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annals of communications

changing channels

While NBC and ABC grapple with management successions, mergers, and Mike Ovitz as producer, a new form of cable threatens to change the rules.

by ken auletta

This seems to be a season of transitions. Michael Gartner, the beleaguered president of NBC News, has fallen on his sword because of the faked crash of a General Motors truck on "Dateline NBC." While Gartner's bosses did not hold him personally responsible for the story about the crash, the network did hire two outside lawyers to investigate the behavior of NBC News and consider the question of account-ability, including what action Gartner took, or didn't take, after the specious report was broadcast. A key decision-maker at NBC says that it was "outrageous" for Gartner to stonewall G.M. and to defend his own news staff even after he learned that someone had hidden miniature rockets on the truck and detonated them just before the collision. Even before Gartner resigned, on March 2nd, he was about to be fired. "He knew about this incident for several days," this man said. "He didn't investigate it in depth. He should have looked into it more, because he was aware that he was being sued before he issued a statement defending News." Then, the last week in February, questions were raised about another report broadcast by NBC News, this one on the effects of logging in Idaho's Clearwater National Forest, and that situation made it even more difficult for Gartner to stay.

Gartner came to NBC News from the Gannett Company in 1988, and he was required to perform three conflicting roles: editor-in-chief, publisher, and producer. He did some of what was asked of him: reduced News costs, streamlined management, and after some false starts finally got on the air a magazine show ("Dateline NBC") with respectable ratings, if not always respectable stories. One of the men who held Gartner's fate in their hands praised these accomplishments the other day and said, "This man is the rock of integrity," but added, ominously, "The facts are these: Michael has an unpleasant personality. And when an unpleasant personality makes mistakes, more people want to shoot at him. Michael's a real live-by-the-sword kind of guy."

In focussing on Gartner's prick-ly personality, his colleagues and various executives at the other networks who have been gloating over NBC's misery may be avoiding the fact that they, too, live by the sword. There are two distressingly common lessons to be learned from this mess. One is the appetite of television for pictures that transfix viewers and keep them from changing channels. "Television's visual capacity means that what was once told can now be shown," Kathleen Hall Jamieson, the dean of the Annenberg School of Communications of the University of Pennsylvania, said at a recent Harvard gathering. "The capacity to show tempts politicians"--and producers, she might have added--"to replace evidence with visual assertion. The same tendency is fostered by television's reliance on those telegraphic visual moments I call sight-bites and by its quick cuts and edits." The disdain that television executives usually express for "talking heads" reveals the dominant attitude in the medium. The other lesson is that a fixation on costs at the three network-news divisions may lead to the kind of problem that has come to light at "Dateline NBC." NBC News hired an outside firm--not an unusual practice--to do the testing of the G.M. trucks involved in the "Dateline" report, but gave the firm a limited budget to work with. A person close to the internal investigations admits, "The demonstration was quite cheap." NBC may have saved money, but it also surrendered quality. Moreover, in pursuit of lower costs, all three networks have reduced the number of their foreign and domestic bureaus in recent years, and have come to rely increasingly on international picture services, local stations' news, and free-lancers to supply pictures and reports. Again, the networks save money, but they also end up vouching for the accuracy of news gatherers they don't entirely control.

A QUIETER transition may be taking place at ABC News, where Roone Arledge has been president since 1977. Daniel Burke, the chief executive officer of Capital Cities/ABC, which is the parent company of ABC News, has been wondering how to force Arledge to accept the idea that he may not be immortal. Burke wants Arledge, who is sixty-one, to plan for his succession, and had been growing impatient. Burke has always been both awed and angered by Arledge--awed by his producer's skills, angered by what he sees as Arledge's divide-and-conquer management style.

"The place is paralyzed," one powerful figure at Cap Cities/ABC said at the end of the year. "Roone's not here part of the time. His hours are unusual. He procrastinates, and keeps people in a constant state of apprehension." Costs were an afterthought. Why, this man asked, did a reputedly "productive" producer for one of their magazine shows--"20/20" or "PrimeTime Live"--turn out only an average of three and a half pieces a year? The Cap Cities/ABC man added, "We wouldn't know what to do if Roone didn't make it in to work today. But we have to push some other people forward."

