by Ted Turner
It was a couple of days before the Goodwill Games began that I first met Mikhail Gorbachev. Georgi Arbatov, my friend from the Better World Society board, set up the meeting and it was very heartening. Gorbachev expressed his hope that American leadership would focus on building an environment where our young people would be able to grow up to be friendly, cooperative, and more tolerant of other countries’ political systems. He said it was time to put the arms race behind us and to move on to spend our time and energy more productively. I encouraged him to be patient with us because we had a military-industrial complex with a vested interest in continuing the arms race and a free, privately owned media that also operates in its own best interest. I told him that while President Reagan might be inclined, it would be difficult for him to take the lead in de-escalating the arms race and that he—Gorbachev—was in a much better position to make the first moves. By doing that, Gorbachev might get the ball rolling, bring an end to the Cold War, and maybe even win the Nobel Peace Prize in the process. It was a terrific meeting that would mark the beginning of a lifelong friendship.
Going to Moscow also gave me a chance to see my oldest son, Teddy. When he graduated from The Citadel the previous summer I encouraged him to consider working at the CNN bureau in Moscow.
A TED STORY
“A Great Experience”
—Teddy Turner
Dad was always very plain with all of us: “After graduation you have two weeks and your stuff better be out of my house.” He was never into handouts. When I was in college I had a $25 a week allowance and I was traveling all over the country with The Citadel sailing team on an annual budget of less than $1,500. I learned how to live very frugally, thanks to Dad.
When I came home for Christmas my senior year he asked me what I wanted to do, and I said, “Well, I guess I’d like to come work for you.” That’s what I had always done. In addition to helping out with his sailing crew, when I was twelve I was one of the last family members to work for the outdoor advertising company before it was sold, and later I had summer jobs at CNN.
He said, “What area of the business would you like to work in?”
I told him I’d enjoyed my summers at CNN and thought that was really where the future of the company was going to be. When he asked me what kind of work I wanted to do, I said, “Well, I’m not an in-the-front-of-the-camera guy. I’ve got a great face for radio so I’d rather work behind the camera or in the studio.” Dad thought that sounded great but when he asked me where I wanted to be located, it threw me for a loop because I’d always assumed it would be Atlanta. He explained that we really only packaged the news in Atlanta; it wasn’t really “made” there. “There are only two places in the world at this time where real news is made,” he said, “and that’s Washington, D.C., and Moscow. As far as politics and the shape of world power go, those are the two cities.”
I had never thought about it like that and since I figured I could go to D.C. anytime, I decided that Moscow would be a lot more interesting. So when I went back to school I tried to take Russian; they did have a small Russian department at The Citadel, but you couldn’t take 101 in the second semester, so right after I graduated I moved to D.C. and took three months of intensive language study there.
Gorbachev came into power the spring of 1985 and when I got to Moscow in September of 1985 the words “perestroika” and “glasnost” hadn’t really come out yet. The timing couldn’t have been better. I went to Afghanistan a couple times as the war there was winding down. Chernobyl blew up while I was in Russia so I went to Kiev a lot. We went down to a Soviet nuclear test site because there were big test ban things going on, and I was there in Moscow for the first Goodwill Games. It was a great experience and I really was able to do some pretty amazing things
By the time the Goodwill Games began, it was clear that they would not be a financial success, but seeing the athletes come together from around the globe I was convinced we were doing something worthwhile. The Soviet organizers put a lot of effort into the opening ceremonies and they were beautiful and moving. And Gorbachev’s decision to attend in person added a lot of weight and credibility to the event. There were also many special moments throughout the competition. At the close of the swimming events, the American co-captains—one man and one woman—gave gifts to their Soviet counterparts and spoke brief words of peace that were translated into Russian over the loudspeakers. When I looked around the arena I didn’t see a dry eye. Whenever medals were handed out to Americans or Soviets it was remarkable to see athletes from these two rival nations standing at attention and showing respect while the other country’s national anthem was played. At the rowing venue, the Soviet army band of about one hundred musicians played the anthems live. Given the troubled state of our relations at the time, seeing and hearing them play “The Star-Spangled Banner” was incredible. At one point, after the eight-oared shells competition, four Soviets got into the American boat and four from the U.S. team got into the Soviet boat and they rowed back and forth together.
At the closing ceremonies, I was given an opportunity to address the crowd and the audience watching on Soviet television. The games were heavily viewed in the Soviet Union and I believe that about a third of their television households were tuned in that night. Given the tenor of the times, it was pretty surprising that they would let me address such a mass audience live—for all they knew I could have grabbed the mike and said, “Down with communism!” but they let me go on without even asking what I had planned to say. I used the opportunity to thank our gracious hosts and to express my hope that these events might have helped advance the cause of peace around the world. The Goodwill Games really did live up to their name.
