: : Article
ANNALS OF COMMUNICATIONS
REDSTONE’S SECRET WEAPON
Who is Frank Biondi? Viacom’s president and C.E.O. is
nowhere near as visible as Sumner Redstone, his boss, but Biondi is the one
who “makes the numbers,” and last year those numbers got Paramount and Blockbuster
for Viacom. Now Redstone and Biondi want Viacom to become the Microsoft of the
entertainment world.
By KEN AULETTA
Eleven of twelve invited executives took
seats at a conference table at the headquarters of Viacom, in Manhattan, one
day in late November. Frank J. Biondi, Jr., Viacom’s chief executive officer,
sat alone at the head of the table. An empty seat to his left was reserved for
Sumner M. Redstone, the chairman and majority owner of Viacom, which is the
world’s second-largest media and entertainment company. Biondi picked up a phone
at his elbow and dialed. “Harriet, it’s Frank,” he said. “Is Elvis in the building?”
As the question suggested, Redstone, who is seventy-one
years old, has become a business luminary. In fact, his prominence has all but
obscured Biondi. An investment banker who has worked for Viacom describes Biondi
as “a battered wife,” a smart cipher. Others speak of him as being tough. Those
who have dealt with him know that he is intelligent, knowledgeable, and attractively
modest, and makes terrific corporate presentations. Yet his role remains somewhat
mysterious, because he travels just beneath the public radar.
Biondi has never been the subject of an article in a major
publication. Last October, Vanity Fair ran a photograph of the media
executives who attended the annual Sun Valley Conference, held by the investment
banker Herbert A. Allen in July. Both Redstone and Biondi were at the conference;
Redstone was in the picture, Biondi was not. Nor did Biondi make Entertainment
Weekly’s 1994 honor roll of the hundred and one most powerful figures
in the entertainment business, even though several people who work for him did.
The billionaire Redstone, who transformed a small collection of movie theatres
into the country’s biggest privately owned theatre chain, and who bought Viacom
in 1987, was in second place on that list, after Rupert Murdoch, the chairman
and C.E.O. of the News Corporation, which owns, among other properties, Twentieth
Century Fox.
Casual observers might mistake Biondi, who is fifty, for
an accountant. He has a handsome face and is relatively trim, but he wears boxy
navy-blue suits, white shirts, sedate ties, and wire-framed eyeglasses. His
hair is short and parted precisely. “I’m C.E.O., but if you read the press I
don’t exist,” Biondi told me, in a stoic, matter-of-fact way. “Sumner is the
embodiment of this place.” Was this fact sometimes frustrating for him? “Sure,”
he responded. “It’s not his fault. It just works out that way.”
Over two months recently, I attended board meetings, budget
summits, and strategy sessions, observed Biondi and Redstone at work in their
offices, and came and went at will at the various companies that Viacom controls.
Redstone bought Viacom, but Biondi is the one who has built it. It is Biondi
to whom other Viacom executives come for day-to-day decisions, Biondi who tells
them when they have strayed from their budget plan, Biondi who fires people,
and Biondi who presides over the monthly meetings of the company’s key managers.
In the entertainment business, where the clash between the creative people and
the business side is often intense, and those who actually make products complain
about “the suits” from New York who crunch numbers, Biondi is the proverbial
suit.
Last October, at a weekly luncheon meeting attended by the
top four Viacom officials—Redstone; Biondi; Thomas E. Dooley, the executive
vice-president who oversees finances, corporate development, and corporate communications;
and Philippe P. Dauman, the executive vice-president, general counsel, and chief
administrative officer—Biondi demonstrated his skill at maneuvering Redstone
away from a course of action that he thought to be ill-advised. At one point,
Redstone said, “You know who’s called a couple of times to get together in California
is Ovitz.” Michael Ovitz, the head of the Creative Artists Agency, had offered
to have a party for Redstone and Biondi and their team during a trip to California
the week of November 7th, for strategy and budget reviews at Paramount, which
Viacom had recently acquired. But Jonathan L. Dolgen, whom Biondi and Redstone
had recruited in March to serve as chairman of Viacom’s Entertainment Group,
and oversee movie and television production at Paramount, had reservations about
the idea. He did not think a party was necessary, but if there was to be one
he felt it would be more appropriate if he were the host.
“Jon is dead set against it,” Biondi said. “He doesn’t want
us brokered by Ovitz.”
Tom Dooley, who, though he is only thirty-eight, has worked
at Viacom since 1980 and is now the de-facto chief operating officer, said the
company should defer to Dolgen’s wishes.
“I don’t like to be restricted,” Redstone said. “Ovitz is
a friend.”
In California a week later, Redstone went along with Biondi,
and had breakfast alone with Ovitz instead of Ovitz’s giving a party. Biondi
had quietly got his way, avoiding a confrontation with Redstone and Ovitz.
The company that Biondi supervises has branches in almost
every area of entertainment, including movie and television production (Paramount
Pictures and Paramount Television); music programming (MTV and VH1); children’s
television programming (Nickelodeon); pay TV (Showtime, the Movie Channel);
books and CD-ROMs (Simon & Schuster). It owns the world’s dominant video-store
chain and one of the world’s busiest music retailers (Blockbuster), and five
regional theme parks. It owns twelve television stations and fourteen radio
stations. Its cable systems have a million one hundred thousand subscribers.
It has a seventy-eight-per-cent interest in the Spelling Entertainment Group,
whose head, Aaron Spelling, is the most prolific television producer in Hollywood.
It owns fifty per cent of the All News Channel and the USA Network and fifty
per cent of the Comedy Central channel. Viacom is the largest single customer
of the Hollywood studios (through Blockbuster, Showtime, and the Movie Channel)
and of the record companies (through MTV and Blockbuster). It has joint ventures
with several other companies, and this month it is launching, with Chris-Craft,
a new TV network. Through Viacom Interactive Media, it is also involved with
the development and distribution of interactive-television programming, video
games, and on-line computer services. And it owns a library containing a total
of fifty thousand hours of TV programs and feature films.
What Viacom hopes to be, apparently, is the Microsoft of
the entertainment business—in effect, the essential software provider for every
distributor. Viacom executives assume that desirable software can create its
own distribution system, and they are planning to use Blockbuster’s distribution
system to gain an advantage. Last fall, Blockbuster had nearly four thousand
video stores and more than five hundred music stores to provide shelf space
for Viacom products. Blockbuster’s forceful president and C.E.O., Steven R.
Berrard, told an October meeting of employees from all the Viacom divisions
how they could favor Viacom products. He said that he envisioned giving preferential,
eye-level shelf space to movies from Paramount and to CD-ROMs and books from
Simon & Schuster. Or Blockbuster, with a database of fifty million customers,
could use this database to send a mailing to those who might like a certain
Paramount film, and offer them a discount on video rentals if they produced
a ticket stub to prove that they had seen the film. Or, in another area, Berrard
said, it might offer ten free video rentals to new Showtime subscribers.
Viacom even seems to make Redstone’s old nemesis John Malone,
of Tele-Communications, Inc., envious. On October 28th, at an outdoor cocktail
party at Bear, Stearns’ eighth annual media and communications conference, at
the Boca Raton Resort & Club, in Florida, the two men ran into each other.
Redstone was standing near the swimming pool when Malone appeared and said,
“Sumner, when are you going to sell me your cable systems?” Both men smiled,
knowing that their agents were negotiating for Malone’s T.C.I. and a minority-controlled
cable group to buy Redstone’s cable systems. Both knew that the sale would go
through—when federal regulatory agencies, which Redstone had done much to steam
up with a 1993 lawsuit claiming that Malone was a monopolist, cooled down.
“You’re in the right business, Sumner,” Malone said, referring
to Viacom’s concentration on owning content rather than the means of distributing
that content. “You can’t keep up with technology, it’s moving so fast.” In the
past year, Malone and other distributors have lost clout as telephone companies
and direct-broadcast satellite dishes and wireless technologies and Blockbuster
and computers have paved new roads to consumers. Programmers like Viacom gain
by pitting distributors against one another. “One of your good dreams is to
have a bidding war break out for your programming services,” Biondi says. “That’s
why—with more than one wire into the home, and more than three networks, and
more business overseas—we decided to concentrate on being a programming business.”
Frank Biondi
grew up in a strict Catholic home in Livingston, New Jersey. He attended Princeton
and then the Harvard Business School, receiving his M.B.A. in 1968. With no
particular career in mind, over the next four years he worked at various Wall
Street brokerage firms, set up a financial-consulting firm, and then went to
Europe for five months. In late 1972, he went to work for one of the early cable
franchises, TelePrompTer, in New York, as director of business analysis. There
he met Carol Oughton, who worked in the franchising department. She was as outgoing
as he was private. If Biondi had any interest in Oughton at first, he concealed
it well. He was all business for six months, and then one night she was working
late and he wandered by and they started talking, and he asked her if she’d
like to get a hamburger. “Neither one of us ever went out with anyone else again,”
she recalls. In November of 1973, Biondi proposed, without fuss or flowers.
