The King of Content Page 15
Biondi’s friends were aghast at the move. “Everybody said, ‘Don’t do it. He’s a nasty man,’” Biondi recalled. One person he’d asked for advice had a relative who had been gravely injured in the Copley Plaza fire and sent to Massachusetts General Hospital, where they had overheard screaming among the family members in Sumner’s room. Other industry colleagues simply warned him to watch his back.
But the laid-back Biondi wasn’t worried about working for a big personality, and he was quietly confident he knew what to do with Viacom, having competed against its various assets for years. His first order of business was to get rid of a layer of the corporate old guard. A few were spared, including Tom Dooley, a young finance executive that Terry Elkes’s number two, Ken Gorman, had mentored. Biondi also quickly elevated Tom Freston to president and chief executive of the MTV Networks unit, telling him over breakfast at the Dorset Hotel that he was giving him a three-year deal and a $250,000 salary. “It seemed like an obscene amount of money,” Freston recalled. Best of all, from Freston’s perspective, Biondi told him to get rid of his copresident. Freston’s early loyalty to Sumner was rewarded.
But in general, Sumner did not get involved in operations. He attended the division heads’ regular Tuesday morning meeting but rarely spoke up. “He would sit there for hours and not say a thing,” Freston said. “He could tell you the number of tiles in the bathrooms at any one of his theaters, but he really knew nothing about the cable business, or pay-TV business,” Biondi said. “He said, ‘All I want to do is be involved in deals.’” Nevertheless, he was determined to learn, even if that meant asking “stupid” questions. That first summer, he’d often call Henry Schleiff into his office and grill him on the basics of the industry: Why do people advertise on television? What’s CPM (the industry acronym for the cost per one thousand advertising impressions)? Why is that the measure? How do you know people are influenced by it? “As you gave the answers, you gave the given wisdom, but because he pressed like a good lawyer, you began to question the given wisdom,” Schleiff said. He began to think of it as Sumner’s “Columbo” routine, feigning ignorance to draw out truth. “He even had the raincoat.”
In the beginning, Sumner’s Viacom—which he had renamed VIE-uh-com during the first board meeting, in a nod to his fighting spirit—couldn’t take a lot of chances with $2.5 billion of debt hanging over its head. The banks wanted them to sell assets, preferably MTV or Showtime. But Sumner was committed to content and blessed with luck. Chuck Dolan, the founder of Cablevision Systems Corporation, was so hungry for Viacom’s cable systems on Long Island and suburban Cleveland that he agreed to pay an eye-popping $550 million for them. On top of that, reruns of The Cosby Show ended up fetching far more in the marketplace—a record $515 million—than the previous management had expected.7 Combined with some debt refinancing, these moves gave Viacom breathing room without having to sacrifice core assets.
Meanwhile, the strategic heart of Viacom, MTV Networks, was just beginning to hit its stride. Although the channels were “barely profitable” when Biondi took over and Nickelodeon had only just started to take advertising, “it was pretty clear those were incredibly hot channels,” Biondi said. Once Freston finished staffing the unit, it began to grow at between 25 percent and 30 percent a year. The group had strong management, willing to take creative risks on projects like the addictively demented original animation series Ren and Stimpy, but it also had massive macroeconomic tailwinds. “From 1987 to 2010, basic cable networks were the best business in the U.S. media landscape,” Biondi said.
