annals of communications
The New Yorker - February 12, 1996
These are giddy days in the industry, and C.E.O.s keep losing their heads.
On the afternoon of Tuesday, January 16th, Frank Biondi's secretary told him that Sumner Redstone, Viacom's chairman, wanted to see him at three-thirty the next day. This was an unusual request, since Redstone often popped unannounced into Biondi's office, which was just a few steps away from his own. "I knew then that something was going on," Biondi, who at the time was Viacom's president and chief executive officer, says.
Redstone, who is seventy-two years old, recalls being extremely nervous as he entered and said, "Frank, there isn't any easy way of saying this, but I've reached the conclusion that our business relationship should be terminated. I just came to the conclusion that your vision and mine as to how the company should be led are incompatible." With that, Redstone did what Biondi had done when he fired Richard Snyder, the publisher of Simon & Schuster, in June of 1994: he handed the victim a draft press release announcing his dismissal.
Although Biondi was on the board of Viacom, he did not know that Redstone had conducted a secret board meeting that morning at the law offices of Shearman & Sterling. Nor did he know that since Christmas Redstone had been discussing firing Biondi with two executive vice-presidents, Philippe Dauman and Tom Dooley, and the company's outside communications counsel, Ken Lerer. Biondi had been at Viacom for nine years, and Redstone had credited him with building it into the fourth-largest entertainment company in the world, behind Time Warner, Disney, and Bertelsmann. But some tension had crept into their relationship in the last few years. As Biondi says, "the dynamics" between them had shifted slightly in 1993, when Redstone selected Dauman, his longtime counsel, to succeed him as chairman eventually. He knew that Redstone had been upset when Nickelodeon's president, Geraldine Laybourne, announced last December that she had been lured away by Disney, to become the president of Disney/ABC Cable Networks. Redstone hated losing her, and Biondi's cool detachment about the loss had annoyed him. Still, Biondi could not imagine that Laybourne had told them both that Viacom could not match the broader opportunity that Disney was offering.
Biondi also knew that it annoyed the work-obsessed Redstone whenever he left at 6 P.M. or so for the gym or a game of tennis, and when he took regular vacations. Dauman and Dooley and others would often go to dinner with Redstone, but Biondi felt secure enough to believe that he didn't need to schmooze with the boss, and didn't need to work all the time. He believed that he and Redstone were a good fit: the disciplined manager and the brash entrepreneur.
On January 17th, as Biondi sat across from Redstone, he only glanced at the seven-page draft press release, then responded in a typically subdued fashion. He recalls saying, "That's a surprise. Why?"
"You should know," Redstone said.
"I don't," Biondi said.
"Talk to Tom. He should know," Redstone said, referring to Dooley.
Biondi said that he hadn't been able to find Dooley all day and had been told he was out of the office. Redstone insisted that he was there, and Biondi replied that he was not. "I'll go find him," Redstone said, and he then left and did not return. From four-thirty until midnight, Redstone recalls, he was on the telephone, trying to lessen the shock for dozens of people. One of the first calls he made was to Gordon Crawford, a senior vice-president at Capi-tal Research Company. Capital's clients own eight per cent of Viacom's stock.
As for Biondi, he phoned his wife, Carol. "I have good news and bad news," he remembers saying.
"What's the bad news?" Carol Biondi asked.
"We're not going to China," he said, referring to a trip that was to have been part business and part pleasure. "The good news is that I'm going to be able to try some new things, because I'm going to be leaving. Sumner just walked in and said he wants to take my job."
FRANK BIONDI is merely the latest in a lengthening line of entertainment and communications executives who have been forced out in recent months or years: Warner Music's chairman, Robert Morgado, last May, and his successor, HBO's chairman, Michael Fuchs, last November; the Disney Studios' chief, Jeffrey Katzenberg, in September of 1994; the Sony Corporation's American president, Michael Schulhof, in December of last year, and the Sony studio head, Peter Guber, in September of 1994; Simon & Schuster's Snyder in June of 1994; and the Paramount Communications president, Stanley Jaffe, earlier in 1994. Recent forced resignations include those of CNBC's president, Roger Ailes, who left in January of this year; Hearst Magazines' chief, Claeys Bahrenburg, who stepped down last November; and Fox's Barry Diller, who left the company in 1992. Biondi, like most of the others, was by objective measures a success. (Schulhof and Guber, whose financial performance was dismal, were the exceptions.)