“It wasn’t down on one knee,” Carol recalls. “It was matter-of-fact.” They were
married at the Episcopal church in Dwight, Illinois, Carol’s home town, in March
of 1974. Carol Biondi could not dispel her husband’s shyness, but she could
temper it. Biondi’s brother Michael, who is twelve years younger than Frank,
observes, “Frank’s marriage to Carol opened Frank up. He’s much more social.
He has been much more comfortable with people.”
Carol introduced Biondi to Michael Fuchs, a young attorney
in the business-affairs office of the William Morris talent agency, and the
two became close friends. Fuchs was dating Carol’s best friend. “We went everywhere
together,” Fuchs recalls of the Biondis. When the friend and Fuchs split up,
he and Frank and Carol remained close. Fuchs also helped alleviate Biondi’s
shyness. “If Fuchs and I went into a room, he would go and meet everyone,” Biondi
remembers. When the Biondis bought a house in Riverdale, in 1974, Fuchs came
up to play tennis nearly every weekend. He is the godfather of their second
daughter, Jane, who was born in 1978. When the Biondis got a black Labrador,
in 1981, it was named Mickey, after Uncle Mickey, which is what Jane and her
sister, Anne, who is two and a half years older, still call Fuchs.
Fuchs was responsible for the second chapter of Biondi’s
business life. In 1973, Biondi had left TelePrompTer and started a consulting
firm, focussing on the nascent cable-TV industry. A year later, he joined the
Children’s Television Workshop, where he was assistant treasurer and associate
director of business affairs. In 1976, Fuchs left William Morris to join HBO,
which was owned by Time, Inc. Eighteen months later, he was elevated to vice-president
of special programming and sports, and he hired Biondi to direct the program-planning
department. Fuchs recalls that soon after Biondi came to HBO he asked him how
he liked his job. “Well, I’m used to a job where there are answers,” Biondi
said. “This is a job with no answers.”
Within a year, Biondi was promoted to vice-president for
programming operations. He continued to report to Fuchs, who in turn reported
to the president of HBO. The pay-cable service was taking off, partly because
of deals that Biondi negotiated with studios like Columbia and Orion, which
gave HBO exclusive pay-cable rights to their movies, in return for HBO’s underwriting
a substantial portion of the production costs. By the early eighties, HBO was
spending some two hundred and fifty million dollars a year to finance Hollywood
movies.
In 1982, to cope with expansion, HBO reorganized itself into
three basic divisions, and Biondi, Fuchs, and Winston H. (Tony) Cox, who was
the senior vice-president in charge of sales and marketing, were made coequal
executive vice-presidents. Fuchs would oversee programming, Biondi would run
operations and finance, and Cox would supervise sales and marketing. For the
first time in Biondi’s career at HBO, there were tensions between him and Fuchs.
Looking back, Biondi believes that Fuchs resented his being made an equal. “It
was really a good partnership,” he says. “The thing that disappoints me most
is that I viewed our friendship as one that wasn’t based on a business relationship.
I worked for him for three years out of six. The relationship changed when I
became a reporting equal.” Fuchs, however, denies that he resented Biondi’s
equal status.
In February of 1983, Biondi was promoted to chief executive
officer, and the fraying of his friendship with Fuchs accelerated. As he recalls,
“Michael was nuclear” about the promotion. Fuchs says that he had no problem
with the promotion itself but admits that he had a psychological adjustment
to make. “I had been big brother,” he says. “Now the roles were reversed. It
was hard.” What was harder, he says, was the change that came over his friend.
Within forty-eight hours of Biondi’s promotion, Fuchs says, “it wasn’t a partnership
anymore.”
Biondi enjoyed successes at HBO, but he also incurred losses,
and he came into conflict over them with Nicholas B. Nicholas, who had recently
replaced Gerald Levin as chief of Time’s video operations. The conflict was
intensified by a downturn in the pay-television business, that coincided with
Biondi’s tenure as C.E.O.
Then, one day in October of 1984, Biondi came home and announced
to Carol, “I’ve been fired. Nicholas told me, ‘You’re a square peg in a round
hole.’ ” Nicholas, who today praises Biondi for bringing “a laserlike focus”
to Viacom, says, “I’m not going to tell you, in retrospect, that it was the
right thing to fire him.” He says that one reason he made the change was that
Biondi and Fuchs and Cox “were fighting like three brothers competing with one
another.” Even after he told them to stop, “it didn’t stop,” he says. “So I
changed the team.” There may have been another factor: Fuchs was complaining.
“I made no secret of the fact that I didn’t like the way the company was being
run,” Fuchs says. Time, Inc., issued a press release saying that Fuchs would
replace Biondi. The friendship was broken.
Biondi was shaken. But in January of 1985 Fay Vincent, who
was then running Coca-Cola’s Entertainment Business Sector, which included Columbia
Pictures and Columbia Television, opened the third chapter of Biondi’s business
life, hiring him as executive vice-president of the Entertainment Business Sector.
Over the next two years, the TV division accounted for all the Entertainment
Business Sector profits, partly as a result of two big deals that Biondi made—for
Norman Lear and Jerry Perenchio’s Embassy Communications and for Merv Griffin’s
production company.
In November of 1986, Biondi was promoted to chairman and
C.E.O. of Coca-Cola Television, and soon thereafter the Biondis sold their house
in Riverdale, planning to move to Beverly Hills. Before they left, various friends
and neighbors wanted to give farewell parties for them. Henry S. Schleiff, a
close friend, whom Biondi had recruited, and who ran business affairs at HBO,
arranged a party at his apartment, in Manhattan. Carol thought that Michael
Fuchs should be invited, and, as a friendly gesture, Fuchs said that HBO would
pay for the party.
Enter Sumner Redstone, who would initiate
the fourth chapter of Biondi’s business life. Redstone grew up in Dedham, Massachusetts.
His father managed a handful of drive-in movie theatres in the area. Sumner
attended the Boston Latin School and excelled academically, graduating first
in his class. He breezed through Harvard in two and a half years, and his fluent
knowledge of Japanese and near-photographic memory brought him to the attention
of a clandestine group of the War Department’s Military Intelligence Division,
which was trying to break the Japanese code. After the Second World War, he
earned a degree from Harvard Law School and served as a clerk on the United
States Court of Appeals, and in 1948 he joined the Truman Administration’s Justice
Department as a special assistant to the Attorney General in the tax division.
Then, as now, he called himself a liberal Democrat. Then, as now, he loved litigating;
when he left government, he joined a law firm in Washington, and he spent the
next three years there.
In 1954, Redstone left the law firm to join his father’s
company, National Amusements. His litigating skills came in handy, for theatre
owners are in a constant battle with Hollywood studios over the movies they
get and what percentage of ticket sales they may keep. (The split ranges between
thirty-five and seventy per cent and averages about fifty per cent.) Redstone
turned to lawsuits on more than one occasion. He also became known as a manager
who would yell at executives when he was dissatisfied. He was a loner. He had
no business heroes, then or now, he says. He proved to be a superb and tough
entrepreneur, and became a pioneer in multiplex cinemas. By the beginning of
this year, the company owned more than nine hundred theatres, and had become
the country’s preeminent privately owned chain. Phyllis Redstone, who met him
when she was in high school and married him in 1947, says, “He was always competitive.”
Redstone’s strong will served him well in 1979, when he suffered
a horrific accident. To escape from a fire in a Boston hotel, he climbed out
a third-floor window and clung by his fingertips from a ledge. Although his
body was engulfed in flames, he did not let go. When he was rescued, after ten
minutes, the prognosis was that he would not live. He later underwent sixty
hours of skin grafts. While friends say that Redstone is constantly in pain,
the sole visible reminder of the fire is his right hand, which is bright purple-red,
with three gnarled, nail-less fingers.
With the advent of pay TV and the videocassette recorder,
Redstone realized that growth in the theatre business would level off, so he
began to invest in movie studios. At one point, he owned five per cent of Twentieth
Century Fox, nearly ten per cent of Columbia Pictures, and eight per cent of
MGM Home Entertainment. He subsequently sold these shares for a handsome profit.