If any other manager resisted Burke's cost-cutting entreaties, Burke would fire him. Burke and Thomas Murphy, Cap Cities/ABC's chairman, agree, however, that Arledge is unlike other managers. For starters, an Arledge ally says, "No executive at Cap Cities/ABC makes a bigger salary than Roone." The salary exceeds three million dollars annually, not counting generous stock and other benefits. Arledge is treated like talent--like Roseanne Arnold, without the husband. Burke has always wanted him to continue to concentrate on the news and the creative side of his mission; he has also wanted him to be something he was not: a manager. A year and a half ago, they installed a fifty-two-year-old attorney named Stephen Weiswasser in the office next to Arledge's to do the things that Arledge dodged: return calls, delegate authority, explore future sources of News revenues, build a management structure, pare costs. Weiswasser had originally been legal counsel to Cap Cities, and was recognized as a comer--somebody who might one day run the parent company. Moreover, he was noted for his communications skills.

Communications between Weiswasser and Arledge, however, were filled with static. Their offices were separated by a small conference room, which had a door that opened into Arledge's office but not one into Weiswasser's. The wall prevented Weiswasser from strolling across the conference room to pop in on Arledge, or even to see whether he was in; days would pass without an Arledge exchange or sighting. To improve communications, Weiswasser wanted to bust a hole through the wall, but Arledge, who is notoriously secretive, was not happy with this prospect. Weiswasser ordered it done anyway. The doorway was built. "Roone is cutting him with a thousand razor cuts," said one longtime ABC peer, who, like others, had heard about the door and was convinced that Arledge would ultimately exhaust Weiswasser, just as he had done with previous executives.

Weiswasser next pressed for a streamlined management structure, including the appointment of an executive vice-president who would be in line to succeed Arledge, but Arledge picked the plan apart, complaining that in the name of ending bureaucracy Cap Cities/ABC was creating one. Arledge supporters suspected that Weiswasser wanted his job. The Arledge and the Weiswasser camps within News soon became polarized. Privately, Burke fumed at this divisiveness, and he worried that Arledge, who earlier in 1992 had undergone surgery for prostate cancer, had no successor in place.

In November, Burke and Weiswasser conspired to engineer a conclusion. Weiswasser proposed to leave News even before he and Burke had agreed on another assignment for him. Arledge, probably glad to get Weiswasser out of the next office, became more amenable to Weiswasser's proposed management structure, which included not only an executive vice-president but four executives to oversee hard news, the magazine shows, editorial quality, and finance.

Arledge still wanted something: an extension of the two years remaining on his contract. His agent said that the extension was a way for Arledge to maintain "his dignity"--a phrase Burke took to mean that Arledge wanted his insecurity assuaged. Arledge also wanted a loyalist, Joanna Bistany, to become the senior vice-president for ABC's magazine shows.

Burke assured Arledge that he hoped he would remain president for as long as he wanted, but said that he would not agree to appoint Bistany; he and Weiswasser wanted her removed from the management loop, believing that she was merely a scout for Arledge. The two men met for dinner in late November, and Burke, according to an intimate, told Arledge that he would discuss the contract extension only after Arledge agreed to reorganize the News Division. Burke got his way. In January, a new management structure was announced, with Paul Friedman, the executive producer of "World News Tonight," named executive vice-president. Privately, Burke tells associates he has "every confidence" that Friedman will one day, in the distant future, succeed Arledge. Weiswasser will remain for the time being to assist Friedman--from a different office--and Bistany's role has shrivelled to that of staff assistant to Arledge. Now that Arledge is truly ceding power to his likely successor, Burke has approved a contract extension.

WHILE Burke gets praise within Cap Cities/ABC for running one of the better-managed companies, he is not praised for the way he has managed his own succession. Murphy and Burke first teamed up in 1961, when Murphy hired Burke to run the company's Albany TV station, and they have gone on to build a five-billion-dollar communications company, which now includes ABC, eight radio networks, eight TV stations, nineteen radio stations, seventy-eight newspapers, and majority ownership in ESPN and other cable holdings. The two men are widely revered inside the company. Burke has played the role of the strict parent who instructs underlings as to what they can and can't do; Murphy, who concentrates on strategy, has been the genial parent. But both men are nearing retirement. Two and a half years ago, Murphy turned sixty-five and honored a pledge that he made to step aside when he reached that age and give his partner, Burke, who is now sixty-four, the C.E.O. job. The two have had such a symbiotic relationship that a Cap Cities publisher once told colleagues, "I spent three years in the company before I realized that Murphy and Burke were not one person."

