suspended over an advertising deal with Las Vegas online casino PurchasePro.
The story was buried deep in the business section - "It was before Enron, nobody was paying much attention to accounting stories back then," says Klein - but it piqued his interest and contributed to a chain of events that led to the largest losses in US corporate history and the resignation of almost all the executives involved.
It turned out that the PurchasePro deal was the thin end of the wedge, and that AOL's deal-makers had been regularly overstating advertising revenues in a desperate effort to keep the company's stock price up prior to the merger with Time Warner, owner of CNN, Time magazine and entertainment properties from Madonna to Harry Potter.
Klein set to work on a more detailed investigation and on the very day that the first major story appeared on July 19 last year, AOL Time Warner chief operating officer Bob Pittman was fired. AOL also closed down the business affairs unit at the centre of the allegations and locked David Colburn, the head of the unit, out of his office. Within weeks, the Securities and Exchange Commission and the Justice Department had both launched investigations into AOL's accounting both before and after the merger, and the dotcom dream was definitively over.
Since the $159bn (£94bn) merger in January 2000, then hailed as a revolutionary deal that would transform the media world, AOL Time Warner's stock price has collapsed. Revenues and subscriber numbers at the internet division slumped, and the anticipated overlaps between AOL and Time Warner's film, music and magazine publishing divisions failed to materialise.
Now Klein has written a book, Stealing Time, which promises to be the definitive account of the rise of AOL, its merger with Time Warner and the subsequent fallout. More than that, the book is a cautionary chronicle of the wider malaise that gripped the world in the late 1990s, when dotcom fever gave the markets a temporary dose of insanity and anyone with a half-written business plan and a web connection could become a millionaire.
"It was even more outrageous than you thought it would be," says Klein. "People pushed things right to the edge with drugs and sexual banter. I'm fairly sure that there are a lot of other things that just haven't come out yet." One memorable passage in the book describes AOL executives on their way to the 2001 Super Bowl snorting cocaine off the bonnet of a car, while other employees talk of wild parties and gambling trips to Las Vegas funded by prospective business partners.
In Klein's book, AOL's Dallas headquarters comes across as a kind of grown-up college campus where, convinced they had the keys to the world, the employees were infected with a collective arrogance that made them believe they could do no wrong. "In many ways, it was the inevitable consequence of the whiff of power and money. They felt they were making the rules because they were leading this revolution and they could do what they wanted," says Klein.
On the business side, unpicking the labyrinthine business deals was a time-consuming task and involved hundreds of interviews with everyone from "the secretaries to the executive suites". This was partly due to the complicated nature of the trans-actions, which included booking barter deals and other fees such as legal settlements as advertising revenue, and partly due to the culture of secrecy that surrounded the company.
"It was like a spider's web. It's obviously very difficult to get people to talk about such controversial things - they've got their careers, mortgages, pensions to think of. It took years to pull it all together," says Klein. The painstaking investigation involved a lot of skulking around in "bad restaurants and dark bars in the middle of nowhere", speaking to sources who were paranoid about being found out.
"AOL is notorious for monitoring information, including emails and phone calls. It's like the Pentagon, only better at keeping secrets. I spent a long time hanging around unshaven in one particular hotel lobby where I'd hold court with my sources. I think the hotel staff thought I was a drug dealer," he says.
Many of the more outrageous claims in the book centre on the "wild west" business affairs department run by Colburn, dubbed "God" by his staff and by turns ferocious and charming. "He developed his power by virtue of the amount of money he was bringing in," says Klein. "He worked hard to enhance that scary reputation. It's a bit like Lord of the Flies."
The other striking thing about the rise and fall of AOL is the number of larger-than-life characters involved. Most large media companies are dominated by one huge character, such as Rupert Murdoch at NewsCorp or Sumner Redstone at Viacom, but at AOL Time Warner there were dozens. And as the merger turned sour, it was inevitable that they would clash.
"You're talking about men who have hundreds of millions of dollars but are oblivious to their own selves and become entwined in these Byzantine office politics. You'd think they would be bigger than that, but I guess they're just like everybody else. Steve Case, for example, was jealous that Bob Pittman was more assured and a better speaker than him," says Klein.
While researching the book, Klein also uncovered the intriguing nugget that Case was not, as he has claimed, the co-founder of AOL, but was hired as a lowly marketing intern as a favour to his older brother. "Steve Case and his handlers have allowed this myth to grow over time," says Klein. "On some level, the guys from the early days of the company are bitter that Bill von Meister, who started the company that became AOL, never got the credit he deserved."
Klein doesn't see Case, who stepped down as chairman earlier this year in the face of investor pressure, as a visionary in the mould of CNN founder Ted Turner. "But he was very smart and he was an opportunist. He realised early on that the internet would be a big thing and he stuck with it," he says. Richard Parsons, now AOL's chief executive, is a "very savvy guy", but he will find it hard to shake off the company's recent legacy until the accounting investigations are completed, believes Klein.
But while AOL may have been the biggest company affected by the madness of the time, it wasn't the only one. "I'm convinced this is a reflection of the dotcom boom and bust. What's interesting is that this story seems to play out every decade or so. We had it in the 80s and it seems like every 10 years things get out of control. It's been a wild ride and I feel privileged to have had a seat up close," says Klein.
Stealing Time is published by Simon & Schuster
