Who Is Michael Ovitz?

by Michael Ovitz

  Their weakness was most glaring in TV. As Rupert Murdoch formed a fourth network at Fox and gobbled up Metromedia, Lew pulled back, at the last minute, from a merger with RCA/NBC—a terrible mistake. With RCA throwing off cash, Lew could have ruled MCA till his death. He had been the first to see TV’s potential, but now he missed out on pay television and HBO. His company had everything it needed to ride those waves: expertise, cash flow, mounds of collateral, zero debt. He owned or controlled 19 percent of MCA’s stock, and no one on his board dared cross him. Yet Universal, the fabled octopus, had crawled under a rock.

  As MCA’s share price swooned and sharks such as Steve Wynn circled, taking big stock positions, Lew stayed defiant. In 1984, at age seventy-one, he said, “I do not intend to sell, I do not intend to retire, and I do not intend to die.” Six years later, all three of those events seemed increasingly plausible. If the share price dipped below thirty dollars, MCA’s real estate value would exceed its market cap. A raider could sell the company for parts and haul off the studio’s library—three thousand films and more than thirty thousand TV shows—for free.

  By this point, with MGM/United Artists on life support, major studios were beginning to look like an endangered species—a terrifying development for agents because sellers had no leverage without multiple buyers. We were helping Matsushita to acquire a studio, but also helping the entertainment business to stay afloat. I felt like Louis Brandeis, who, after he spoke on behalf of competing interests in the United Shoe Machine Trust matter, was asked whom he actually represented. “I represent the situation,” he replied.

  Less nobly, I was delighted by the prospect of jousting with Lew again. I knew we wouldn’t end as friends—but then, we hadn’t started as friends. I stood for everything he deplored in the new Hollywood, from the ever-rising cost of production to artists’ demands to call their own shots. One of us would win this battle, and one of us would lose.

  * * *

  —

  After the Columbia deal and Mitsubishi’s acquisition of Rockefeller Center, U.S. congressmen railed against the sale of the nation’s cultural assets, and a Newsweek cover pictured Columbia’s Torch Lady logo draped in a Japanese flag. I thought the backlash ridiculous. Foreign firms were doing us a favor by underwriting cash-strapped American businesses and protecting American jobs. They weren’t pillaging—they were financing. As Senator Bill Bradley said of the Sony deal, “They can’t pick up the studio and take it to Tokyo.”

  Matsushita was thinner skinned than Sony, so secrecy was even more imperative to them. They knew they were copycats, but they felt that if enough time passed before this deal broke, it wouldn’t look as if they were brazenly emulating Sony. “If this gets out early,” Hirata told me, “we’ll deny it and be done with it.” Our memos were handwritten and shredded after they’d been read. The only people who knew my whereabouts were my wife, my assistants, Ron Meyer, and Bill Haber. In Japan, for reasons I never discovered, Matsushita asked that I use the code name Mr. Nelson.

  For our first visit to Matsushita in Osaka, in early 1990, we brought more expensive gifts than we had to Hawaii—a big-headed driver for a golf enthusiast, a Rauschenberg Statue of Liberty print for Hirata. To throw any reporters off the scent, we chartered a plane to San Francisco and flew commercial from there. We landed at 5:00 p.m. local time and were greeted by eight executives and four small Toyota limousines, one for each of us. The drivers wore white gloves and the limos were immaculate, with doilies on the seats and headrests.

  Osaka was a sprawl of low-slung villages and clumps of high-rises, like L.A. but with even worse traffic. Cars crawled on the elevated two-lane freeways that snaked around and above the buildings. By the time we reached our hotel and showered and changed, it was 1:00 a.m. in Los Angeles and the dinner hour in Japan. Our hosts had bought out a large wood-beamed restaurant for the ten of us. We sat at a low seiza table with one geisha per diner for service and the subsequent ritual dance. Endless sake toasts took place before we could return to the hotel and fall into bed.