Burke declares that he will retire when he reaches sixty-five, next February. "Murphy's unhappy that I keep telling people I will retire as scheduled at age sixty-five," he says. "He thinks it makes me a lame duck." Burke disputes that notion and talks openly of spending more time at a house he owns some twenty miles south of Portland, Maine. He recently acquired a minor-league baseball team in Portland and induced the city to upgrade a sixty-two-hundred-seat stadium for it. "It will be the most beautiful little ballpark you ever saw," he says. He himself will be chairman of the team and, he says, "enjoy the damn thing."

"This isn't a case where the founder's ego has trouble letting go," a fellow-executive says, mindful that ABC's founder, Leonard Goldenson, remained chairman as he approached his eightieth birthday. Nevertheless, the question of who will succeed Burke is a topic of endless speculation within the company.

How will a successor be chosen? Burke and Murphy and the company's largest shareholder, Warren Buffett, who owns an eighteen-per-cent stake, talk about it often, Burke says, and Burke keeps in a desk drawer a list of nearly fifty executives and their dates of birth. There are five contenders inside the company: Robert Iger, the former ABC Entertainment president, who is forty-one and who succeeded John Sias as network president last November; Weiswasser; the company's publishing president, Phillip Meek, who is fifty-five; its broadcast-group president, Michael Mallardi, who is fifty-eight; and its chief financial officer, Ronald Doerfler, who is fifty-one. Whatever the gifts and qualifications of these contenders, internal handicappers note that none have management experience in all aspects of the parent company's business. The fear is that no one of them is yet ready to succeed the great men.

Another possibility for Cap Cities /ABC is a merger with another media company. Two potential merger partners who were mentioned in recent weeks were the Turner Broadcasting System and Paramount Communications. But Ted Turner is known for his vision, not for his management skills, and though he has met with Burke and Murphy, the idea of a merger with him seems unlikely. Nor is Paramount a likely partner, because ABC is now committed (as are CBS and NBC) to building its own in-house capabilities, in the hope of becoming a mini-studio, and also because the loud, confrontational management style of Paramount's chairman, Martin Davis, and his second-in-command, Stanley Jaffe, would clash with the more subdued, affable style of Cap Cities.

A snugger fit would be Walt Disney Company, whose C.E.O. is Michael Eisner. The managements of the two companies respect each other and share a preoccupation with controlling costs. The companies have thought about a merger, but what makes the companies alike also makes a merger less plausible. "Disney is smart, not entrepreneurial," says an executive at another network who has also talked with Disney about merging. And Disney, like Cap Cities, is cheap, unwilling to pay a steep price. Besides, to get around current government regulations that might force Dis-ney to abandon its lucrative television-syndication business--a network is limited in what programs it may own and syndicate to local stations--Disney has considered the idea of just buying Cap Cities' eight TV stations. These stations, which are in major urban areas, earn about fifty-five cents on each dollar of revenue and are the most profitable stations anywhere. But they are not for sale separate from the network. "We don't believe our stations are divorceable," a Cap Cities executive says. "Our attitude is 'Love me, love my dog.' "

Still another possible merger partner is Viacom International, which syn-dicates such shows as "Roseanne" and "The Cosby Show," owns MTV and assorted TV and radio stations and cable-programming services, and which had a cash flow last year of nearly five hundred million dollars. Viacom's C.E.O., Frank Biondi, is a dynamic executive who is just forty-eight years old. The two companies, which are partners in the Lifetime cable channel, have thought about merging, a top Viacom official says. Viacom's questions concern personality, money, and future prospects: Would Burke, Murphy, and Buffett be comfortable with Viacom's chairman, Sumner Redstone, and he with them? Could they agree on a sale price? Finally, with stations as well as the networks feeling the pinch from cable and other channel choices, Viacom wonders where the growth potential is at Cap Cities/ABC.