Altogether, these moves meant Sumner was richly and quickly rewarded for his great gamble. A little over a year after taking over Viacom, the 83 percent stake that National Amusements had paid $420 million for had almost tripled in value to $1.25 billion, thanks to the surge in Viacom’s stock price.8 The company was still operating at a loss, due to debt servicing, but revenues were up and Wall Street clearly believed the company had a bright future.9 For the first time, Sumner joined fellow newbies Donald Trump and Rupert Murdoch in Forbes’s elite billionaires club with estimated assets of $1.4 billion.10 The Boston Globe figured the Redstones were now the richest family in Boston.11 By 1989, Forbes pegged him as the third-richest man in America. “What happened is that we risked our lives in Viacom, and it quintupled in two years,” Sumner told the Boston Globe. “But it’s all funny money. I work harder than ever, 16, 18 hours a day, and I live in the same house in Newton that I bought 35 years ago.”12
It was around this time that Sumner latched on to the catchphrase he would use for decades to explain his strategy and his success: “content is king.” Against the backdrop of the growing power of John Malone, the feared “cable cowboy” who had built Tele-Communications Inc., or TCI, into the biggest cable company in the country, Sumner wanted to deliver a pep talk to the Viacom employees about why they were on the right side of the battle between content and distribution. Tom Dooley, the young finance executive with the gift of gab who had quickly become one of Sumner’s most trusted advisers, suggested he tell the troops that “content is king,” meaning the creative product (or, as they call it today, intellectual property) will always have the upper hand in negotiations over distribution platforms. Sumner quickly made it a permanent part of his stump speech.
More than just the fantastic wealth, Viacom brought Sumner the political relevance he had always craved. During the 1992 presidential election, MTV tried its hand at politics for the first time as part of its “Choose or Lose” campaign, which combined nonpartisan get-out-the-vote public service announcements by the likes of Aerosmith with political news coverage led by twenty-five-year-old Tabitha Soren. The real get, though, was coaxing then governor Bill Clinton onto the channel to answer young people’s questions. This was accomplished by former Warner-Amex executive Ken Lerer’s PR firm, Robinson, Lake, Lerer & Montgomery, which had been working more or less continuously for MTV almost since its inception. Lerer provided corporate strategy advice to the suits in New York but tapped a young PR journeyman in the firm’s Washington office named Mike McCurry to woo Clinton and the other candidates onto MTV’s airwaves. “Clinton was doing these forthright, bite-the-lower-lip answers,” McCurry said. “He was pretty good at it.” More young people turned out to vote in 1992 than in any other election of the past two decades, helping put Clinton in the White House. MTV threw a massive inaugural ball—hosted, somewhat controversially, by Freston and Lerer—and the Clintons stopped by. Over deafening screams, President Clinton shouted his thanks. “I think everybody here knows that MTV had a lot to do with a Clinton-Gore victory.”13
* * *
And yet, for all the wealth and power, something was missing. Ever since his teenage years selling popcorn at his father’s drive-ins, Sumner had been enamored of the movies and would never truly be happy until he owned the means of making them. Even amid the glow of his victory in the Viacom takeover, he told his fellow exhibitors that “it’s the motion picture industry and the world of motion picture entertainment that captured my heart some decades ago, and that love affair will never end.”14 The instant that Viacom’s corset of debt loosened enough to breathe, he began saying it all over town: “The only thing we lack is a studio.”15
In many ways, it was the most natural thing in the world. Hollywood was built by exhibitors, a cadre of largely Eastern European Jewish immigrants like Adolph Zukor, Louis Mayer, Carl Laemmle, the Warner brothers, and William Fox who in the early years of the twentieth century climbed from the fur and garment trades to owning nickelodeons and projecting films to founding Paramount Pictures, Metro-Goldwyn-Mayer, Universal Pictures, Warner Bros., and Twentieth Century Fox.16 In the model of these original movie moguls, exhibition was merely a rung on a ladder to controlling intellectual property. The Supreme Court’s Paramount decision kicked down this ladder, and for more than a generation, exhibitors stayed in their place. But just as he was making his move on Viacom, the Reagan-era Justice Department, with its lax appr
oach to antitrust matters, was beginning to openly question the relevance of the Paramount-era consent decrees amid the rise of home videos and cable television. “From our standpoint, the decrees have outlived their usefulness,” Charles F. Rule, the assistant attorney general in charge of the antitrust division, told the New York Times in 1987, as Hollywood studios began buying up movie theater chains. “Vertical integration does not necessarily have any anti-competitive effect.”17
Indeed, vertical integration was increasingly seen as imperative. In 1989, Time Inc., the publisher of Time, People, and Fortune magazines as well as the owner of HBO, agreed to merge with Warner Communications Inc., the parent of Warner Bros. studio and Warner Music, to create the largest media and entertainment company in the world. The deal was presented as largely defensive, a way of finding equal footing with global giants like the German conglomerate Bertelsmann, Sony Corp. (which had recently bought CBS Records and Columbia Pictures), and Rupert Murdoch’s News Corp.18 “There will emerge on a worldwide basis, six, seven, eight vertically integrated entertainment conglomerates,” Time Inc. president N. J. (Nick) Nicholas Jr. told the Sunday Times of London. “At least one will be Japanese, probably two. We think two will be European. There will be a couple of American-led enterprises, and we think Time is going to be one.”19 Very soon afterward, reporters started asking Sumner where Viacom fit on this consolidating chessboard.20
From the moment he seized Viacom, Sumner had had his eye on Paramount Pictures, the studio he had been closest to as an exhibitor.21 Paramount was not just the last major Hollywood studio not snapped up by some global conglomerate; it was in some ways the most intact vestige of the old Hollywood that Sumner had first fallen in love with.22 Paramount had been the first truly dominant Hollywood studio, as its father, Adolph Zukor, had invented the much-mimicked business model that turned the American movie industry into an economic powerhouse.
