didn't plan on working in the entertainment economy. It happened naturally. In
fact, the way in which my own life has been caught up in the swirl of the
mega-media forces I describe in this book is a small but vivid example of just
how dramatically entertainment is transforming our economy.
My father was a prominent investment broker, first in Miami and then in Los
Angeles. For as long as I can remember, the progress of the stock market and the
performance of big companies were a daily part of the family conversation. But
performances of a different sort were also a focus of our lives. At my home
alongside The Wall Street Journal, Barren's, and Fortune were also the
entertainment trades: Variety, The Hottywood Reporter, and Billboard. My mother
was a television i ffoducer and entertainment writer. So while one night we lit
be sitting at the dinner table with one of my dad's partners or an out-of-town
corporate chief, the next night our house could be filled with an after-show
supper for the principals of the New York City Ballet or a film editor hashing
out the final cuts of a show. The vocabularies of the business and entertainment
worlds were always intertwined in my mind.
My early career decisions mirrored this duality between the arts and the numbers.
I started out doing marketing for a Hollywood studio. That certainly exposed me
to the creative and talent side. Then I ran a financial services company, which
sent me to the spreadsheets.
I became a consultant just at the time that the entertainment economy was
emerging. There were the beginnings of an awareness that the media and
entertainment industries needed to begin to work like real businesses, while at
the same time traditional companies were just starting to recognize the
criticality of entertainment to their businesses. It was a lucky fit for me.
When I started in this business, entertainment companies didn't usually hire
management consultants. They didn't need to. They were fat and happy companies
that Warren Buffett called "orangutan businesses"—anybody could make money with
them, even an orangutan. Well, all that has changed in little more than a decade.
My focus on media and entertainment started shortly after I joined the
consulting firm of Booz-Alien & Hamilton. At that time we had a small
entertainment practice, and one of the firm's major industrial clients,
Westinghouse, needed some answers about its television stations, which were,
amazingly at the time, one of their secondary businesses.
It turned out to be the project that changed my life.
Westinghouse was considering selling its Group W television stations. The growth
of cable was scaring a lot of broadcasters out of the station-owning business.
There was a constituency at Westinghouse that wanted to unload the stations.
Before they did—or maybe just to confirm their inclinations with some hard
numbers—I was charged with undertaking a study portentously titled "Outlook on
the Future of Broadcast Television."
In the same way that Willie Sutton explained that he robbed banks because "that's
where the money is," I realized that if you want to understand where the
entertainment business is going, you need to get to the people who control it.
Sure, we pored over the figures and the industry trends and analyzed them from
every possible perspective. But that could tell me only the numbers story behind
a business that is dominated by personalities. I knew I had to get face-to-face,
or at least phone-to-phone, with the top broadcasters, advertisers, and studio
executives and understand their points of view.
I found myself conducting research in the most high-toned, prestigious, and
creative focus group I could imagine. I was encouraged when I got spirited
opinions from some of the great minds that were shaping the enormously
influential entertainment business. I interviewed a group of more than fifty key
executives from each part of the business. I talked to Sumner Redstone of Viacom.
I sat down with Larry Tisch, owner of CBS, and with Jack Welch of General
Electric, which had just bought NBC. I spent a valuable afternoon with Burt
Manning, the chairman of J. Walter Thompson, who was one of the most financially
powerful people in media.
Two months later, combining the insights of some of the best brains in the
business with our detailed analysis, I felt confident that we had the right
answer to present to the people of Westinghouse, even if it wasn't the story
they expected to hear.
It was a cold winter morning when our team cabbed over to the West Side of
Manhattan, where Group W had its offices. I was mentally reviewing our
presentation and trying to calm my nerves. I knew we would be facing a
formidable audience. In the boardroom, the senior execs were ranged around one
end of the table. The seating positions reflected both sides of the dilemma we
had come to discuss: on the left side of the conference table was the Group W
management, and on the right, a confident contingent from Goldman Sachs ready to
get the order for selling the stations.
Boiled down to two words, the message of our two-hour presentation was "Don't
sell." Despite the impact of cable, we believed that TV stations would continue
to be growth businesses. We acknowledged that while other major media companies
had sold or were rumored to be selling their stations, the long-term outlook was
good and Westinghouse should hold on.
This was not what our clients expected. The Q-and-A session that followed the
presentation was intense. They wisely probed our analysis. They wanted to
understand the rationale underlying our recommendations. In the end, to their
credit, they recognized a sound argument and kept the stations.