DESPITE the proliferation of channel choices and the fact that network growth has stalled, a surprising number of competitors would love to own a network. If government were to change the rules and allow a network to merge with cable, John Malone, the C.E.O. of the country's largest cable company, would leap at the opportunity. "The networks still represent an enormous economic force for program creation," he says. "It's only the networks that have the economic clout to create entertainment programs."

There are four basic reasons that the networks continue to enchant potential investors. First, there is the size of the audience. "You're buying a trademark," Robert Batscha, the president of the Museum of Television and Radio, says. "It took HBO about fifteen years to build a trademark." It took CNN and MTV only a decade, but such rapidly built trademarks are rare. Because the networks can reach a vast audience (on Thursday, February 18th, at 9 P.M., for example, the four TV networks reached eighty-eight per cent of all the people who were watching television), they are attractive to advertisers; and they popularize shows, making it possible for producers to attain the familiarity needed to create the lucrative syndication marketplace for reruns.

The second attraction of a network is linked to the first: there is no broader platform from which a studio or a cable programmer or a syndicator can promote its other offerings. "If you want to acquire the National Football League games for pay-per-view, the networks are the best platform for promoting them," the C.E.O. of a multimedia giant that has had exploratory talks with both ABC and NBC about buying a network says. Because only the networks reach a mass audience, they become a vehicle to advertise shows on other channels owned by the media giant that has acquired the network.

The third appeal of a network is vanity. Not only does a network offer a promotion platform for shows; it is a platform as well for the C.E.O., who automatically bounds onto a public stage.

The fourth attraction of a network is related to costs. Reduce a network's overhead--currently three billion dollars in the case of CBS, NBC, and ABC--and profit margins will jump. There are those--including Barry Diller, the former Fox chairman, when he flirted with buying NBC last fall--who succumb to the conceit that they can reduce costs more dramatically than General Electric, which owns NBC, or than Cap Cities, or than Laurence Tisch, the chairman of CBS. Perhaps a more fruitful way to lower costs would be for a network to merge with a studio, and thus get a firmer grip on its steepest cost--the license fees it pays for entertainment programs. For a studio, the appeal of owning a network is that it might guarantee time slots for the shows it produces, thereby reducing its risks. And the studio-network marriage might also provide another benefit for both: if a show is kept on a network for four years, a studio will have produced enough episodes to sell it in syndication.

General Electric has been exploring this angle, and one other as well--an angle that was specifically rejected by ABC. G.E. is secretly welcoming offers on the NBC network separate from its stations and other holdings. The NBC network alone is said to have earned fifty million dollars in 1992, and it expects to earn a hundred million this year. That's not as large as the return on investment enjoyed by, say, many cable companies, but it's not terrible. "This year, we'll have three hundred million dollars in cash flow," a G.E. executive says of NBC. "Not many businesses are easier than this. Try making motors." One decision-maker acknowledges that G.E.'s chairman, John Welch, and NBC's president, Robert Wright, have pursued with potential cable and studio suitors the idea of breaking up NBC, and selling just its entertainment division, for between half a billion and a billion dollars. Recently, after NBC tumbled into third place in the prime-time ratings, G.E. firmly concluded that it brings nothing to the programming table, and is prepared to sell this piece of the network outright.

Under such a scheme, NBC would remain a network in name only; it would actually become a programming company situated in Los Angeles. The buyer would get the network's biggest profit-producer--control of the twenty-two weekly hours of prime-time programming--without inheriting the overhead of a full-service network that also provides sports, news, and daytime soap operas. At least two other pieces of the network--the profit-generating six stations that NBC owns, and the cable investments that NBC has made--G.E. wants to own in partnership with the buyer of the NBC trademark. By having guaranteed access to the major urban markets of the six stations, which reach nearly a quarter of all viewers, the buyer would retain considerable programming clout. By retaining control of CNBC, NBC's twenty-four-hour business-news channel, G.E. would keep alive the possibility of launching an attack on CNN. The parts of NBC that lose money or do not contribute lush profits--among them "NBC Nightly News," most sports, and daytime programming--might become expendable, an official concedes. And if NBC News is expendable, Michael Gartner's successor might like to know this before signing on.