In 1985, he began investing in Viacom, a cable- and media-programming company
that had been formed in 1971 after the government forced CBS to divest itself
of its syndicated programming holdings. Redstone found Viacom alluring, and
watched intently as it grew—forming pay-TV services to rival HBO; branching
into broadcast and radio stations; buying MTV Networks and Nickelodeon from
Warner. In September of 1986, an investment group led by Viacom’s management,
which was worried about a takeover—by, among other possibilities, Redstone—proposed
to take the company private, in a two-billion-seven-hundred-million-dollar leveraged
buyout. Redstone, enraged at what he considered an insider’s price for the stock,
launched a bidding war.
The bidding spiralled upward, and Redstone sensed a deal
between Viacom’s board and its management to deny him victory even though he
was offering shareholders a better price. He wrote to Allan R. Johnson, the
chairman of the Special Committee of Viacom’s board of directors, threatening
litigation. He says he told Johnson, “I want you to know there is not enough
money in the world to indemnify you from the suit I will bring.” Johnson called
Redstone the next day and assured him that the bidding process would be fair
and open. On March 4, 1987, the board announced that Redstone had bought Viacom
for three billion four hundred million dollars.
Redstone, searching for an experienced C.E.O., called his
friends in the entertainment business, including Barry Diller, of Fox, and Lew
Wasserman and Sidney Sheinberg, of MCA. Many of those he consulted told him
that the ideal candidate had just accepted a promotion and was in the process
of relocating his family to the West Coast. Redstone called Fay Vincent and
asked for permission to talk to Biondi.
On a Friday evening in July, Redstone phoned Biondi. The
two had a three-hour breakfast meeting the next morning, and that weekend a
memo outlining the terms of a proposed agreement was drafted by Philippe Dauman,
who at the time was at Shearman & Sterling, and was Redstone’s attorney.
It was on Biondi’s desk Monday morning. Redstone offered Biondi a five-year
contract, starting at six hundred thousand dollars a year, and stock that Redstone
assured him would be worth at least fifteen million dollars in five years. A
major impediment stood in the way of Biondi’s accepting the offer: Could he
be sure that Redstone would not interfere with him? “Everybody I knew who knew
him said that he was impossible to work with,” Biondi says. But finally Biondi
decided to accept. “I’m fairly flexible in being able to work with people,”
he says.
Now Biondi had to tell Henry Schleiff to cancel his going-away
party. No, Schleiff said. “We’ll have the party to celebrate your staying in
New York.”
Michael Fuchs phoned from California and told Schleiff he
had heard that Biondi was staying in New York to run the company that owned
Showtime, HBO’s chief competitor. There was no way that he would fly across
the country on a weekend to attend a party for a competitor, Fuchs said. Eventually,
however, he agreed to do so.
The party was, by most accounts, a success, but it added
to the friction between Biondi and Fuchs. As soon as Fuchs arrived, Biondi recalls,
he pulled Schleiff aside for what appeared to be an animated discussion. Although
Biondi didn’t know at the time that HBO was covering the costs of the party,
he now says, “Michael was upset that he was paying for the party and I was not
leaving. Two, he’s giving a party for a guy who’s becoming a competitor. And,
third, I would probably convince Henry to leave HBO.”
Fuchs confirms that he wasincensed. “I made a gesture. I
told Henry HBO would pay for the party,” he says. “And that night Frank offered
Henry a job. Henry was one of my closest associates. I thought the timing was
rather inappropriate.” Although Biondi denies that he had yet spoken to Schleiff,
Fuchs had reason to feel aggrieved. Viacom had recently started conversations
with Tony Cox, who was leaving HBO, about running Showtime, and soon Schleiff
did leave HBO, to become chairman and C.E.O. of Viacom’s entertainment and broadcast
groups.
In his first few months at Viacom, Biondi fired a top layer
of managers. He also worked to open the lines of communication, because he realized,
he says, “that no one knew anyone else.” Mark M. Weinstein, who was then a senior
vice-president and general counsel and today is senior vice-president for government
affairs, says, “For the first time, Frank brought together the top twenty-five
or so managers. He got everyone together to understand one another’s business.
He ran the company in a very collegial manner, with weekly executive-committee
meetings of those who reported to him.” He wanted people to operate freely,
as long as they met their budget goals and did not hit him with surprises. Geraldine
Laybourne, Nickelodeon’s president, says, “Even though I didn’t own Nickelodeon,
I felt as if I did.”
Viacom had some financial problems at first. In 1988, the
company reported a net loss of a hundred and eighty-nine million dollars. Its
debt burden—two billion three hundred million dollars—was steep. Redstone, having
bet the store to win Viacom, now acted conservatively. “In some respects, business
is not a game in which you hit nine hundred,” Biondi says. “If seven out of
ten decisions are good, you’re probably not taking enough chances. At Viacom,
because of the debt, we did not have the luxury of taking risks.”
The company did make a few good, inexpensive deals, but luck
was also a factor. In 1988, the year after Redstone and Biondi arrived, Viacom
sold the rerun-syndication rights to “The Cosby Show” for five hundred and fifteen
million dollars, the highest gross in the history of TV syndication. Redstone’s
litigiousness also helped, particularly when it was aimed at Michael Fuchs and
Time, Inc., which would merge with Warner Communications in July of 1989. In
May of that year, Viacom filed a two-billion-four-hundred-million-dollar antitrust
action against HBO, its parent, Time, Inc., and a Time-affiliated cable company,
claiming that by making exclusive movie deals with several major Hollywood studios
HBO was denying movies to subscribers to Showtime and the Movie Channel, and
that Time would not allow its cable systems to carry Showtime or the Movie Channel.
At first, Biondi and other Viacom executives resisted the
idea of bringing an embarrassing lawsuit. Redstone would not be deterred. “He
is an extremely tough negotiator,” Tom Dooley says. “Sumner is a guy who goes
for the last marble on the table. Frank doesn’t need the last marble. He has
a reputation in the community as a very fair person to deal with.” Another Viacom
executive described the difference this way: “Business for Sumner Redstone is
personal. Winning and losing is personal. That’s what being an entrepreneur
is all about. For us professional managers, it’s more an intellectual challenge.”
But Redstone knew that lawsuits—as had been true in National
Amusements’ battles with the Hollywood studios and in his fight with the Viacom
board—could bring adversaries to the bargaining table. By late 1989, the two
sides were already talking privately about a settlement, and had begun negotiations.
Meanwhile, in April of 1990 Viacom inaugurated a channel
called HA!, to compete with HBO’s Comedy Channel. Eight months later, the two
companies—which, by splitting the market, had both been losing money—agreed
to merge their comedy channels into a joint venture, now known as Comedy Central.
Fuchs had been Time Warner’s chief negotiator. The day after the agreement was
made, Biondi wrote to Time Warner’s chairman, Steve Ross:
Dear Steve,
Ordinarily, I would simply call to say it’s nice to have
part of our differences behind us and that we look forward to great success
in Comedy TV with HBO and Time Warner.
I would be remiss in not mentioning that this simply
could not have happened if it were not for Michael’s effort, which was bold
and thoughtful on a corporate and personal level.
There are two competing explanations for Biondi’s letter.
The first is that, as friends say, he is a generous man, who sees it as a mark
of maturity to be ecumenical. This interpretation seems to be supported by his
statement “The two most difficult things I had to learn in life were to deal
with losing and not to hold grudges.” The second explanation is that Biondi
was just being practical, and that cunning should not be confused with virtue.
This interpretation seems to be supported by his statement “I learned that what
goes around comes around. You treat people well, and though you may not see
them for nine, ten years, the next time you do they’ll feel good about doing
business with you.”
Two years later, the lawsuit was dropped, in return for a
complicated settlement that included a substantial cash award to Viacom.
By the end of 1993, Viacom’s revenues topped
two billion dollars; its consolidated earnings from operations were three hundred
and eighty-five million dollars and had grown for the sixth straight year. And
in 1993 MTV Networks alone had worldwide earnings from operations of two hundred
and seventy-three million dollars; since 1988, MTV’s revenues had climbed at
an average annual rate of twenty-five per cent.
In October of 1993, Forbes calculated the net worth
of Redstone, who owned eighty-three per cent of Viacom, at five billion six
hundred million dollars, making him one of the world’s wealthiest billionaires.
Still, Redstone felt that Viacom needed the film-and-TV-production capacity
and the library of a Hollywood studio. When it had those, he believed, his software
factory would be so potent that no distributor could deny it shelf space. To
that end, he was secretly courting Martin Davis, the chairman of Paramount Communications.