Under Biondi's leadership, Viacom had grown from a billion-dollar company to a nearly twelve-billion-dollar colossus. He had created a strong management team and had smoothly brought both Paramount and Blockbuster into the Viacom tent. Earnings were slightly lower than analysts anticipated in 1995, but Viacom's operating cash flow (before interest, taxes, and depreciation) was two billion three hundred million dollars, up five hundred million from the previous year. Last year was "the best year any entertainment company had on the numbers," Biondi says. "We were up twenty-five per cent." He predicts that the company, including Blockbuster, will continue to enjoy double-digit rates of growth.
Morgado could claim a similar success. When he took over Warner Music, in 1985, the company's revenues were just under a billion dollars. At the end of 1994, five months before he was dismissed, he was presiding over a four-billion-dollar global-music division that generated seven hundred and twenty million dollars in cash flow for Time Warner. Yet Gerald Levin, Time Warner's chairman and C.E.O., told his board that Morgado had to go, because he had alienated many of the company's music executives. Michael Fuchs had overseen the growth of HBO, which went from six hundred thousand subscribers in 1976 to thirty million by 1995. A few months after Fuchs was promoted to manage the music division as well, Levin told the Time Warner board that he did not march in step with management. Barry Diller was the chief architect behind the successful building of the Fox network, in 1986. Jeffrey Katzenberg played a major part in the resurgence of the Disney Studios. Richard Snyder transformed a sleepy publishing house into a giant. In just a little more than two years, Roger Ailes helped transform CNBC from a startup cable network that lost money into one that produced operating profits of some fifty million dollars last year.
The reason Biondi was let go was not that he wasn't a team player, as was said of Richard Snyder. He was not accused of disloyalty, as Fuchs was, or of an inability to get along with some underlings, as Morgado was. No one believed that Biondi had pushed too hard to be promoted, as was said of Katzenberg, or that he was hapless, as was said of Schulhof. Biondi was fired for other reasons. "Frank is not an aggressive person," Redstone says. "He is not a person who seizes the day. That doesn't mean he's not a good manager." It just means, Redstone told me, that his skills were not appropriate for what the chairman calls "the new Viacom"--a company that has to ana-lyze less and act more quickly than it did in the past. While expressing respect for Biondi's talents and integrity, Redstone criticized him for lacking passion. "I think passion is important," Redstone said. "My passion is rationally based. It plays a role in leadership--to be able to instill excitement."
Yet common themes can be found in the firings of Biondi and many of his brethren, and they may have to do less with job performance than with the nature of the entertainment business (and human nature). The business has changed because of its "awesome and escalating concentration of power," Redstone says. And Levin, who in the past year fired Morgado and then Fuchs, says, "We're not in the furniture business. We're an idiosyncratic, ego-driven business. To spend two years turning out an album is idiosyncratic. The management of this business does not lend itself to traditional management practices."
Biondi, too, believes that the entertainment industry, where decisions are often made by people who operate on instincts and hunches, is unlike any other. "If there is a single unifying element, it probably has to do with the size of the stage and the number of people on it," Biondi told me. "It is an ego thing. . . . At Coca-Cola or Ford, executives are part of the fabric. They're a team. They do things the Coca-Cola way. In communications, you don't have this tradition and history. There's high turnover. There's not a lot of feeling of permanency, partly because the business has been reinvented in the last fifteen years. Ted Turner was running a TV station in Atlanta fifteen years ago."
Howard Stringer, who was formerly the president of the CBS Broadcast Group and is now the chairman and C.E.O. of Tele-TV, an effort by a consortium of telephone companies to provide TV programming, believes that the "fabric" in entertainment and communications has been replaced--in part, at least--by the will to power. "We are now entering the Napoleonic period of the entertainment business," Stringer says. "Everyone wants to be Napoleon--'I'm in charge.' Everyone wants to be perceived as uniquely powerful." Biondi, too, believes that, just as a company tries to promote its brand name, its C.E.O. tries to associate his or her own name with a brand. "You're seeing the emergence of the quasi-owner executive," he says. "Someone like Michael Eisner, much to his credit, became the embodiment of Disney."
Redstone, however, shrugs off the idea that ego plays a role. "I have passed the stage where I have to bolster my ego with news stories," he told me, adding, "I am not a stargazer." As he said this, I studied the photographs that line his office wall. They are all of celebrities of another era: Jerry Lewis, Gregory Peck, Jimmy Stewart. And Edmund Muskie.