A Hungarian immigrant born in 1873 and orphaned by the age of eight, Zukor had made his first fortune selling furs before getting into the penny arcades that showed early motion picture travelogues shortly after the turn of the century. He soon realized that longer, more coherent films would be required to popularize the medium, and he set about procuring filmed versions of stage plays. In 1912, he and his partners formed the Famous Players Film Company, which he then merged with a competitor and a distributor named Paramount and took over. Zukor quickly built his dominance by signing rich, exclusive contracts with stars like Mary Pickford—represented by the arch of stars over the mountain in the Paramount logo—and amortizing his costs over a vast international distribution system.
By 1921, Paramount was the largest maker and distributor of films in the world, producing commercially successful epics like Cecil B. DeMille’s The Ten Commandments in 1923 and winning the first-ever Oscar for Best Picture for Wings in 1929. Within a decade, after a buying spree of deluxe movie palaces, it would also own the largest theater chain in the United States. Toward the end of the 1920s, Zukor erected a monument to this achievement in Times Square, its crowning clock tower encircled in the same stars that surround the mountain in the Paramount logo. He maintained an office on the top floor of the Paramount Building—today best known for the Hard Rock Cafe on the ground floor—until his death in 1976 at the age of 103.23
Luckily for Sumner, he had an in at Paramount that few could rival. Back in 1965, when he had helped Paramount beat back a hostile takeover from corporate raider Herb Siegel, he had been invited to do so by a young marketing executive named Martin Davis. Together, they had helped deliver Paramount into the hands of Charles Bluhdorn’s Gulf + Western, and they had stayed in touch ever since. Davis, a thin, fierce Bronx native who never finished college and came up through movie publicity, became Bluhdorn’s right-hand man, and when the fifty-six-year-old Bluhdorn died suddenly of a heart attack aboard his private jet in 1983, Davis ascended to his throne. Davis then set about unmaking the multibillion-dollar hodgepodge that Bluhdorn had assembled, slimming down Gulf + Western into a media company consisting of the Paramount film studio, a television division that made shows like Cheers and Star Trek: The Next Generation, Simon & Schuster, Madison Square Garden, the New York Knicks and New York Rangers, a handful of television stations, and some theaters and theme parks.24 When he was done, he renamed it Paramount Communications.
But despite renaming the company he ran after a Hollywood studio, Davis was not beloved by Hollywood. When Bluhdorn died, Davis inherited one of the most legendary studio management teams in Hollywood history: Barry Diller, chairman and chief executive; Michael Eisner, president and chief executive; and Jeffrey Katzenberg, head of production. Together, Diller and the “Killer Dillers” he mentored were responsible for one of the studio’s most successful periods, with films like Beverly Hills Cop, Saturday Night Fever, and Raiders of the Lost Ark. But Davis had little tolerance for the way successful executives had been treated at Paramount. “He was acting like the goddamn protected species at the company,” Davis, who died in 1999, told Vanity Fair of Diller. “I was sick of it.” Diller left to go run Fox, and Eisner and Katzenberg left for the top two jobs at Disney. These men have many friends in the industry and went on to great success; Davis earned a reputation as a cold, heartless New York suit.25 “He was a distasteful man,” Diller said.