This heightened interest in a studio coincided with a desire to become more
active in running Viacom. After Rupert Murdoch announced, in 1992, that he was
moving to Los Angeles to be more active in Fox, Barry Diller, Fox’s chairman
and C.E.O., decided politely to leave the company. And when Jeffrey Katzenberg,
at Disney, pressed Disney’s chairman, Michael Eisner, for a bigger title and
a bigger job last year, and was spurned, he noisily left Disney. Biondi, however,
appeared to be unfazed by Redstone’s desire. “As Paramount became more of a
reality, three, four years ago, Sumner wanted to be more involved, and he said
so,” he recalls. “I said, ‘Fine. It’s your company.’ There are a few C.E.O.s
who have autonomy, but they are very few. The flip side of it is that it’s very
nice to have your shareholder sit next to you. I never came into this thinking,
It’s all mine. I’ve always reported to someone.”
In September of 1993, after protracted, unpublicized negotiations,
Redstone and Davis stood together on a platform in Viacom’s employee cafeteria
and announced a friendly merger. Redstone would be chairman and majority owner
of the enterprise, and Davis, not Biondi, would be Paramount’s C.E.O. Redstone
and Biondi suggest that this arrangement was a precondition of the friendly
deal. Before they agreed, Redstone says, “I went to Frank and said, ‘If we want
to do this thing, it’s in the interest of Viacom to make Martin Davis C.E.O.’
” Since Davis was sixty-five, Biondi says, he knew that he would not have to
wait long to become C.E.O. of the merged company. “Sumner said, ‘Trust me on
this,’ ” Biondi recalls.
Soon Redstone was calling the merger “the deal from Hell.”
Eight days after the announcement, Barry Diller, now chairman of the QVC home-shopping
network—echoing the charge that Redstone had made against Viacom’s management
in the mid-nineteen-eighties—claimed that Redstone was paying too little for
Paramount, and made a higher bid. His backers included the Comcast Corporation
and Liberty Media Corporation, a subsidiary of T.C.I. If Diller felt that Redstone
was shortchanging Paramount shareholders, Redstone felt that Diller, the man
he had once called “my best friend on the West Coast,” was betraying him personally.
Meanwhile, through Viacom, Redstone had been readying a familiar weapon—an antitrust
lawsuit—to attack one of Diller’s key allies, John Malone, of T.C.I., who had
been looking at Paramount himself for a year. The suit ran to ninety-one pages,
and contained claims that Malone’s company had used its power as the No. 1 cable
distributor to force competitive programming networks like Viacom to pay hefty
fees—or lose their channel space. QVC filed its own lawsuit, claiming that Viacom
and Paramount had made a deal that deprived shareholders of the best possible
price.
The battle turned exceedingly ugly. Diller supporters charged
that Redstone had inflated Viacom’s market price by purchasing his own stock,
through Viacom’s parent company, in July and August, and that Redstone’s motivation
was to drive the stock up in order to keep the purchase price down. In early
December, the Times reported that WMS Industries, a video-game company
that Redstone personally owned a quarter of, might have propped up Viacom’s
stock price by aggressively buying shares in late September and early October.
Redstone issued a statement saying that he had traded in Viacom stock, as he
had in the past, in July and August, when he thought the Paramount deal was
dead; he insisted that he was ignorant of WMS’s trading.
Diller was incensed. He knew that Viacom was using Kroll
Associates, a leading investigative company, to look at him and his business
partners. The charges against Malone were personal, portraying him as a business
gangster. Malone’s friend and business associate Peter Barton, the president
of Liberty Media, whose chairman is Malone, says, “They did tremendous damage
to us in Washington, and to John personally. It was mean and ruthless.” According
to Barton, “There was evidence of wiretapping,” but, he says, “both Frank and
Sumner said that they were not responsible for wiretaps, and I believe them.”
Malone himself, when I asked, said, “This is the first I’ve
heard of it.” But he had heard of other acts: “Someone rifled our offices a
couple of times—broke in and rifled through our files. There is a suspicion
that this might be related to the lawsuit, but who knows? People tend to get
paranoid about these things.” As far as the personal attacks on him in Viacom’s
lawsuit, he says, “The attack was more personal than it should have been, in
my opinion. Sumner later apologized to me for making the suit so personal.”
“I never apologized to him,” Redstone says. “I might have
said, ‘John, I’m sorry you took this as a personal attack.’ ” But, since “T.C.I.
is John Malone,” he says, there was no way for Viacom to protect its interests
and at the same time “insulate” Malone. When he first heard about the alleged
wiretapping, Redstone says, he asked his people point blank if they knew anything
about it. They said they did not, and he believes them. “If I found out that
anyone—no exceptions—wiretapped John Malone or anyone else, they’d be fired
the next day.” He had not heard of the rifled files before, but he says, “I’d
rather lose the battle for Paramount than do that.” Jules Kroll, the chairman
of Kroll Associates, which counted both Viacom and Paramount as clients, says
wiretapping and rifling files are “totally beyond the pale,” adding that exaggerated
claims are common in heated battles where people “come to feel like victims.”
Now, nearly a year and a half after this bitter fight commenced—after
Malone’s wife urged him to get out of the business rather than endure such attacks,
after aides predicted that he would never again do business with Redstone—T.C.I.
is about to participate in the purchase of Viacom’s cable systems. I asked Malone
if it was difficult for him to swallow his anger, or even pride, and negotiate
with Redstone? “No,” Malone replied, as if surprised by the naïveté of the question.
“I’m a businessman.”
Redstone’s differences with Malone and Diller were not the
only ones that surfaced during the negotiations for Paramount. A disagreement
that arose between Redstone and Biondi was reported in the Wall Street Journal
on September 23, 1993. Viacom’s stock price had been falling, and the company
feared that it was because of investors’ belief that Diller had made the better
bid and their concern that Redstone was so emotionally engaged in the contest
that he would pay any price to win. At a lunch of the company’s top four executives,
Biondi and Dooley recall, it was agreed that Biondi would do a series of press
interviews in which he would make it clear that Viacom’s approach was dispassionate.
“I thought I’d take the pressure off by showing that we might not get Paramount,”
Biondi says. One paragraph in the Journal quoted Biondi as saying that
he “did not rule out a sweetened bid, but said ‘that is not the only option.’
” The next paragraph quoted Redstone’s response: “Maybe Frank is not as precise
or articulate as I am, but there has absolutely not been any discussion or contemplation
of increasing our bid.” Biondi felt humiliated. He remembers thinking, Who needs
this shit? He says that he thought of quitting.
Philippe Dauman, whom Redstone appointed senior vice-president
and general counsel in early 1993, also provoked tension between Biondi and
Redstone. In the spring and summer of that year, he played a pivotal role in
the Paramount negotiations, sometimes circumventing Biondi. Biondi says that
he was angry, because Dauman was acting more like Redstone’s personal attorney
than like Viacom’s counsel, talking directly to the investment banker Robert
Greenhill, the chairman and C.E.O. of Smith Barney, who was Viacom’s principal
investment banker, and working around him and Tom Dooley. “Tom and I said, ‘Time
out. It’s not the way we play the game here,’ ” Biondi recalls. “Philippe came
in and said, ‘Can we talk about this?’ From that point on, he did a one hundred
and eighty.” Today, their relationship is harmonious, and Biondi says of Dauman,
“He’s a very smart guy and a terrific lawyer.” (Dauman recalls “a brief conversation
in which I made it clear that it had been my intention to work as a team.” Regarding
his relationship with Biondi, Dauman says, “We get along spectacularly well.”)
Dauman, who is forty, had reason to see his role in a special
way initially. “I have a close relationship with Sumner that goes beyond the
corporate relationship,” he says. Having represented Redstone in the acquisition
of Viacom, Dauman was invited to join the boards of Viacom and, later, its parent
company, National Amusements. He is one of the executors of Redstone’s estate.
Although it is not generally known, Dauman is listed in the will as Redstone’s
successor as chairman. According to Redstone, the will makes Dauman chairman
for a transition period of between two and three years, and stipulates that
the company will not be sold during that time. Redstone also makes it clear
that he doesn’t envision his son, Brent, or his daughter, Shari—both are attorneys,
who joined the Viacom board in 1994—or Dauman as a replacement for Biondi, and
says, “I don’t want to see them in Frank’s role—for now, at least.” nynex, joining the Paramount bidding as
Viacom’s ally, invested a billion two hundred million dollars in Viacom, but
before it did nynex executives
wanted to make sure that the company would not be disrupted or sold upon Redstone’s
death; they were told, a nynex negotiator
says, that Dauman, as a family representative with knowledge of the Redstone
estate and Viacom’s operations, would insure continuity and could effectively
block an unlikely family putsch.
Redstone won the battle for Paramount by
bidding nearly ten billion dollars—an offer that was made possible, in part,
by Viacom’s plan, announced on January 7th of last year, to acquire Blockbuster,
for eight billion four hundred million dollars.