Disney's Geraldine Laybourne, who may be the most powerful woman in the television industry, says she never saw any sign of a Redstone ego. "Sumner never had trouble with me getting publicity, or with [the Paramount studio chief] Sherry Lansing or [the MTV chairman] Tom Freston getting publicity." Yet there is some evidence that Viacom's public-relations department sought to be sure that Redstone received at least equal time with Biondi in all future articles; when the magazine Wired planned to put a photograph of Biondi on its cover, according to a top editor there, "the flacks at Viacom" insisted that Redstone be included. Viacom's spokesman, Carl Folta, says, "Sumner Redstone knew nothing about this. It was our decision." It is clear that the attention paid to other mergers rankles Redstone. "People forget--they're caught up with Disney and ABC or Time Warner and Turner, and they forget how much Viacom has changed," he told me. It is also hard to miss Redstone's own changed appearance. In recent months, he has replaced the rather casual look he favored with a new, coiffed hair style.
Geraldine Laybourne suggests that gender, too, may play a role in all the industry shifts. "I think men measure their achievements--and this is a gross generalization--by who's on top," she says. "You see a phenomenon like 'O.K., Rupert bought this. What am I going to buy?' Women measure their success dif-ferently. . . . I don't get my good inner feelings by beating someone out. I think men are raised to be more competitive. It's not that women can't compete; it's just that we compete in different ways."
Gerald Levin believes that the speed of changes in technology, the publicity, and the nervousness of Wall Street all have conspired to create a new climate for the executive at the top, and make the executive more anxious to find associates who can make him feel comfortable. "In every case, it's a question of performance, if you define performance broadly enough," Levin says. "Performance can mean psychological tension. It can be like a marriage where people grow out of each other. Many of these conflicts involve a C.E.O.'s comfort level. It's not always black-and-white when someone should be fired. It's judgmental. The most important thing is the feeling of a relationship. Words like 'family' and 'marriage' are important. In doing deals, you need trust, or they come apart. Wall Street often misses the point of throbbing emotionalism. Anytime someone makes a logical business decision, go look at the emotions underneath."
This response surprised Robert Morgado, in the light of his firing by Levin last year. Since that happened, Morgado has used his severance pay, of roughly sixty million dollars, to fund Maroley Communications, a media-investment company. When I passed along Le-vin's thoughts, I didn't tell him whose thoughts they were. "Comfort level with what?" Morgado replied. "What is comfort? Does it mean that someone wants to be comfortable so he doesn't feel threatened?" Wasn't it reasonable to expect, say, loyalty from an underling? "I won't dispute that as part of the equation," he said. "But if it's loyalty that springs from insecurity, then it breeds bad decisions. It breeds the plumbers of Watergate. It breeds survival at all costs." And, no doubt, it bred the classic case of insecurity that drove Gulf & Western's former C.E.O., Martin Davis, to drive out the Paramount Studios executives Barry Diller and Michael Eisner in 1984, because they were featured on the cover of New York, and he was not.
HAS a new era of beheadings arrived? "I don't think the percentage of turnover is any higher," the investment banker Herbert A. Allen says. "What's new is the intense publicity." Redstone, who since Biondi's dismissal has added the title of C.E.O. to his letterhead, thinks that the new nature of the communications business inevitably speeds the turnover rate. "There are diverse themes within the various companies," Red-stone told me. "But there is probably a general, common theme, and that is, with . . . companies becoming bigger and bigger, with their operations becoming more and more diverse and more and more complex, and with the world in which they live becoming more and more complex, the issue arises in the minds of those who control these companies. Are the managers they have chosen equipped to face the challenges that are arising?"
Wall Street and the press also have altered the landscape. "I think we've compressed the period of time when things occur," Levin says. "Consolidation has brought more competition. And there always needs to be a next step. Most of these companies are financed through the stock market. They grow through the support of the market, and it's a much more unforgiving market. The press can bring someone down now, because perceptions are more important. They can affect the way a board feels or the way investors feel."