THE networks have clearly entered a transitional phase, and so have the Hollywood talent agencies. The most prominent example of change among the agencies is the thrust into the advertising business engineered by Michael Ovitz's Creative Artists Agency. By preparing twenty-four ads for Coca-Cola, C.A.A. and Ovitz opened a new avenue for agency growth. This was Ovitz's intention, as it had been when he branched into investment banking, serving as a deal-maker in Sony's acquisition of Columbia Studios, in 1989, and Matsushita's purchase of MCA, in 1990, and also when he signed on as a programmer and promoter for Nike products. The jury is out on all these moves, but with fifteen of the Coca-Cola ads currently on the air, Ovitz believes that the ads have already accomplished their initial objective: changing Coke's image.

"They didn't want people to think of them as old fogies," a C.A.A. executive says. "They wanted to be perceived as cutting-edge." Ovitz collected a hundred pages of press clippings, and C.A.A. believes that they attest to its success in altering the image of Coke.

With new opportunities, however, come new barriers. Success or failure is measured somewhat differently in the advertising business from the way it is measured in the talent-agency business. "It's quite courageous of him," says Sam Cohn, the vice-chairman of International Creative Management, who is dubious about C.A.A.'s and his own agency's rush to expand. "If those commercials fail, the finger gets pointed at him. As Jackie Gleason once said to me, 'If you think it's so funny, why don't you go out and do it!' " Another competitor at a Hollywood talent agency says, "Ovitz is in a business that is transactionally oriented, not product-oriented. In the case of Matsushita or Sony, what he did was make a deal. Whether it works is less important. The same is true in the agenting business--we don't take the bullet if a movie doesn't work. For the first time in his life, he has a real yardstick by which to measure his work: Did the ads sell more Coca-Colas?"

Ovitz claims to see no difference between this yardstick and the one that measures his performance as an agent. "It's not something I've ever thought about," he says.

I.C.M. performed as an investment banker in gathering multiple financing for James Cameron's new up-to-five-hundred-million-dollar contract to direct movies--he directed the two "Terminator" movies--and is also exploring new ventures. Like Ovitz, I.C.M.'s chairman, Jeffrey Berg, has met with a variety of different companies in search of that favored business concept "synergy." He has held discussions with telephone and computer and cable and consumer-electronics companies. Assuming that an agent represents "the intellectual-property right"--the writers and directors and actors and performers who will always be necessary--agents like Berg and Ovitz wonder who won't be necessary. In an age when the middleman becomes increasingly superfluous, is it possible that technology will eclipse the video store or the movie theatre, or further assault the economics of the television networks, and even local stations, by allowing viewers to watch what they want at any minute of the day? Might even the powerful Hollywood studio become an expensive, cumbersome middleman?

"The agencies are going to be at the focal point of change," Berg says. "We'll be able to put our clients in new relationships." A talent agency might treat a studio or a network or a cable company as a middleman and make a direct deal with, say, a telephone company to make a movie or a show that would be distributed over the telephone wire. Or a talent agency might broker a movie package for an overseas company, bypassing the studio, as I.C.M. has already done in France. Or it might link its directors and actors and writers directly with, say, I.B.M., which is developing new video software, and last week signed a joint-venture agreement with Cameron and two Hollywood special-effects men.

A danger for the talent agency is that these efforts would dilute its focus. Also, much of this would take skills that are yet undeveloped. Executives of the telephone and computer companies, for example, are unlikely at present to be able to deal comfortably with Hollywood talent. "It would be like a cloistered nun spending time with a nudist," one entertainment executive says.

FINALLY, there is the tale of a gnat driving a giant crazy. Little more than a year ago, companies that wished to use super-high radio frequencies were granted permission by the Federal Communications Commission to transmit television signals. Instead of having to dig up streets and construct expensive wire highways into separate homes, as cable companies have done, they could just pick a satellite, find a tall building, put a fourteen-foot satellite dish on top of it to receive microwave signals, and bounce the microwaves to three-foot dishes on other roofs. Enter Liberty Cable Television, a company owned by the real-estate and banking interests of the Milstein family and now aggressively marketed by the former New York Post publisher Peter O. Price.