Blockbuster’s chairman, H. Wayne Huizenga, had surprised
people by agreeing to sell his company, which he had expanded from nineteen
video stores in 1987 to nearly four thousand stores by the time it merged with
Viacom, in late September. By then, Blockbuster was expanding at a rate of one
new outlet every seventeen hours and hiring five hundred new employees a week.
Huizenga says that despite Blockbuster’s brisk growth—and Wall Street’s projected
net cash flow for the company (after purchasing inventory, paying taxes, and
building outlets) of three billion dollars from 1994 through 1999—its stock
multiples “were half what they should be.” The market, he feared, would never
reward Blockbuster with the stock price it deserved, because investors had come
to feel that Blockbuster was already outmoded—a middleman that would be supplemented
by video-on-demand services.
While Redstone at first saw Blockbuster as a source of cash
to pay for Paramount, Biondi saw Blockbuster as a strategic “layup.” He was
certain that, along with MTV Networks, it would become one of Viacom’s two most
profitable divisions over the next five years. “I was much more certain of Blockbuster
than Sumner was,” he says. “Sumner was much more certain of Paramount, maybe
because he has lived in the motionpicture business, and I haven’t.” Despite
all the talk about how video-on-demand and an information superhighway would
weaken Blockbuster, Biondi thought that this new world would dawn much more
slowly than, say, Time Warner and most telephone companies imagined. And while
movie-theatre revenues had been holding steady at five billion dollars a year
for several years, the video-store business in North America was generating
nearly three times as much, and its revenues were being projected at twenty-one
billion dollars a year by the end of the century. Overseas, growth opportunities
were even more abundant, since seventy per cent of all households with VCRs
were outside the United States, and yet there were not many video superstores.
Blockbuster planned to plug this gap, doubling its overseas stores to more than
two thousand by 1998. The opportunities for leverage were also enormous. Blockbuster
was Hollywood’s largest single revenue source, spending about a billion dollars
annually to buy videos. Blockbuster combined with MTV would be the foremost
customer of the ten-billiondollar-a-year domestic record industry as well. And,
through a joint venture with I.B.M., Blockbuster hoped to become tomorrow’s
electronic jukebox, sending video-on-demand to customers’ homes.
The problem for Biondi and Redstone was not tomorrow, however;
it was today. The merger with Blockbuster was to be financed by Viacom stock,
but investors, feeling that Viacom had paid too much for Paramount, were skittish,
and Viacom’s stock price was dropping. Blockbuster shareholders would be receiving
paper that was worth less than they had anticipated; debt-laden Viacom would
drag down Blockbuster. The Blockbuster merger was agreed to in the fall of 1993,
but the deal remained uncompleted through the summer of ’94. If Viacom’s stock
price didn’t rise, the deal was off. Huizenga urged Redstone to offer shareholders
a better price; Redstone refused. Redstone, Biondi, and other Viacom executives
went on the road, peddling the message to Blockbuster shareholders and Wall
Street investors and analysts that Viacom was a quiet giant, whose strength
would become apparent after it owned both Paramount and Blockbuster. It didn’t
hurt that the investor Kirk Kerkorian, who happened to be an old business acquaintance
of Redstone’s, was buying Viacom stock, and inviting speculation whether this
was chance or collusion. Viacom’s stock price steadily rose, from nearly twenty-eight
dollars in June to about forty dollars by the end of September, when Blockbuster’s
and Viacom’s shareholders voted to approve the merger.
The successful road show that Redstone and
Biondi put on reflected, in part, the varied talents of each man. “I do the
so-called passion bit at the beginning of a presentation,” Redstone says. While
Biondi makes a persuasive case by marshalling facts and figures, Redstone waves
his arms and gets red in the face. He never tires of reciting the same script.
“I think I brought a vision,” he says. “It’s hard to believe that we started
with a theatre chain—we had maybe two hundred and fifty screens at the time—when
we went for Viacom. My vision has always been the same. I didn’t know Viacom’s
business. But my basic instinct was right, which was to ride the escalator of
home entertainment.” Redstone’s friend George Abrams, who is also his attorney,
observes that he is “more a catalyst than a manager.” Redstone himself says
that he contributes something else: he thinks like an entrepreneur. “We needed
that,” he says. “But without the management team Frank assembled we could not
have done it.”
The two men share some common attitudes. Both live relatively
modestly, and both have an aversion to flaunting their wealth. Perhaps the trust
between the two men can also be explained by Biondi’s candor. In the two months
I spent around Viacom, Biondi never ducked a question about his new six-year
contract, which will pay him a million dollars annually (and far more in bonuses),
about whom he voted for (George Pataki), about Michael Fuchs.
To put it another way, Biondi provides ballast. While Viacom
executives are often frustrated by his cryptic manner—unlike Redstone, he is
stingy with praise and is not physically demonstrative—he does convey stability.
Redstone is “the king of good news,” as a Showtime manager says. “He doesn’t
know how to deal with bad news. If we came in and said, ‘Subscribers are down
for August,’ Sumner would get very excited and say, ‘Maybe we ought to sell
Showtime?’ ” Frederic V. Salerno, a vice-chairman of nynex,
who joined Viacom’s board in 1994, describes Biondi as “an unbelievably even-tempered
person, who also has a remarkable sense of humor.” He adds, “Yet he always has
time to talk to you. He never seems to be overburdened with work.”
Not that Biondi has no temper—particularly when his sense
of Team Viacom is involved. One blowup came around the time of President Clinton’s
Inauguration, when Biondi learned that MTV was giving an inaugural ball that
would be attended by Hillary and Bill Clinton. Biondi says that he found out
when a printed invitation arrived. Referring to MTV Networks’ chairman and C.E.O.,
Thomas E. Freston, and an outside public-relations adviser, he explains, “Without
asking, they did up an invitation saying, ‘Tom Freston and Ken Lehrer invite
you . . .’ I was really pissed. Lehrer is a consultant. Where were Sumner and
myself? Where was Viacom?” Although he holds both men in high regard, both received
the verbal equivalent of a whipping. These outbursts probably carry more weight
because they are relatively rare.
Geraldine Laybourne, of Nickelodeon, who is a former schoolteacher
and the founder of the nonprofit Media Center for Children, is lavish in her
praise of Redstone. Of Biondi, she says, “Frank’s more stable, analytical approach
is reassuring. You know you won’t go too far off. The real tribute to him is
that he allows us to run our businesses without conformity. He won’t impose
his style on us.” The only point Biondi insists on, she says, is that Viacom’s
divisions “make the numbers.”
Making the numbers was partly what Biondi wanted to emphasize
during the visit to Paramount in early November. He and Redstone met with Jonathan
Dolgen, of Viacom’s Entertainment Group; Sherry Lansing, the chairman of Paramount
Pictures; Kerry McCluggage, the chairman of the Paramount Television Group;
and their key executives. Biondi and ten other Viacom executives from New York
sat on one side of an immense, horseshoe-shaped table in Paramount’s boardroom,
directly across from Dolgen and his team. While Biondi rarely spoke, the meeting
illustrated both his laid-back style and a technique that he has used to help
make Viacom the world’s fastest-growing communications company. He had come
to California with several goals. He wanted to get to know his team better,
he said, to exchange information, to talk about strategy, and, above all, to
send the same message that he is trying to send throughout Viacom. The message
is that everyone has to concentrate on growth and the bottom line.
The problem for Viacom, he explained to me before flying
to California, was that it had guaranteed a certain stock price to Blockbuster
and Paramount shareholders. If Viacom’s stock price, then approximately forty
dollars a share, rose about twenty-five per cent in the next six months, under
the terms of the merger agreements with Blockbuster and Paramount Viacom would
owe nothing. But if the stock price did not rise Viacom would be compelled to
pay shareholders a penalty, in cash or stock, totalling anywhere between a few
million dollars and more than a billion. Because of this requirement, Viacom
saw 1995 as the most important year of the next several years. One way to raise
the stock price, Biondi felt, was to demonstrate that Viacom would continue
to be a growth company, and would increase its operating cash flow, from Wall
Street’s estimate of a billion nine hundred million dollars in 1994 to at least
two billion three hundred million dollars this year, when Blockbuster is part
of the company. The idea was to impress Wall Street analysts and the financial
press. One means of doing this would be for Viacom to exceed its 1994 profit
performance this year, and in particular to do better than the Wall Street analysts
predicted, especially in the first two quarters.