Davis knew that the slimmed-down Paramount was vulnerable to a takeover, and he spent much of the late ’80s and early ’90s holding talks with a dizzying array of merger partners, from Sony to Gannett to AT&T, hoping to eat before he was eaten.26 Sumner and Davis held some preliminary talks in 1989 brokered by Herb Allen of the media bankers Allen & Company, but at that point Davis was not ready to give up control. The picture had shifted by early 1993, however. The studio had suffered a series of flops and lost market share over the previous five years, weakening Davis’s negotiating leverage.27 Worse still, there were rumors that Davis’s nemesis, Diller, was plotting a run at the company.
Smelling blood, Sumner summoned Dauman, his deal-making consigliere, from his partner’s perch at Shearman & Sterling and offered him a job in-house as Viacom’s senior vice president and general counsel. Dauman had been rewarded for his help in the Viacom takeover with a seat on the board but had remained at the law firm in the intervening years, serving as Sumner’s personal lawyer on his estate planning, executor of his will, and even trustee of his family trusts. Dauman had been part of earlier rounds of secret talks between Sumner and Davis over the years that not even Biondi knew about—Sumner felt Biondi had “loose lips” and was a poor negotiator—and Sumner trusted Dauman implicitly. By February 1993, he had his own office near Sumner’s on the fifty-second floor of Viacom’s Times Square headquarters. Another war room was taking shape.
The next time an investment banker came knocking, offering to play matchmaker between Sumner and Davis, Sumner was ready. This time it wasn’t Herb Allen but Robert Greenhill, president of Morgan Stanley, who had gotten to know Sumner by inviting him to a tennis camp in Carmel, California, a few years before.28 In April 1993, Sumner and Dauman meticulously prepared for the dinner, making a plan that Sumner would not bring up price, only the question of control. As Sumner and Davis settled in for their leisurely meal in the private dining room of Morgan Stanley, Sumner was surprised to find that Davis had already made up his mind to hand over control.29 Davis had calculated that it was better to give up control to someone he trusted than to risk a hostile attack from someone he didn’t. Paramount was slightly larger than Viacom, with a market capitalization of $6.8 billion, compared to Viacom’s value of $5.2 billion once its massive debt was taken into account.30 But Davis was not a significant owner of Paramount, while Sumner owned almost all of Viacom. In a merged company, Sumner would still keep control. At the dinner, they agreed that Viacom would control the board, Davis would keep his role as CEO, and the merged company—in a nod to Paramount’s superior brand, if not superior economics—would be called Paramount Viacom International.
From
that evening onward, Dauman took the lead in the negotiations with Davis’s number two, Donald Oresman.31 The secret haggling stretched on for months, with Viacom unable to justify offering much over $60 a share and Davis insisting on an offer “with a seven.” Eventually, Sumner got up to $69.14 a share, within spitting distance of the “seven” that Davis craved. To seal the deal, Sumner invited Davis to dine with him and Phyllis at his apartment at the Carlyle. “You know, Sumner,” Davis said, surveying the view of the city from the Carlyle, according to Sumner’s autobiography, “when this deal gets done, they’ll build a big statue of you in the middle of Central Park and I’ll be forgotten.” “No, Martin,” Sumner replied, “they’ll build statues of both of us and I will be looking up to you in admiration.”32
At seven forty-five a.m. on Sunday morning, September 12, 1993, Sumner walked up to the Midtown Manhattan headquarters of Shearman & Sterling, where his board was meeting to approve the Paramount deal. The off-site location had been selected to preserve the secrecy of the talks, but as Sumner approached, he ran into the New York Times’s lead reporter on the media beat, Geraldine Fabrikant, and happily submitted to an interview. “I feel great,” he gushed. “Tired but great.” As the hour for voting approached, the board members inside were getting restless, and Dauman dispatched his deputy, Michael Fricklas, to track down Sumner. Fricklas found him, posing for the Times’s photographer, in no hurry to wind up his interview. “I don’t think they are going to start without me,” he told Fricklas.33 The deal was announced that day. It was almost too easy.