Their decision turned out to be a highly profitable one. The broadcasting
business experienced tremendous growth. Management could read which way the
economic winds were blowing, and within a few years Westinghouse was entirely
out of every one of its old-line industrial businesses, such as turbines and
refrigerators. Eventually, it sold its headquarters in Pittsburgh and moved to "Black
Rock," the CBS headquarters on New York's West Fifty-second Street. Westinghouse
thus became CBS, with broadcasting as its only business.
In the years that it took for this former industrial giant to transform itself
from a manufacturer of appliances into a pure entertainment business, the
entertainment industry itself underwent a complete revolution. With the advance
of new technologies, new outlets, new channels, new ways of thinking, and the
emergence of a media-hungry audience that crossed generations, entertainment
companies staked out ever-larger pieces of turf in the global marketplace.
I realized that the Westinghouse experience was hardly an isolated event. Change
was pounding at the gates of the fiefdoms of the entertainment world. In this
shifting environment, the lords of entertainment began to turn to their advisers
and seek counsel (which is, of course, the root of the word "consultant"). Our
practice, which had been a backwater in the firm when I first joined Booz-Alien,
moved to center stage as virtually every major player in media and entertainment
wrestled with the problems and opportunities of explosive growth. Alliances,
acquisitions, divestitures, new businesses, consolidations: we dealt with every
possible permutation of corporate expansion. The former orangutans had to become
fleet cheetahs and muscular gorillas. Each one had a unique problem, but through
it all there ran a common thread: how to take advantage of emerging growth
opportunities in the industry. Flush with success from CNN's coverage of the
Persian Gulf War, Ted Turner hired us to help position his collection of cable
networks for a concerted campaign of growth in all media.
The Tribune Company, already established in newspapers, television, and radio,
likewise was looking to use its strengths in a new strategy of expansion,
through reinvigorating its existing businesses and expanding into new areas such
Diverse companies in every area of entertainment and media began to seek our
strategic advice. From The New York Times to the NFL, from PolyGram Records to
Paramount Pictures, from the Hearst Corporation to the Brazilian TV network Rede
Globo, we were charged with figuring out how to expand overseas or start up in
America, how to cash in on electronic media, and how to cash out of TV
syndication. All the while the companies were growing, and the stakes for both
ourselves and our clients were getting higher.
When I went to that first presentation at Westinghouse, a large media company
such as Rupert Murdoch's News Corporation or CBS was worth around $3 billion.
Barely four years later, I was called on to recommend a strategy in the midst of
a $10 billion power struggle. Two of the industry's biggest moguls, Barry Diller
and Sumner Redstone, were locked in a fight for control of Paramount. We had
been retained by Paramount to analyze which of the two suitors would ultimately
bring more value to Paramount's shareholders. In other words, my job was to
predict which side offered more synergy, which is how and why I found myself at
a secret board meeting of Paramount's directors. It was so secret that I wasn't
even told when or where it was to be held until late one Saturday night, when a
phone call directed me to the Midtown offices of Simpson, Thatcher & Bartlett,
When I arrived, a uniformed and armed security guard showed me into the largest
conference room I had ever seen: three stories high, floor-to-ceiling glass
overlooking Grand Central Station, a solid mahogany table as long as a bowling
alley. I sat all by myself in this cathedral of corporate jurisprudence. I
wasn't even permitted to bring an associate.
Twenty minutes later, I was ushered into yet another huge conference room. A
platoon of lawyers hovered at one end of the table, their shirts rumpled and
their eyes sunken from having pulled an all-nighter, drafting and redrafting
corporate resolutions. Three investment bankers from Lazard Freres stood in a
group at the back of the room. The entire Paramount board was there. I was
invited to take my seat by Paramount CEO Martin Davis. Unlike the other weary
participants, Davis managed to appear fresh. No matter when you saw him or how
busy he might be, he always had the well-put-together look of a man who had just
come from a visit to his barber.
I was there to give a dispassionate business analysis, but neither I nor anybody
else in the room could ignore the subtext of what had been a highly visible
conflict that made for colorful front-page copy in the daily press. The entry
into the mix of Barry Diller, the former studio chief at Paramount, had turned
what had begun as a friendly takeover bid by Viacom into a heated contest.