Some of the numbers that the Paramount executives presented
were not displeasing to Biondi. Since the merger of Paramount and Viacom, the
number of employees of the combined entertainment divisions had been reduced
by ten per cent, without a single layoff, Dolgen reported, and he had pared
administrative overhead at the studio by forty-nine million dollars. These were
not particularly big numbers, of course. Paramount spent more money to market
the fifteen films it produced in 1994—an average of between twelve and fifteen
million a picture—than it spent on its employees. Since the film studio’s revenues
were estimated by Wall Street to be a billion four hundred million dollars in
fiscal 1994, with profits of a hundred and twenty million dollars, the big targets
lay elsewhere.
The average cost of a Paramount movie is thirty-two million
dollars, a Paramount executive explained to the group, and if the cost of the
five big, or “tent pole,” movies scheduled for 1995 was subtracted the average
cost would drop to twenty-three million dollars. The rub, the executive went
on, was this: big movies are less risky. That was another way of saying that,
just as best-selling books and hit albums carry most publishing and record companies,
big movies do the same in the movie business.
Studios, said Sherry Lansing, who sat beside Dolgen at the
meeting, usually lose the most money on the so-called medium-priced movies,
which don’t have big stars.
Paramount Television presented a different set of problems.
Wall Street analysts project that this year Paramount TV—its library, its TV
stations, the programs it produces for both independent and network stations—will
take in revenues of just over a billion dollars, with profits of a hundred million.
Like all studios, Kerry McCluggage said, Paramount financed the shows that it
sold to the networks at a deficit, hoping to recoup the loss if the shows were
hits and the studio could sell them to local stations for reruns.
“The Street is worried about deficits,” Biondi told McCluggage.
“There are two prisms we are looking at—reality and perception. The perception
of the Street is key.” The price of Viacom stock might be kept down, according
to Biondi, if investors felt the company was wasting money by running deficits
to finance network shows.
McCluggage argued that the money was hardly wasted, noting
that since 1967 the various activities of Paramount’s Television Group had generated
profits of a billion three hundred million dollars. “Star Trek” alone had produced
more than a quarter of a billion dollars in profits.
Biondi was not unsympathetic to the facts, but the point
was perception, not reality. A top Viacom executive confided to me near the
end of the four days of budget reviews that the Viacom executives from New York
hoped to induce Paramount, as well as the other divisions, to improve its profit
goals. This executive said that division heads tended to be conservative in
their forecasts, since their compensation rises as they exceed their goals.
Biondi’s task, this executive suggested, was to coax more out of Paramount without
ordering it.
Jonathan Newcomb, the president and C.E.O. of Simon &
Schuster, who was accustomed to the more hierarchical corporate culture of Paramount,
says of the Viacom executives, “They put a premium on give-and-take, on dialogue.
It’s an informal culture. There’s not a lot of paper or memos.” Once division
heads have agreed on their revenue and profit goals for the year with Biondi
and Dooley, they are left alone. Except for a secretary, Biondi has no staff
aides. His appointment calendar is surprisingly light. He makes time to see
old business associates, like Robert Bookman, of the Creative Artists Agency,
and Lou Weiss, the chairman emeritus of William Morris, when they call for breakfast
or lunch. Jonathan Newcomb says that he speaks to Biondi on the phone maybe
three times a week, and Tom Freston, of MTV Networks, says that he speaks to
him perhaps twice a week; Jonathan Dolgen speaks to him more often.
Before the Paramount and Blockbuster deals, Biondi conducted
weekly executive-committee meetings, but he now plans to have just one a month.
Hoping to promote collegiality and to generate ideas for new synergies among
the various companies, Biondi invites the head of each division to the budget
reviews of all colleagues. At the Paramount budget review, for example, Geraldine
Laybourne sat in on all four days. At one session, Sherry Lansing asked Laybourne—who
Lansing says “knows more about family films than anyone in the world”—if she
would read a film script and share her thoughts on it. “There’s a family style
to this company,” Lansing says. “There’s a really sharing, informal style. People
don’t feel nervous around Frank or Sumner, because they make you feel comfortable.”
This relaxed, sharing culture is, of course,
the same one that summarily dismissed Richard Snyder, the chairman and C.E.O.
of Simon & Schuster, last June. No one accused Snyder of lacking vision
or of producing inadequate profits. “He did a great job—and I mean a great job—of
building a publishing company,” Redstone says. Then what happened? Perhaps the
first clue surfaced when Snyder and Biondi had lunch at the Four Seasons earlier
that spring. After lunch, Biondi said goodbye outside the restaurant and began
walking west, toward Viacom’s offices. Snyder headed toward a waiting chauffeured
Lincoln Town Car, but as he neared it he paused, turning toward Biondi. Just
then, Biondi turned and saw Snyder standing beside an open door.
Snyder asked, “Can I give you a ride?”
“Just drop me off at your office and I’ll walk,” Biondi said.
He recalls thinking that the situation was like a microcosm of the different
styles of the two organizations. At Viacom, no one, including Redstone, had
a car and driver (though Redstone now uses Martin Davis’s car and driver). Biondi
drives a 1991 Acura to work. There was no corporate jet, in contrast to Paramount,
which had two. So unconcerned with money was Redstone that he didn’t even draw
a salary from Viacom or National Amusements. Viacom counted its pennies—one
reason for its obsession with a relatively petty expense like a chauffered car.
The stylistic contrast became even more pronounced that spring
as Viacom executives came to feel that Snyder was resistant to their collegial
ways. Snyder had toiled in Martin Davis’s fear-inspiring hierarchy, and had
exhausted a lot of energy trying to protect his people from Davis’s whims; perhaps
he somehow learned the wrong lessons. Psychologically, Snyder felt liberated
when Viacom bought Paramount—so much so, the former colleague says, that “Dick
saw it as an opportunity to run his own shop.” If Snyder had read the signals
correctly after the merger, he might have been free to run his own shop.
Snyder says that he was not trying to circumvent Viacom:
“I wanted to be part of a team, because I was coming out of ten years of purgatory.”
Viacom executives saw Snyder as guarded, and protective of information, insisting
that information for Viacom from his people go through his office. Last winter,
Biondi says, when he asked whether a rumor that the high-profile editor Judith
Regan was leaving was true, Snyder told him that he expected her to stay. When
she did leave, Redstone and Biondi were annoyed that their no-surprises policy
had been flouted, although Snyder says he had warned them that she might leave.
Dauman and Dooley reinforced Biondi’s concerns. “We’re informal,” Dauman says.
“We call up someone and ask for information. We found that after we called we’d
get a call back and we were asked, ‘Why do you want that information?’ ” Snyder,
however, says he felt that Viacom wasn’t letting him in. “This was a club that
no one was welcome in,” he says. “We were bought, and no one called us. We were
flabbergasted. Since they didn’t know the publishing business, I suggested weekly
or biweekly meetings to Biondi. He said it wasn’t necessary, because they would
have regular meetings with our lawyer, our chief financial officer, and others.
These meetings were held, and I was not present at them.” This didn’t rankle
him, he says, but the feeling of being excluded did: “As a Paramount executive
said to me, ‘We weren’t bought. We were conquered.’ ”
Complicating these differences was the matter of Snyder’s
contract. Last spring, Snyder told Biondi that although his contract would not
expire for nearly five years, he and many of his managers had been treated inequitably
by Davis, and he wanted to renegotiate it. “Biondi said to me, ‘Why don’t you
give me your wish list.’ ” So Snyder came up with a list and hired the noted
attorney Joseph Flom to renegotiate his contract. Viacom, which had just recently
announced that it was going to reduce its costs and sell certain assets to lower
its ten-billion-dollar debt, was now confronted by contract problems with an
executive whom Redstone and Biondi had not warmed to. They thought that Snyder’s
requests were excessive: a longer contract, the potential for more generous
bonuses, stock options. Snyder thought he was producing the “wish list” that
Biondi had requested.
By chance, Snyder’s contract was mentioned at the weekly
luncheon of the company’s top four executives. “There were some issues that
Dick had raised about his contract that caused us to start talking about Dick
Snyder and publishing,” Dauman recalls. “As we talked about it, we realized
that we had all come to the same conclusion about Dick Snyder.” Tom Dooley recalls,
“It sort of hit us all at once.” Although Redstone had recently praised Snyder
publicly and was scheduled to have dinner at his home in a week—a small dinner,
to which Biondi was not invited—the group concluded that Snyder would not change.
Biondi suggested that they end the relationship. Redstone’s secretary cancelled
the dinner. A few days later, on June 14th, Biondi asked Snyder to join him
in his office. When he got there, Snyder says, Dauman was with Biondi. In his
matter-of-fact way, Biondi told Snyder that the relationship wasn’t working
and that he planned to announce that afternoon that Snyder was leaving to pursue
other interests. Biondi handed Snyder an already drafted press release.