Even so, the entertainment business could not survive without risk--and risks hinge on hunches, not certitudes. Levin invested millions in a video-on-demand experiment in Orlando, Florida, maintaining that it would become the next rage. It didn't. The Internet did. Redstone complained that Biondi let Paramount make movies from screenplays that both he and Biondi didn't like, yet Redstone admits that he "loved" the studio's fifty-five-million-dollar Christmas offering, "Sabrina," which was a box-office dud. In the end, C.E.O.s struggle to guess right: should they invest in direct-broadcast satellite or ca-ble, long-distance or video services? Interactivity? High-definition TV or more channels? A studio or computer software? Biondi, who worked at HBO and at Columbia before joining Viacom, says that what has changed is the level of uncertainty: "Much more of a sense that 'I've got to do something.' There wasn't this sense in the eighties." And scared successful companies often act scared. In terms of growth and profitability, "these are not industries that are threatened," Jorge Reina Schement, professor of communications and information policy at Rutgers and Penn State, observes. "More fundamentally, these in-dustries don't know where they're going, so there is a tendency to change people."
A source of their terror is the more pronounced role played by Wall Street. That's an audience that A.T. & T. was playing to when it announced the layoffs of forty thousand employees. That's what Redstone revealed by his quick call to Viacom's heavy stockholder Gordon Crawford, among others. And it is why C.E.O.s spend much more time today than they did ten years ago making presentations to major institutional inves-tors, or courting Wall Street analysts as if they were political delegates. Levin knows that if he doesn't get the price of Time Warner stock to rise--a price that has stalled despite two bull markets in six years--he may not be able to finance the expansion he wants, and then he could be ousted. That creates insecurity, but it also encourages a tendency to treat the market as a more intelligent institution than it is. Reinforcing this short-term preoccupation, CNN now frequently billboards an account of stock-market "Winners and Losers." Viacom is said to be a loser, because Block-buster dipped for a couple of months and is now threatened by video-on-demand. Video stores may one day be threatened by electronic delivery of movies, but that bleak threat is not an imminent one. Over the next four years, Blockbuster expects to triple its stores overseas, from thirteen hundred and thirty-three to four thousand.
ON the Monday after Biondi was dis- missed, his office, on the twenty-eighth floor at Viacom's headquarters, on Broadway, was empty. He had been moved to another Viacom office, on Eighth Avenue; there, on the fifteenth floor, Biondi and his secretary were the only visible employees.
Biondi is too disciplined--and too intent on negotiating a comfortable severance agreement--to show any public anger at the way Redstone treated him. When I stopped by his new office, he was a picture of calm, no doubt aided by the knowledge that he will walk away with a rich settlement. Nevertheless, this is the second time that Biondi has been fired. The first was in 1983, when he was the president of HBO: his boss, Nicholas Nicholas, dismissed him because of strategic differences, and chose to replace him with Michael Fuchs, who was then Biondi's closest friend. "Having been through this thing once before, I view this somewhat less competitively," Biondi told me. "When I left HBO, I felt I had to prove them wrong. This time, I don't feel that way. It was a great run." It must, however, be humiliating for a man who grew up in a home where his fa-ther, a scientist, and his mother, a strict housewife, instilled in him the belief that merit wins. By every measurement he knew, Biondi had twice proved his merit, yet he was twice treated as if he had failed.
There are some small consolations. When Fuchs replaced Biondi at HBO, the move nearly wrecked their friendship. That both men have now been fired, just months apart, appears to have cemented a new bond between them. One of the first calls that Biondi got was from Fuchs, to say that when he heard the news on the radio he almost crashed his car, because "I was so shocked and distracted that I coasted past a stop sign and into the middle of an intersection." Fuchs invited the Biondis to dinner at his home, in Bedford, New York, the Saturday after Biondi was dismissed, and raised a glass to toast him. "This completes the cycle," Fuchs says. "We'll never be rivals again. Who knows? Maybe we'll be partners."
Biondi told me, "There's an outside chance I'll do something with Michael." There's also a chance he'll be asked to become C.E.O. of a company like MCA. On January 26th, a week after he was fired, he had lunch with Edgar Bronfman, Jr., the C.E.O. of Seagram, which acquired MCA last year. Biondi, a top Seagram executive says, is a prime candidate for that post.
Reflecting on all the carnage he has witnessed over the past several years, the second-ranking executive of an entertainment giant, who fears that he may be next, searches for a historical compari-son. "The entertainment business is like the French Revolution," this executive, who asks for anonymity, says. "All the beheadings are public. You get paraded through, and then you get beheaded. It's embarrassing. But the fact that you're paid so much money and there are so many others who are being beheaded has to make you feel a little better." (c)