Jewish World Review May 8, 2002 / 27 Iyar, 5762
is big enough
The Rubino's Pizzeria Theory is not taught at any business school -- I made it up. Most economists would probably scoff. But the theory makes perfect sense -- and it applies directly to what has just happened to the gigantic AOL Time Warner Inc. media conglomerate.
AOL Time Warner announced last week that it had lost $54.2 billion last quarter. $54.2 billion is not just a huge loss -- it is the largest quarterly loss in U.S. corporate history.
Which brings us to Rubino's.
Rubino's is a pizzeria located at 2643 E. Main St. in Bexley, Ohio, my hometown. It was opened in 1954 by Ruben Cohen; when Rube got too old to operate the place, he sold it to the two guys who helped him out -- Frank Marchese and Tommy Culley. When their health got bad, Frank's kids took over. Rubino's never expanded out of the little building on Main Street -- it never opened a second branch. No one became wealthy. But no one lost money, either -- Rubino's cooked its pizzas and met its payrolls and supported the families of the people who worked there.
I have cited the Rubino's Theory in the past in questioning why the big players in America's loftiest corporate boardrooms insist on growing ever larger, ever more far-flung. It seems to spell, in the end, only woe. Once you can't get your arms around all of your corporate holdings, things tend to implode. What would have been so wrong with leaving well enough alone?
AOL Time Warner consists of some of the most valuable and respected business properties in the world. Consider what those properties were before the various mergers began.
Time Inc. published magazines -- legendary, well-edited, profitable magazines. There was the great flagship, Time; there was Life; there was Sports Illustrated; there was People; there was Fortune; there were many others.
Warner Bros. was one of the most fabulously successful movie studios in the history of entertainment. Its television subdivision also did big business.
America Online came along and defined the new world of computer-based communication and entertainment. It quickly became the most recognized brand in the on-line experience, with an enormous base of subscribers.
In a series of mergers, the three companies eventually became one. Their holdings now include, in TV, TNT and TBS and the networks of CNN. HBO and the new WB network became a part of it; the Warner and Little, Brown book publishing companies are in the fold, as are baseball's Atlanta Braves and the Atlanta Hawks of the NBA.
You would think this would be a dream company. The magazines continue to be edited and written by first-rank journalists, the movie, music and TV operations continue to be run by professionals with excellent track records, AOL is used by more people than any other computer service.
So what the heck happened?
That is the essential mystery -- and where the Rubino's Theory comes in.
Rubino's -- the little pizza place on Main Street, with no aspirations beyond its own block -- continues to do just fine by sticking to what it did in the first place, with no grand plans.
While AOL Time Warner -- consisting of blue-chip companies, run by some of the most accomplished men and women in American corporate life -- loses $54.2 billion in a three months.
How do you do that? You couldn't lose $54.2 billion if you tried. A free-spending idiot with a fiscal death wish would be hard-pressed to lose $54.2 billion in three months -- there aren't enough hours in the day to throw away that much money.
The only explanation would seem to be the Rubino's Theory: If your eyes get too big, if you're plodding along doing just fine but you can't stop grasping for even more, you're begging for trouble. You're like a gambler in Las Vegas who can't walk away from his winnings -- eventually, the table is going to turn against you.
Too simple? Perhaps. But how else to explain it? The top-shelf companies that make
up AOL Time Warner -- companies that were incredibly valuable on their own, before
they mutated -- lose $54.2 billion. Rubino's, on the other hand, remains on solid
financial footing. They just bought new lights and wires for their