Snyder objected. He said that he was giving an engagement
party for his son that weekend and wanted to delay the announcement. Biondi
refused. He didn’t tell Snyder that he had already told Jonathan Newcomb, who
was Snyder’s deputy and would be his successor. He did tell Snyder that people
already knew and that the news would leak out anyway. Some of Snyder’s friends
suspected that Biondi wanted him out because he didn’t want a publishing company
run by someone who wished to spend more of Viacom’s resources to expand. Despite
Viacom’s public denials, some at Simon & Schuster feared that Biondi might
want to sell the company. That may be true. When Biondi is asked about the publishing
company’s future, he says, “Can publishing grow more than single digits? And,
if not, what does that mean?” Does it mean that Viacom might sell? The answer
is “not clear,” he says candidly. What is clear, he says, is that “people won’t
pay twelve, thirteen times cash flow” for a business that grows only in single
digits.
The book world was startled by the firing of Snyder. Whatever
his flaws, he was one of America’s preëminent publishers. Then, there was the
way in which he was fired. Barry Diller, who was once a colleague of Snyder’s,
was one of many people angered by the brusqueness of Snyder’s termination. He
says, “They could have said to Dick, ‘It’s not going to work out. You’re here
thirty-three years and we’re not going to hurt you. This is a secret. Take five,
six months. Quit on us. It will be your idea, your dignity.’ ”
Biondi asks, “How do you do it more gracefully?” He says
that he derived no pleasure from the task. Yet he described this termination
to me, as he had others, in such a matter-of-fact way that I was prompted to
ask what he had been thinking when he was sitting across from Snyder that day.
“We were very comfortable with the decision and the rationale,” he answered.
“But what you don’t know is how emotional this will get. Whether someone will
pick up a phone and throw it at you or scream and beg. Those are the worries
you have. Having been on the receiving end, I know.”
While the words most often used to describe
Biondi these days include “serene” and “nice,” associates also speak of his
detachment. This trait was apparent in late October, when the American Museum
of the Moving Image honored Biondi and Howard Stringer, the president of the
CBS Broadcast Group, at a dinner at the St. Regis—an event at which Michael
Fuchs, now HBO’s chairman, was serving as the master of ceremonies, and had
been asked to introduce Biondi.
The room grew still as Fuchs rose and went to stand behind
a lectern framed by white silk drapes. Biondi sat facing the lectern, looking
serious, a forefinger pressed over his upper lip. “When I was offered a job
at HBO, in 1976, the first person I called was Frank Biondi,” Fuchs said, adding
that after he took the job the first person he tried to recruit for HBO was
Biondi. Fuchs recounted a few of their exploits. “We were brothers,” he said.
But by the mid-eighties “the brotherhood turned into Cain and Abel,” he added.
“I’m proud to say we’re past the Cain and Abel stage.”
Fuchs paused to look at Carol Biondi, who was smiling. She
admits that, while her husband openly discusses most things with her, Fuchs
remains “a sore subject.” Yet, even when the rift between the two men developed,
she took her daughters to lunch with Uncle Mickey. Fuchs now said of Carol Biondi,
“You cannot have a more loyal friend.” He rhapsodized about Jane Biondi, his
goddaughter. “Even the dog, Mickey, was named after me. The Biondis, all of
them, have been a part of my life for twenty years.”
When the program concluded, Carol Biondi rushed up to Fuchs
and gave him a prolonged hug. Her husband, a step behind, patted Fuchs on the
arm and shrugged, saying, “It doesn’t seem like twenty years.” Fuchs leaned
forward, as if to embrace his old friend, and though their cheeks brushed, both
men stiffened. When Biondi was asked afterward to describe how he felt, he said,
“I don’t think that I was emotional.” Fuchs was plainly hoping for a catharsis.
“Frank asked me to introduce him,” he had said before the event. “So maybe this
night will be like the end of a chapter.”
Listening to Biondi, friends thought that the night was more
like the end of the book. “This may be a failing in me, but I can’t figure out
how to go back to where we were,” Biondi reflected a few days later, in California.
“Too many things happened. There is less time to hang out. And the fact that
we’re somewhat competitors makes it harder.” We were in a car, on the way to
a Paramount meeting, and he looked out the window at leafy Beverly Hills. “Those
were good times,” he said. “I often think about them the way I think of college:
You can’t stay there.”
I asked Biondi what sort of business executive he would describe
himself as, now that he had been the president and C.E.O. of Viacom for nearly
eight years.
“I’m somewhere between a coach and a point guard,” he said.
“I hand the ball off a lot. On a personal level, I’m much more of a counterpuncher.
If you watch me play tennis, I play a very good defensive game. It plays to
my strengths. I’m good at analyzing a situation. I’m less confident taking the
initiative. When I’m aggressive, it’s because I’m very confident of the reasons
and the facts on our side of the table.” Friends say that Biondi’s tennis game—tennis
is one of the few things about which he is openly passionate—tells much about
the man. Tom Bernstein, a friend and business associate who on most winter Saturdays
plays tennis with Biondi, the defense attorney Paul Grand, the federal judge
Pierre Leval, and the labor lawyer Jerry Kauff, says of Biondi, “He has total
self-confidence and poise. He’s a gentleman. He never loses his cool. It’s a
little unnerving.” With his glasses, a trace of a paunch, and a short stride,
Biondi does not suggest an athlete. But he is deceptively fast and plays an
extremely consistent game; he rarely double-faults or gets excited. He cares
about winning more than he lets on.
Friends relish watching Biondi play the writer Tony Schwartz,
in Riverdale or in August on Martha’s Vineyard, where both vacation. While Biondi
is quiet, Schwartz is brash and emotional; he is a more powerful player, with
long arms and rocket serves and the speed of a man ten years younger. “He breaks
you down,” Schwartz says of Biondi. “He plays with your mind.” In one match,
Schwartz told me, Biondi kept dinking the ball just over the net. Six or seven
straight times, Schwartz came to the net and slammed the ball past Biondi for
the point. “I became convinced that he had to change his strategy,” Schwartz
said, with a sigh. “He refused. He kept hitting the ball short. It’s humiliating,
but I’ve led Frank 4–2 or 5–2 at least ten times—and lost the set.” Biondi notes
that Schwartz has never beaten him.
It remains to be seen whether Biondi desires to do more than
win. “Frank is now in a position where he has enormous influence,” a good friend
says. “Will he make his presence felt outside the business world? Will he broaden
his reach and his concerns?” Biondi and his wife have been involved in civic
and school activities in Riverdale, and have been generous financial supporters
and active members of Leake & Watts, a childwelfare agency that works with
inner-city children. But so far there is no evidence that Biondi wishes to use
his prominence to advance a cause. He approved, but did not champion, MTV’s
role in urging young people to vote in the 1992 Presidential election. When
Biondi is asked to describe his public purpose at Viacom, he becomes uncharacteristically
vague and uncertain, as if business were divorced from his person.
The same is true of Sumner Redstone. One morning during the
November visit to California, Redstone said that he was reading Doris Kearns
Goodwin’s best-selling biography of Eleanor Roosevelt, “No Ordinary Time,” and
he marvelled at how the media had allowed the Roosevelts a level of privacy
that is no longer possible. Today, he lamented, the secrets that the Roosevelts
kept would be trumpeted by a sensationalist tabloid press. Redstone spoke these
words just hours before a meeting at which Paramount’s television group presented
plans for a new gossip show called “Scoop” and extolled the success of its tabloid
news magazine, “Hard Copy,” whose ratings and profits were up this season. During
the lunch break that day, while we were waiting in a buffet line at Paramount,
I asked Redstone if he had qualms about “Hard Copy,” especially in light of
what he had said earlier about privacy.
“I’ve got to be careful,” he answered slowly. “I guess if
it’s a serious question I have to go and watch these shows. I’m not a great
television watcher. Occasionally, I watch them. In general terms, we have to
be financially successful.” He added that “there needs to be a balance” between
making profits and being “socially responsible,” but he conceded that he had
not thought about programming in those terms as he listened to the presentation
that morning. He was clearly uncomfortable with his response, for he spotted
Kerry McCluggage and beckoned him over. How, he wanted to know, would McCluggage
answer the question?
“I have a quick answer,” the low-key McCluggage said. “We’re
in the entertainment business.” Many viewers, of course, think they’re watching
news.
In evaluating Viacom’s promising future,
one may count that opaqueness in the debit column, along with Viacom’s occasional
cry of victimhood. Sumner Redstone is quick to complain that John Malone and
T.C.I. or the six major record companies have organized a “cabal,” while excusing
Viacom’s quest to take the risk out of capitalism by becoming vertically integrated.