Paramount's board was looking for an answer to the essential question "Whose
offer should we take?" My team and I had done deep, lengthy analysis. Our
response was direct: "If you accept Viacom's offer, the numbers add up to three
billion dollars more in shareholder value than you would realize from QVC."
Ultimately Redstone prevailed with a higher bid and immediately set about
realizing the synergies we had projected. Synergy: it was a relatively new
buzzword at that time, but it was also the one that most accurately
characterized the change I had observed in the entertainment industry. Companies
were no longer interested in merely being the biggest studio or the most
successful TV network. They had to be more. Theme parks, cable networks, radio,
consumer products, books, and music, all became prospects for their potential
empires. Medialand was gripped by merger mania. If you weren't everywhere ...
you were nowhere.
To justify new acquisitions or extract profit from old ones? To go global or
stay local? To create new markets or more fully exploit existing ones? There was,
and continues to be, tremendous ferment as the innate sexiness of entertainment
and the allure of the huge revenues it generates brought scores of companies to
seek our advice.
MTV and Deutsche Telekom, NEC and the NBA, the BBC and Bertelsmann—every type of
business involved in producing and distributing content came to us to help
develop growth strategies. The problems ranged from starting a new global cable
network to fighting for home video rack space at convenience stores; from
reviving a wheezing magazine brand to charting a course for the migration of a
traditional television network to the on-line world. At the same time that we
considered a plan for multinational theme parks we were also analyzing music
preferences at local dance clubs and radio stations.
Through those years, I learned that you can't understand the entertainment
business if you are not having fun with the product, and you can't understand
the business if you are having too much fun. Consulting to entertainment
companies requires a strange combination of showbiz and analysis, getting into
the experience of the product and also standing back and being objective about
the business side. Suits versus creatives was the old model. I feel that "creative
suits" is the new one.
I'll never forget going to my first meeting with Frank Ben-nack, president of
the hugely powerful Hearst Corporation. Bennack's offices are on the second
floor of the building built by the model for Citizen Kane himself, William
Randolph Hearst. I was ushered into the Hearst inner sanctum, a magnificently
paneled office that Bennack used to receive guests. On one wall was a case
displaying editions of the company's world-famous magazines (Good Housekeeping,
Cosmopolitan, and Esquire among them). On the other side were stacks of Hearst's
daily newspapers and the call letters of the company's cable and TV holdings (including
Lifetime and A&E). It was an impressive room.
The assistant graciously told me to help myself to anything I'd like to drink as
she left the room, leaving the door open behind her. I looked around some more.
I noticed a Coke machine. I walked up to it. Wow! It was a perfect vintage model
from what looked like the 1950s. It was bright red, with a big chrome handle and
a coin slot engraved "10c" I was thirsty. I reached into my pocket and pulled
out a dime. I put it into the slot and turned the handle a couple of times
against a little resistance. There was a click followed by the loud clunk of a
bottle falling to the bottom of the machine. I wasn't the only one who had heard
it. As I reached inside to take my drink, I was suddenly surrounded by two of
the Hearst president's assistants. "What are you doing?" they exclaimed. "This
is Mr. Bennack's antique Coca-Cola machine!"
"Oh, you asked me if I wanted something to drink," I replied. Without a word,
one of the secretaries opened the double doors of a cabinet to the side of the
room, revealing a wet bar with every type of cold and hot refreshment you could
want. The glass bottle was gently retrieved, and a few minutes later Frank
Bennack joined me and we went about discussing the critical issues of the day.
I can never look back on this incident without laughing at myself. But there's a
big lesson in this silly story. I should ave known, of course, that there are no
more dime Cokes. Nothing stays the same in the entertainment business.
In the last years, as entertainment companies sought to expand into other
industries, nonentertainment businesses began to come to us with questions that
rang of showbiz. Citibank set itself a goal of a billion customers. To do that,
it believed—and we concurred—it would have to create exciting content to bring
people to its bank. It had to be cool and right on top of the pop cultural wave
... just like an entertainment company. Hasbro, whose bread and butter had been
creating toys derived from movies and television, decided to reverse polarity
and produce entertainment products that would generate new toys. As one consumer
company after another joined the stampede to the Internet, they realized that
they had to fill those Web pages with things that would inform, amuse, and most
of all entertain masses of people. As retail stores began to reproduce the look
and feel of theme parks, it became clear to me that the line between
entertainment and the rest of the economy had disappeared.
Locally, globally, internationally, we are living in an entertainment economy.