  I rose at 3:30 a.m. to roll through my normal calls at the normal time, patching through my office to make it appear I was in L.A. At 9:00 sharp we were delivered to Matsushita’s campus. The administration building looked like a citadel (or a penitentiary), with high walls and guards in shiny silver helmets. When a senior executive approached, the guards snapped to and saluted.

  Inside it felt more like a factory, all dim lights and generic wood paneling. There was a flurry of introductions and then a series of meetings with every department head, on a strict fifteen-minute schedule. At an elaborate lunch we met Akio Tanii, the CEO. He was half a foot taller than Hirata, pleasant but aloof. Also present was Tsuzao Murase, a truculent senior executive who jockeyed with Hirata for Tanii’s favor. He immediately hit me with a trick question, my first brush with Matsushita’s barbed-wire politics: “Why do you think we need to do this deal?”

  “You don’t need to do the deal,” I said, “but it’s a great insurance policy. If Sony controls content, it could control the VHS market”—which Matsushita was making a killing in. From the closed expressions around the room, it was hard to tell if I’d said the politic thing or not. In Osaka we had no Akio Morita to squash disagreement, and no Norio Ohga to ram things through. Sony was beginning to seem like a model of transparency.

  In the afternoon we met with finance, sales, marketing, and research. At 5:30, closing time, Hirata took me aside and said, “I want to show you something.” Leaving his translator behind, he led me up to the executive floor. We passed down a long corridor to a locked door, which opened into a room the size of a walk-in closet. Hirata pointed to the stacked, plastic-bound volumes on the floor. I picked up one from Morgan Stanley, a signed letter from the head of its investment-banking division clipped to its cover. There were dozens more like it, multiple copies of proposal books from the top investment banks in New York, London, Paris, and Frankfurt.

  The letters asked for the privilege of guiding Matsushita through the wilds of the movie business. They listed their services, each one with a fee. They charged for everything but continental breakfast. Hirata’s smile grew wider as I leafed through them, and I understood: CAA was the only one to forgo a fee letter. In all our dealings in Japan we never had a written contract. Our attitude was, We know you will do the honorable thing. For an old-fashioned businessman like Hirata, that gesture was definitive. Despite his limited English and my nonexistent Japanese, we were going to trust each other.

  * * *

  —

  On the next trip, we began Teaching our seminar on Hollywood. My associates at my side, I stood all day to present at a pair of whiteboards and six-foot screens. Hirata asked us to assume they knew nothing, which was close to the truth. We began with an in-depth history of the American film industry, from the old studio system to the present. We did the same for television. After answering questions, we ended with a factory visit. That was my favorite time, hanging out with the engineers. I had never seen a workplace so neatly organized. Workers wore company jumpsuits, a different color for each plant. Painted lines pointed the way along the spotless shop floor, with upbeat slogans posted every few yards. We spoke through translators all day, and by dinner they were flagging. I proposed alternating to give them a break—another show of good faith, since we’d have to rely on Matsushita’s man when ours was off.

  Though the Japanese were familiar with our top-grossing movies, the mechanics of how Hollywood worked—the packaging and distribution networks; the syndication deals—were an utter mystery to them. Once I flew New York to Los Angeles to Osaka, a long haul, and they took me straight from the plane to the city’s best tempura bar. A round of beers, and another, then three shots of sake. I was nursing my first beer, straining to keep awake, when a board member named Keiya Toyonaga said, “Michael, could you explain creativity to us?” I groaned on the inside and blurted out God knows what. I still haven’t
figured out a stock answer to that one.

  We plodded on. MCA’s stock kept falling, and the danger grew that a raider would make a hostile bid that would scare the Japanese off, but it took until spring before Matsushita was ready to contemplate going ahead. For months we’d kept a single slide on-screen for them to look at, a grid with the seven studios down the side and a range of business lines across the top: movies, television, music, theme parks, animation, real estate, retail, publishing. The boxes bore an X wherever a studio was active. Only Disney had more X’s than MCA.