Internally, Blockbuster is hailed as a potent distribution system that can give
preference to Viacom’s products and force other companies to pay “tolls”—exactly
the charges that Redstone lodged against Malone, Time Warner, and the six major
record companies.
At an all-day session with Viacom’s top four executives at
Blockbuster’s headquarters, in Fort Lauderdale, in October, the president and
C.E.O. of Blockbuster, Steven Berrard, discussed the interactive-game business.
He said that Blockbuster would soon have the ability to make instant copies
of games or movies in each store, and to send movies out over a giant I.B.M.
server, right to television sets. “The next big horizon for us is to get a royalty
out of every game made,” Berrard said. “Therefore, we have to participate in
everything made. We have to run that server and get fifteen to twenty per cent
of everything that’s made. My position with Sega”—the video-game company—“is
that we put up all this development money, but we want a piece.” Microsoft could
have said it no better.
A few moments later, Berrard added that because Blockbuster
was a unique distribution system—owning nearly a quarter of all video stores,
and earning more in revenues than its next five hundred and fifty competitors
combined—“you can force people to bring you their projects, or else they can’t
get on your highway.”
Berrard isn’t alone in speaking this way. In addition to
“growth” and “software,” perhaps no word is uttered more frequently at the new
Viacom than “leverage.” Executives at Paramount television speak of the leverage
they will gain when their new network is open for business and the other networks
will have to either pay more or fret over whether they will yank “Frasier” off
NBC, or “Melrose Place” off Fox. At Simon & Schuster, executives speak of
the advantage of choice shelf space at Blockbuster. MTV Networks wants to team
up with Blockbuster to promote its shows. The Paramount theme parks want to
tap into Blockbuster’s fifty-million-person database to direct-market their
wares. Redstone has given passionate speeches about the monopolistic practices
of predatory cable or record-company distributors, and he may be right. But
Viacom is not just a software company. It seems to aspire to be something more—a
software company that uses powerful brand names like “MTV” and “Paramount” to
assure distribution for its lesser brands; a distribution company that uses
Blockbuster to leverage competitors. According to Alan Schwartz, an investment
banker for Viacom at Bear, Stearns, we are experiencing today a “new paradigm
shift,” in which brand names like “MTV” will be used to spawn new games, new
books, new interactive forms. “Blockbuster does give you cash flow,” Schwartz
says. “But, more important, it gives you distribution leverage.”
There are obvious questions about Viacom’s future. It still
has a large debt burden, which currently totals ten billion two hundred million
dollars but will be reduced to about seven billion after Viacom completes its
sale of Madison Square Garden and sells its cable systems, as it hopes to do
this month. Annual interest payments on the debt this year will amount to about
seven hundred and fifty million dollars, Dooley says—a manageable sum in a company
that Wall Street estimates will have an operating cash flow of up to two billion
five hundred million dollars in 1995. There is also the question of size. A
major Hollywood figure says, “Size is not a friend to the creative process.”
Nor is a company that is managed by the numbers necessarily
a friend to creativity. There are those in Hollywood and at Viacom’s New York
headquarters who think that to avoid duplication of effort and to create synergies
a more interventionist, more creatively driven, hierarchical management is called
for. Unlike a Diller or an Eisner, however, neither Biondi nor Redstone has
demonstrated a creative bent. Michael Fuchs says of Biondi, “He sops up information.
He’s very smart. He is versatile. But I don’t think creativity is his long suit.”
And if Biondi maintains his current arm’s-length approach, a senior creative
executive at Viacom says, the central question will be whether he and Redstone
understand the messy, sometimes expensive creative process. Or do they understand
only numbers?
In addition to the questions about creativity, there are
questions about Viacom’s breadth. Besides launching the new network, which is
intended to target male viewers with four hours a week of action-adventure programming,
both Redstone and Biondi say they would love to buy NBC or CBS—but not at the
price the owners of the networks seek. They would also like to own a large music
company, and are debating whether to build such a business, as Tom Freston,
of MTV Networks, urges, or to buy one. The biggest problem Viacom is facing,
however, may be the eventual departure of Redstone and the loss of his catalytic
passion. Would Biondi alone be able to duplicate Redstone’s zeal? Would he be
too much the counterpuncher and not enough the visionary leader? Would Redstone’s
departure fuel the same type of speculation that has bedevilled Time Warner
since Steve Ross died, with some investors complaining that his successor, Gerald
Levin, lacks the charisma to lead?
Not long ago, Redstone received a hint of
what things might be like for him if he were no longer running Viacom. Returning
from the daylong visit to Blockbuster in Fort Lauderdale last October, Redstone,
Biondi, Dauman, and Dooley had every reason to celebrate. Wall Street analysts
were lavishing praise on them. “With the possible exception of Time Warner,
they are the best-positioned communications company in the world,” David Londoner,
the entertainment analyst and managing director at Wertheim Schroder, told me.
Redstone and his executives had just been at a dinner with Blockbuster’s top
managers, at which Redstone had announced, “Take my word for it, it won’t be
long before we’re No. 1.” Viacom would soon eclipse Time Warner as the world’s
biggest communications company, he predicted. Even his old nemesis John Malone
tipped his hat. “I think Sumner ends up with the biggest pyramid in the desert,”
he told me. The balance of power in communications had shifted from distributors,
like T.C.I., to providers of content, like Viacom. As the plane levelled off
on the way back to New York, everyone relaxed. Redstone, with his wavy blond
hair and pink cheeks, looked younger than seventy-one. He stretched out in a
white leather armchair to finish Tom Clancy’s latest novel while the others
flipped open a table and played poker.
About an hour outside New York, Redstone remembered that
Huizenga had given him a tape of his farewell appearance before Blockbuster
shareholders, on September 30th. Although Huizenga was now vice-chairman of
Viacom and chairman of the Blockbuster Entertainment Group; the sole owner of
two professional sports teams; and co-owner of the Miami Dolphins, he had been
noticeably subdued since agreeing to sell Blockbuster. At the meeting at Blockbuster’s
headquarters, for instance, Huizenga, looking pale, attended only a few of the
presentations and said barely a word. On the plane now, Redstone asked the stewardess
to put the tape in the VCR.
When the tape came on, Redstone was still reading and the
others were occupied. “Viacom is the greatest collection of entertainment assets
the world has ever seen,” Huizenga declared to the assembled shareholders. The
four Viacom executives looked up at the bulkhead screen. They watched as Huizenga,
who read from notes, extolled the strengths of the combined companies. He made
a point of saying that Viacom had granted long-term employment contracts to
more than fifty Blockbuster managers, and had asked Berrard to continue to run
Blockbuster and to oversee Paramount’s theme parks and Viacom’s Showtime. These
points were meant to be soothing, but Huizenga’s manner was tense.
He admitted that Blockbuster was trapped: by technology,
which “will threaten our video business one day”; by a stock market that wrongly
“penalizes our stock”; and by economics, which made it prohibitively expensive
for Blockbuster to diversify and buy a Hollywood studio. Huizenga started talking
about the early days of the company. As he did, his eyes began to mist, and
he started stammering. When he acquired Blockbuster, in 1987, he reminded the
shareholders, many of whom had been his partners then, it was just a small company
with a few stores. No one had to remind Redstone and Biondi that this was the
same year they joined Viacom. In the seven years since, Huizenga said, Blockbuster’s
revenues had grown at a compound annual rate of ninety per cent, and its market
value had soared twenty-two thousand per cent.
The voice of Louis Armstrong singing “What a Wonderful World”
flooded the auditorium. As a succession of pictures capturing important moments
in Blockbuster’s history flashed on a screen above Huizenga’s head, tears streamed
down his cheeks. He paused to regain his composure, then singled out individuals
for praise, then began sobbing again. Redstone closed his book, and Biondi put
down his magazine. All four men sat watching Huizenga on the small screen, uttering
not a word, transfixed by the sight of a winner in their yearlong quest speaking
as if he had lost. And, indeed, he had—he had lost his baby. This moment was
about more than business victories. Huizenga’s obvious pain made them feel vulnerable
at a moment when they had been feeling invulnerable.
The celebratory journey home from Florida came
to resemble a wake as each man retreated into his own thoughts. Biondi said
later that he thought of how he had quarterbacked HBO’s triumphs, only to be
discarded. Redstone says that he thought of his own mortality. The tape was
a jolting reminder: although Viacom was soaring, success was often ephemeral.
The next morning, Redstone immediately phoned Huizenga. “When you were crying,
I absolutely understood it,” he recalls telling him. “If I were you, I’d think
the same thing could happen to me. Your whole life is with a company, and then
it’s over.” ©