We lost more than $25 million on those initial Goodwill Games. Even though we had the same events and so many of the same athletes, these weren’t the true Olympics and in the United States we simply couldn’t draw anywhere near the audience that NBC had for the Olympics. Undeterred, we began planning for the next edition of the Goodwill Games, to be held in the United States. Seattle hosted the games in 1990 and did a great job, but by then the Soviets and Americans had both participated in the 1988 Olympics in South Korea, so boycotts were over. In ’94, the Russian city of St. Petersburg served as our host and while the games continued to attract great athletes, they failed to deliver a large TV audience in the United States. (One of my personal highlights of the St. Petersburg games was meeting my greeter at the airport. The mayor of St. Petersburg had sent his deputy to pick me up and escort us to dinner. His name was Vladimir Putin. He told us that his wife had just been hospitalized after a serious automobile accident. I said, “Don’t have dinner with us. Go home to your wife!” Putin was reluctant because entertaining us was his job but I talked him into going to the hospital. Years later, he told me he’d never forgotten that kindness.
We held two more summer games—1998 in New York City and 2001 in Brisbane, Australia, and in 2000, Lake Placid, New York, hosted the first and only Winter Goodwill Games. By the time of the Brisbane games I was no longer calling the shots at Turner Broadcasting and since the Goodwill Games continued to lose money, Time Warner decided that they would be discontinued. After those many events, our total losses on the games were more than $100 million, but it’s my belief that these games, especially the initial games in 1986, played a major role in helping thaw relations between the United States and the Soviet Union and contributed to the Cold War’s peaceful conclusion.
The Goodwill Games may have lost some money, but in my mind, they were an investment toward peace that was worth every penny.
19
CBS
Ia was learning very quickly that in television it was better to be big than to be small. The business was a lot like Monopoly, and to be the winner you had to own multiple properties around the board. By 1984 the SuperStation, CNN, and Headline News were growing into solid businesses but it was still a struggle for a company the size of Turner to battle with the traditional Big Three
broadcasters for audience and advertising dollars. I was sure that the best way to compete would be to have a broadcast network and the cable networks under the same ownership.
The most logical move would have been for the Big Three broadcasters to diversify into cable. For the first time in their history, they faced competition from outside their ranks and while the individual audiences for cable channels were small, taken together they were gaining meaningful market share. But to my continued amazement, even after missing the twenty-four-hour news opportunity, the networks stayed on the sidelines and watched the launch of other cable channels like Discovery, USA, MTV, and Nickelodeon. They were worrying more about the previous night’s ratings than the long-term future of their business. (ABC was a slight exception. They didn’t create ESPN but they did acquire a minority position and exercised their option to purchase a majority stake years later when the channel was clearly a winner.)
A merger of Turner Broadcasting with a Big Three network made a lot of sense. First of all, there would be tremendous savings in news. CNN had built bureaus all over the world and so had the news divisions of ABC, NBC, and CBS. With a merger, consolidating facilities would result in significant savings, and when these were realized, spending could increase elsewhere. While the broadcast-only networks had four hours a day of news to program, we would have the forty-eight hours on cable (twenty-four hours for both CNN and Headline News). With fifty-two hours against which to amortize the costs, our company would leave the competition in the dust.
On the entertainment side, a network combined with the SuperStation could do a better job of maximizing the value of its prime-time entertainment programming. The networks had been so dominant that antitrust rules were created to prohibit them from being vertically integrated and producing this programming themselves. Instead, they licensed the shows from the Hollywood studios and generally paid for the rights to air each one just twice a year. A network like CBS would lease a show like M*A*S*H and spend money to build it into a hit, only to have the show’s owner—in this case, 20th Century Fox—sell its reruns to local stations or cable channels. CBS didn’t make a dime from this “off-network” syndication and in some cases the shows were sold to local affiliates of rival networks.
But if CBS and the SuperStation were part of the same company, we could negotiate a comprehensive corporate deal with Fox. After CBS built a show into a hit, TBS would have the option to air the syndicated episodes. By participating in both stages we could reap more value. Our leverage with Hollywood would be improved, and with the same sales force selling shows like M*A*S*H on the network and the cable channel, we could strike better deals with advertisers. As a bigger, more efficient company than our network rivals, we could channel our higher profits into bigger bids on high-profile sports rights like the NFL and the Olympics. The list of advantages was long and I was eager to explain my vision to the networks. I was confident that at least one might want to do a deal and join us.
But in the early 1980s, the Big Three networks were insular and didn’t welcome an outsider trying to crash their party. In many ways, they behaved like a cartel. The headquarters of ABC, NBC, and CBS were all within two blocks of each other in midtown Manhattan. All three were profitable. They paid their executives well and when one of them was fired he was usually picked up by one of the competitors. The networks all signed the same contracts with their technical unions, and each one paid roughly the same prices to Hollywood studios for programming.
Relative to Turner Broadcasting, the networks were huge. In 1984, our revenues were just over $280 million while CBS’s were nearly $5 billion. We managed to turn a profit of just $10 million that year. (CNN and Headline News were growing but still losing a little money—the SuperStation was driving our results with $177 million in revenue and $66 million in profits.) Wall Street recognized that we were improving and now that we were turning the corner to profitability our stock often traded at high multiples. Still, our market capitalization was in the range of several hundred million dollars, while the networks were all worth several billion.