  That visual spoke loudly. Universal’s film and TV libraries were second to none, worth at least $2 billion by themselves. The studio had a state-of-the-art production facility and strong potential for growth in video games and merchandising. I traced Lew Wasserman’s history back to the 1930s, when he agented radio and nightclub acts. I spoke of his links to the Democratic Party and organized labor, how he ran Universal with an iron fist—and what he might achieve with a strong partner behind him. The man I described was, by design, the American version of Konosuke Matsushita.

  More months went by, more trips, more symposiums. The same people asked the same questions, writing down our replies to see if our answers changed. Hirata and the higher-ups seemed to be leaning toward the deal. But I knew they’d rather be late to the party than crash while speeding to get there.

  * * *

  —

  The real culture gap wasn’t East versus West; it was hardware versus software. If you’re the industry leader in videotape recorders, you design a dozen different boxes, but the pieces inside are the same. Your engineers tell you how long each part will last before breaking down. It’s all hard numbers.

  A movie idea, on the other hand, has no intrinsic worth. Give the same concept to ten directors and you’ll get ten different films. Film artists don’t make a garment from a bolt of cloth—they create the cloth. The finished product’s value is subjective, your taste against mine.

  It took a long time to get that point across in Osaka.

  Our work on MCA mirrored what we’d done with Columbia. We sized up every film and TV show in the Universal library, from E.T. to Miami Vice—what it was worth then, what it might net in syndication or on the cable and video rental markets. Then we looked at everything in development: movies, TV, recorded music. What artists did Universal have under contract? What masters did they own?

  Allen & Company plugged our data into their models for cash flow projections. I wanted Herb around for his candor: he didn’t hesitate to say, “That’s the dumbest thing I’ve ever heard.” Knowing that my banker had my back greatly reduced my anxiety about the deal. Together with Allen & Company, we estimated MCA’s worth at between sixty and seventy dollars a share. (We excluded WOR, an MCA-owned TV station in New York that might fetch another five dollars a share.)

  That summer we selected our consultants, accountants, and publicists. They had to be smart and drama-free. We brought in Simpson Thacher & Bartlett, the one New York white-shoe law firm with no conflicts in the deal. I had learned from the strife between Mickey and Walter at Sony: though I’d lean on our people for strategy and execution, there would be only one channel between Matsushita and MCA. If this deal broke down, it was on me.

  * * *

  —

  To get anywhere with Lew Wasserman, we had to bring Sid Sheinberg onboard. I liked dealing with Sid because he was competent and candid. It couldn’t have been easy running MCA under a man whose name was synonymous with the company. Lew had only one child, a daughter, and Sid was his surrogate son. But well into his seventies, when most execs were content with the chairman’s seat, Lew kept his title as CEO instead of bequeathing it to Sid. Some businessmen—Sumner Redstone at Viacom was another—equate their companies with their lives. If they stayed in charge, fending off all successors, they would never die.

  A few weeks before we formally pitched MCA, I dropped by Sid’s house for an informal chat. Matsushita would be a blessing, I told him, because nothing would change. He and Lew could continue to run their domain with minimal interference. Best of all, Sid would remain Lew’s heir apparent without an inside rival. “You’ll be selling the company,” I said, “but it’s almost like an interim financing deal.” I suggested that if MCA survived the current downturn under Matsushita, and rebounded, they could buy the company back from the Japanese. This was surely optimistic, but it gave Sid a pleasant frame to view the deal through—particularly as the increasingly likely alternative was MCA being taken over and carved up, with him and Lew dumped to the curb.

  Sid was receptive, though he wanted to know more than I could divulge. Word got out a few days later that Lew was scrambling to revive a stock-for-stock deal with Paramount. I knew he’d rather merge with Americans, given a choice. But the talks blew apart when Paramount CEO Martin Davis, another control freak, refused to take Sid onboard as co-CEO.

  * * *

  —

  In August, after Osaka finally approved the next step, I made a formal pitch to Felix Rohatyn, the financier and MCA board member. It was an easy conversation with one of the people I’d cultivated ten years earlier. Felix was quiet, studied, and ferociously intelligent. While he was devoted to Lew, I could count on his pragmatism.

