Time Warner after Parsons

NEW YORK (Fortune) -- Richard Parsons presided over Time Warner board meetings two weeks ago in London that included one memorable dinner in which, according to attendees, he appeared dressed in full Dumbledore regalia with the onscreen Harry Potter, Daniel Radcliffe, in tow. On he went to Delhi, where he strode, rajah-like, onto a vast stage at the city's historic Red Fort and opened the Fortune Global Forum before leading a side-trip of business leaders to Kolkata.

In other words, Parsons' last days before announcing Monday that he is stepping down as CEO of Time Warner were typical of the image he has projected as head of the world's largest media company: steady, playful, unflappable and always ready for whatever was coming around the corner.

Jeff Bewkes will take over as Time Warner CEO on January 1.

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It has to be said - as Stephanie Mehta and I did in the article Time For Change in the Sept. 19 edition of Fortune - that Parsons' transition to his deputy Jeff Bewkes has been the biggest non-secret in the media business for the better part of a year. Time Warner (Charts, Fortune 500), the world's largest media company as measured by revenue, announced today that Bewkes will take over as CEO on January 1 and Parsons will stay on, as expected, as chairman. The big question is what Bewkes will do as CEO to shake up Time Warner's stock price which, even with a slight bump in trading this afternoon, is just below the quicksand where it stood when Parsons took over as CEO in the dog days of May 2002.

There is no obvious answer, even though Bewkes emerged as Parsons' clear successor two years ago after Carl Icahn took a run at the company. The two men have hardly stood still since then, making a range of strategic moves that included a massive stock buyback, a public listing of the Time Warner Cable business, selling a passel of magazines owned by Time Inc. (Fortune's parent company), and, most dramatically, redrawing the business plan for AOL and then replacing its chairman and CEO.

Certainly the most obvious move for Bewkes to make would be to accelerate the splitting up of Time Warner - following the likes of Viacom's (Charts, Fortune 500) split with CBS (Charts, Fortune 500), or Barry Diller's just-announced plan to carve IAC/Interactive Corp (Charts, Fortune 500) into five separate publicly-traded businesses. There are two issues with this: one is the fact that there is scant evidence that such splits have done much to create shareholder value at other media companies, or will in the near future. The two standout big media stocks in the past five years are Disney (Charts, Fortune 500) and News Corporation (Charts, Fortune 500), and financial engineering has not been part of their playbook, while digital deals that juice the street - Pixar and MySpace respectively - have.

And Parsons in particular will be remembered for staking his reputation on the idea that Time Warner makes more sense kept together than split apart, as Icahn and others have argued. Bewkes, a 28-year veteran of the company who made his reputation taking Home Box Office to its pay-television heights in the 1990s, is loathe too be seen doing anything that doesn't have a clear payoff for shareholders - particularly selling assets too soon or too cheaply.

That said, he is also seen as less sentimental then Parsons. If he woke up on January 1 and decided to merge AOL with Yahoo or someone else tomorrow, or decided to spin out the company's 84% stake in Time Warner Cable to its shareholders, or sold Time Inc. in a tax-efficient way, it would hardly come as a surprise to anybody.

Long before it was known what the share price would look like in 2007, Parsons planned to step aside because he has felt that Bewkes deserves his shot at running the business - after all, the incoming CEO is only four years younger than the current boss. One area where it is almost certain that Bewkes will take a sharper focus than Parsons is on corporate costs - headcount at Time Warner headquarters doubled to some 700 employees after the company sold itself to America Online at the height of the dot-com mania in 2000. That may not seem like a lot for a company with more than 90,000 employees, but Bewkes is expected to want to pare the $400 million a year the company spends on corporate overhead.

Bewkes is perceived as being as restless as anyone who has spent their career at the company, presided over some of the leading brands in media, and not had much to show for it in terms of stock price. But then again, as Icahn learned, the company's stock floatation is so vast and widely held that it is largely impervious to outside agitators. That might buy Bewkes time, even if he doesn't want to take it. In fact, that float is also a Time Warner CEO's bete noire: the company's shares have so much liquidity that even when news is good it's hard to budge the stock price, especially with so many uncertainties - cable performance and AOL to name two big ones - hanging over the company.

There will be a strong sense of continuity. Parsons has been seen as a consummate corporate politician - his background is in law and in his early career he worked as an advisor for the Rockefeller family - who is also as well-liked as anyone in media. Bewkes, who shares Parsons' sense of fun, is the personification of business cool: anchorman handsome, well bred (the academic trifecta of Deerfield, Yale undergrad and Stanford Business School), and one of those people who looks like they subsist on very little food or sleep. For Parsons, appointing Bewkes is the culmination of his legacy as the person who stabilized the company after the AOL debacle, held it together, and in some fundamental ways reshaped the company including selling the Warner Music business and buying the Adelphia cable systems.

He won't be remembered for betting the company on anything, which is probably exactly as he'd like it. In a recent interview, he - like every other Time Warner shareholder you can find - was beyond frustrated with the share price. "Jeff is, quite simply, the best person I could imagine to lead Time Warner," Parsons said in an e-mail to employees yesterday. "He is a leader of remarkable intelligence, integrity, energy, and business acumen. He is also a truly decent individual, with a good sense of humor and a great sense of humanity."

Much speculation about Parsons' post-Time Warner life has seen him devoting time to something in public service, perhaps has mayor of New York (something he has poured cold water on) or Secretary of Education after 2008.

Maybe. But Parsons could also have one more act as a CEO: before joining Time Warner as its president in 1995, Parsons had successfully turned around the troubled Dime Savings Bank as its CEO. And, suddenly the list of financial companies that could use a steadying hand like Parsons' is suddenly widening by the week (he's already helping Citigroup, where he sits on the board, search for its new CEO.).

As for Bewkes, it's time to show exactly what kind of CEO he'll be. Although he ran the pay-TV business that brought the world the show "Entourage", he doesn't really have one beyond his longtime crew from HBO - which is precisely why even Time Warner insiders aren't exactly sure what his plan is, or who he'll surround himself with at corporate. Aside from hiring a new chief financial officer, Bewkes is not expected to name a deputy (he's keeping the president title).

Here's one easy prediction: don't bet on seeing him in full Harry Potter getup any time soon.