Each of my meetings with the networks took place in their large, well-appointed offices in Manhattan. These were a far cry from what we were used to in Atlanta. At ABC, I met with Fred Pierce, who had recently been made that company’s president. He told me that he had worked his way up through the ranks for twenty-five years and he wouldn’t take a chance on losing control. His opposition wasn’t based on whether it made sense for his company or its shareholders but rather because it might have a negative impact on himself.
I had hoped to speak with RCA’s chairman, Thornton Bradshaw, regarding NBC but I was instead handed off to Robert Mulholland, the network’s chief operating officer. He understood the synergies I outlined and to illustrate one of my points, described NBC’s deal for the hit miniseries Shogun. He said that they purchased the right for three airings but only had time in their schedule for two. I said, “That’s a perfect example, Bob. If we were part of the same company, we’d take that third run on the SuperStation and generate another million dollars in ad revenue without spending a penny more for the program!” As obvious as these opportunities were, Mulholland still told me to forget it. “RCA will never go for a merger with you,” he confided. “They just don’t take those kinds of risks.”
That left CBS, whose president was Tom Wyman. He was a likable guy and our discussions were cordial. He said he admired what we were doing with CNN and the SuperStation and he seemed to be enthusiastic about the benefits of a combination between our two companies—enough so that he said he would discuss the idea with his executive committee.
I left Tom’s office feeling upbeat but a few weeks later he called to let me know that the CBS executive committee had rejected the idea. I was never told exactly what their concerns were but I’m sure my case wasn’t helped when The New York Times quoted me saying some things about William Paley, CBS’s highly respected founder. They ran a piece in which I took the networks to task for all the sleazy programming and I specifically condemned Paley for letting the “Tiffany Network’s” standards drop so far. Unfortunately, I accentuated my point by saying that Paley had turned CBS into a “whorehouse.” I still tend to speak my mind, but back then I really used to get carried away, and I’m sure this exaggerated analogy didn’t help my chances with CBS’s executive committee.
For their various reasons, all three networks turned me down. But I refused to let the idea of a network-Turner merger die. If they wouldn’t entertain a friendly deal, I’d have to find another way. I’d been an operator my entire career and didn’t know much about unfriendly takeovers but during that time—it was now the fall of 1984—they were happening left and right. I always try to learn from the best, and the most prominent guy in the world of takeovers then was T. Boone Pickens. We hadn’t met but when I called him he appreciated my vision, and agreed to a meeting.
My corporate financial people and I flew to New York to meet secretly with Pickens at a suite in the Helmsley Hotel. He was tall and thin with bright eyes. He was also very smart and engaging and we got along quite well. His experience was largely in the oil business but he grasped the potential of our plan right away. He said he’d think about it and get back to me.
About a week later Pickens called and said he wanted to move forward and that RCA should be our primary target. He asked me to fly down to his winter vacation home in Florida for another private meeting to work through the details. During these discussions, Pickens explained his belief that RCA’s assets were significantly undervalued, and that after an acquisition he could make money selling their nonbroadcast assets (they still owned Hertz Rent A Car, for example) at a profit. Turner Broadcasting would end up with the NBC network, their owned-and-operated stations, and RCA’s satellite business. (Given my history of struggles with transponder access, I really liked the idea of owning my own satellite company.)
Pickens and I agreed that we would work out the mechanics of our takeover strategy an
d line up the money. He had connections with Drexel Burnham, one of Wall Street’s top investment banks at that time, Carl Icahn, and others, and in those days these guys would get together and go after companies aggressively. My role would be to help him put a value on the television properties and to use my experience and contacts in Washington to sort out the broadcast regulatory issues that this deal would present. It was a promising start but, unfortunately, after a handful of discussions over the course of the next few weeks, Pickens got tied up in a takeover bid for Unocal and told me that he just didn’t have the time or resources to simultaneously pursue RCA. I was disappointed, but I learned a lot from the process and remained determined to keep trying.
Around this time a nonprofit organization called Fairness in Media announced its intention to try an unfriendly acquisition of CBS. The group included North Carolina senator Jesse Helms and they said they were frustrated with what they felt was a liberal bias at CBS News. They encouraged all their members, as well as other conservatives around the country, to purchase CBS stock with the goal of building a large enough ownership stake to dictate policy. (At one point, when asked why he wanted control of CBS, Helms responded simply, “So I can be Dan Rather’s boss.”)
I had met Senator Helms before and he was happy to see me again to explore the possibility of working together. At CNN we were trying to air the news in an unbiased fashion and develop a good reputation with people on both sides of the aisle. (Incidentally, I must really have kept people guessing about my political views in those days. The Fairness in Media discussions coincided with the planning stages for the first Goodwill Games, and on one of my trips to Washington I went straight from Jesse Helms’s office to the Soviet embassy!)