  As Saddam Hussein had just invaded Kuwait, roiling the markets and dropping MCA’s share price into the thirties, Felix cautioned me, “You can’t be thinking in terms of where the stock’s trading right now.” I liked the fact that he was selling me. The issue wasn’t whether MCA was for sale, he seemed to be saying, but for how much.

  Over Labor Day weekend I phoned Lew to confirm my client’s interest. He gruffly said he’d listen to any legitimate offer but that he wasn’t looking to sell. We met at his home and I spelled out the deal’s advantages. Matsushita’s inexperience in entertainment worked in his favor—they needed him. They were ready to sign him to a new five-year contract at an annual salary of $3 million.

  Lew didn’t seem eager. But he didn’t say no.

  * * *

  —

  There is less wiggle room in setting the sale price of a conglomerate—even one with lots of hard-to-price assets—than you might think. Financial data, including cash flow and earnings and the historic trading range, points to a “right” number. For MCA it was somewhere in the sixties. As the stock was trading in the thirties, our deal had a strong tailwind.

  Though Lew’s target price of one hundred dollars a share was a pipedream, Matsushita knew its offer had to be appetizing enough to MCA’s shareholders that it would oblige Lew to keep talking. On September 19, Hirata authorized me to say they were “contemplating” a price between seventy-five and ninety dollars a share. As a preliminary engagement number, it was on the button. The top end was close enough to Lew’s fantasy to not offend him. The bottom, less five dollars for WOR, hit the high end of the range Herb and I thought was right.

  I called the offer in to Felix Rohatyn. “I’ll take this to Lew,” he said.

  * * *

  —

  Ten months after meeting Henry Ishii, I found myself tiptoeing through a minefield. I cringed when Matsushita endorsed an Arab-led boycott of Israel—Lew was a leading fund-raiser for Jewish causes. Meanwhile, a stubby Italian financier named Giancarlo Parretti was poised to buy MGM. Not counting MCA, three of the seven majors would be foreign owned. Xenophobia in the U.S. media spiked. But my main concern was a leak. Once news of a potential merger breaks, arbitrageurs goose the stock price. I had nightmares of raving shareholders, fractured alliances, panicked Japanese, and me shouldering all the blame.

  On the morning of September 25, I met with Hirata in Osaka to time our next move. A salaryman entered and handed him a fax. Hirata blanched and passed it to me. The Wall Street Journal had just published a story that Matsushita was exploring an acquisition of MCA “for $80 to $90 a share.”

  “The cat’s out of the bag,” I
said. “We need to ramp up the process before it falls apart.” Hirata was noncommittal. MCA shares surged 57 percent, to fifty-four dollars; Wall Street was betting a deal was imminent. As I mediated between the two noncommittal sides that day, I felt much less confident.

  Who leaked the story? David Geffen, who earlier that year had become MCA’s biggest individual stockholder when the conglomerate bought his record company, might have used the Journal to boost his share price and increase pressure for the deal to happen. Murase, who was capable of doing anything to undermine Hirata, might have used the Journal for the opposite reason: to kill the deal. Herb Allen wanted to get the deal going—and he was friendly with Laura Landro, who’d written the story.

  A lot of people thought the culprit was me. Later, in the New Yorker, Connie Bruck would write: “The widely held view among many people involved in the deal is that the person engineering the leak was Michael Ovitz.” According to her sources, I had to force Matsushita’s hand before Lew and Sid withdrew. Totally wrong—I’d been working overtime to keep things under wraps. I was convinced that public scrutiny never helped any private negotiations.

  A statement from Hirata cooled things down: “Discussions with MCA are proceeding in an orderly fashion and there are no new developments to announce. Any reports to the contrary are erroneous.” As it turned out, the Journal’s story did galvanize Matsushita and move the deal along—it made it feel real. But with each side blaming the other for the leak, the prospective marriage was off to a rocky start.