Such a system of delivering television signals is not new, but before the F.C.C. ruling it could be used only to deliver signals to a single building, and not to bounce them from one building to another. In the year since the ruling went into effect, Price says, Liberty has signed up twelve thousand customers in Manhattan and is averaging two thousand new customers a month. The prize is the half-million cable customers who now subscribe to one of two Time-Warner cable systems, Manhattan and Paragon Cable. "We are now competing directly with Time-Warner," Price says. "We should be able to get from fifteen to twenty per cent of the market in Manhattan. And, given the rage at cable, we could get more."

Liberty's sales pitch is simple: If you're mad as hell and want to save money, sock it to the giant. Liberty offers up to seventy-three channel choices and a monthly charge that is a third to half as expensive as regular cable, and there is no installation charge, no matter how many TV sets in an apartment are hooked up. Liberty mounts its three-foot dish on the roof to receive the signal, then sends it down the existing wires owned by the building. The catch is that the entire building must agree to sign up with Liberty.

Just over a year ago, Richard Aurelio, the man who built the Time-Warner cable business in New York, characterized Liberty by telling the Times, "They're of no concern to me." Yet last month Time-Warner Cable mailed a blue-and-white flyer with the heading "Here's What You Lose If You Switch From Time-Warner Cable to Liberty Cable." The flyer listed seven things, including a few channel choices not available on Liberty. Today, Aurelio refers to Liberty as a "pimple."

Time-Warner is more worried, however, about a pending partnership between Liberty and the New York Telephone Company, which has a hundred and ten thousand miles of fibre-optic cable installed in the metropolitan area. Liberty could use the telephone company's cables and sophisticated switching devices to offer customers what Liberty calls a video-dial-tone service. If this service is installed by the fall, as it can be, viewers might have to change the way they think of everything from channel choices to newspapers. A vast push-button video vault will contain not only any channel but any movie, sitcom, newspaper, book, or data.

Price has had conversations with both the Times and the Wall Street Journal about using Liberty in a pilot project to distribute the newspapers through the TV set. Mindful that newsprint represents the second-largest cost item at a newspaper--after payroll--Price is eager to promote the prospect of publishing a paperless newspaper. Don't want to hustle to a newsstand at 10:40 P.M. for an early edition of the next day's paper? You can get the paper with a click of your remote control.

Price wants to create separate Bergdorf Goodman and F. A. O. Schwarz channels, enabling people to shop at home. He is close to an agreement with Cap Cities/ABC, and dreams of offering Peter Jennings' "World News Tonight" or ESPN sports on demand. He says he will soon announce agreements with Lincoln Center to offer live concerts, plays, and operas; with public television to offer "The MacNeil/Lehrer NewsHour"; and with the Port Authority to display airline departure and arrival times and bridge-and-tunnel-traffic reports.

But there are more than a few obstacles. Price needs federal approval to link up with the telephone company, and both Time-Warner and the City of New York have petitioned the government to reject his application. "They're masquerading behind talk of a 'video dial tone' to provide cable service without a franchise," Richard Aurelio says. William F. Squadron, New York City's Commissioner of the Department of Telecommunications and Energy, now welcomes Liberty, because it creates competition with cable, but would not welcome the joining of Liberty and the telephone company. He charges that Liberty seeks to "evade the law," which requires cable-service providers to pay a five-per-cent franchise fee to the city.

One other obstacle: neither the Times nor the Wall Street Journal has officially signed on. "We're going to try and do some stuff for him," Michael Connor, the director of television development for Dow Jones & Co., which owns the Journal, says of Price. "We really haven't figured it out yet." A management figure at the Times who has been involved in the discussions says a deal is not imminent, but he adds, "Will we do something with Liberty Cable? I hope so."

Whatever happens--whether the giant swats the gnat or not--Liberty Cable offers an apt metaphor for what is going on in the worlds of communications and of business. The entrepreneur who travels light often outmaneuvers the giant, as IBM has learned and Time-Warner may have to learn. "I think the business will explode," Price says exuberantly. "We're symptomatic of the pipeline opening up." The Liberty case is also symptomatic of something else: the critical rule-making referee role that government will play, particularly in the new Democratic Administration. After all, it is government that will decide whether Liberty and the telephone company--or NBC and a studio, or ABC and a cable company--can unite. (c)


© 1996-2002, Ken Auletta - all rights reserved
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