The King of Content

by Keach Hagey

  The next day, wearing a wide, wildly patterned black-and-gold tie and a maniacally wide grin, Sumner stood next to Davis in front of Viacom’s seventh-floor conference room and declared that the merger was “an act of destiny” that would create “the single most powerful entertainment and communications company in the world.” It was the biggest media deal since the Time-Warner merger in 1990, and Wall Street’s early response was positive. Although many of the questions at the press conference were about Diller, analysts thought the deal was generally solid, the $8.2 billion sale price giving Paramount shareholders a respectable premium to the stock’s previous trading price of $61 a share.34 “They made the price high enough that it’s a preemptive bid,” Lisbeth R. Barron, an analyst at S. G. Warren, told the Los Angeles Times.35 Sumner declared: “This marriage will never be torn asunder. It will be the age of Paramount and Viacom. It is an age that some have likened to the Industrial Revolution of the past. An age which will witness a sweeping transformation of technology . . . providing programs for the superhighway of the home.”

  Biondi was less enthusiastic. At the press conference, where his future role at the company was pointedly undefined, he didn’t even try to mask his annoyance, quipping to the Los Angeles Times, “What about the mandatory retirement policy?”36 His reservations about the deal went far beyond his displeasure at having to give up the CEO title for a few years until the sixty-six-year-old Davis retired. For him, and much of the top management at Viacom, the deal lacked industrial logic and, worse, precluded more interesting opportunities. “There wasn’t a lot of support in-house for it,” Biondi said. “It seemed to be a fairly unwieldy thing.” Biondi believed Sumner’s interest in Paramount was purely emotional. “What you’ve got to understand about Sumner is, this was the Yankee bat boy growing up to buy the Yankees.” Sumner knew that some of his most trusted lieutenants, including Freston, were cool to the idea, but he argued his side to Geraldine Laybourne, who was on a work trip in Asia, over the phone. “I really want to do this,” he told her. “I want to be Louis B. Mayer.”

  Chapter 11

  Killer Diller

  For a brief moment, Sumner got to imagine himself as the owner of Paramount, the seizer of his destiny, the gold letters of his name bound for both the Hollywood Walk of Fame and the upper frieze of the Boston Latin School auditorium. But the euphoria did not last long. The day after his bombastic press conference, the Wall Street Journal reported that National Amusements’ purchases of Viacom stock had helped send its price soaring 26 percent in July and August, inflating the currency that Viacom was using to pay for Paramount. The story raised questions about the ethics of these stock purchases at a time when Sumner had inside information about a material event in Viacom’s future. Viacom argued that the purchases were routine, but the damage was done. Viacom’s stock price dropped enough that day to lower the value of its Paramount offer to $7.9 billion1 and soon dropped further to $7.5 billion.2 Suddenly, Sumner’s bid seemed a lot less preemptive.

  It didn’t take Barry Diller long to exploit the opening. As Martin Davis had feared, Sumner wasn’t the only mogul who believed Paramount was his destiny. Diller was a creature of Hollywood with a golden touch for programming and the kind of restless ambition and combativeness that Sumner respected. Compact and immaculately dressed, with an impish gap-toothed grin and a fearsome prematurely bald dome that fueled rumors that he was the model for Mr. Burns of The Simpsons, Diller had grown up the son of a wealthy real estate developer in Beverly Hills, dropped out of the University of California at Los Angeles to work in the mail room at the William Morris Agency, and risen quickly at ABC, where he was credited with inventing the miniseries and made-for-TV movie.3 His youthful tour as the chairman of Paramount during its wildly successful decade from 1974 made him an icon. In the wake of Bluhdorn’s death and his clashes with Davis, he left for Fox in 1984. There, he defied all expectations and created the first new broadcast network in decades, launching pop cultural phenomena like The Simpsons, Married . . . with Children, and In Living Color that changed the face of television. When he left Fox in 1992, unhappy that he would always be an employee and never an owner in Rupert Murdoch’s empire, the Washington Post declared him “one of the few individuals in Hollywood with the talent and background to attract enough capital to buy a studio or even a network if he chose.”4

  Instead, he set off on a technological spirit quest, toting his laptop across the country and picking the brains of luminaries like Bill Gates as well as Sumner, in search of a business of his own to run. He shocked the industry by settling on QVC, the home shopping network best known for hawking cubic zirconium. But QVC had some very smart money behind it: Comcast’s Roberts family and TCI’s John Malone. Between them, they owned 35 percent of QVC. TCI had just announced that it had the digital compression technology to provide its subscribers more than five hundred channels by 1994, and Diller was expected to preside over a brave new media future where the cable box became an “interactive” portal for ordering on-demand movies, buying luxury products, and even banking. Diller invested $25 million, giving him 3 percent equity, but Malone and the Robertses agreed to give him the right to vote their shares and the title of chairman.5 Malone and the Robertses were essentially giving the original “Killer Diller” a tank to drive wherever he wished.

  Four days after announcing his purchase of Paramount, Sumner opened up the Journal to learn that Diller and QVC had hired Herb Allen to explore a rival bid for the company.6 Sumner had been worried enough about Allen—who was more than a little displeased to see his megadeal closed by another banker—that he’d sent Allen a check for $1 million after he sealed his Paramount deal, but he had ominously returned the check.7 Now the most influential media banker in New York, the host of the famous annual Allen & Co. media confab in Sun Valley, was not just angry at Sumner; he was working for the other side.

  As for Diller, Sumner wasn’t exactly surprised, but he did feel betrayed by the man he called “my best friend on the West Coast.”8 He and Diller had been bouncing ideas off each other for years. As Sumner pursued and captured Viacom, Diller was one of the industry luminaries whose counsel he most often sought. “I probably knew more about television than most people that Mr. Redstone dealt with or knew,” Diller said. When the formal bid came on September 20, eight days after Viacom’s board voted to buy Paramount, a messenger delivered a copy to Sumner at the Carlyle with a handwritten note from Diller saying he hoped it wouldn’t affect their friendship.9

  But how could it not? The bid was overwhelming: QVC was offering $80 a share, or $9.5 billion—$2 billion more than Viacom’s offer, at current stock prices—with more than three times the amount of cash contained in Viacom’s offer. QVC could afford such a rich offer thanks to a $1 billion commitment from Malone and Comcast. Comcast president Brian Roberts, who had been the one to recruit Diller to QVC in the first place, declared that Diller was “uniquely qualified to run Paramount,” adding, “From the moment Diller came to QVC we knew we were going to build a major media company.”10

  Davis was horrified but careful. Any hint that he was dragging his feet in evaluating QVC’s bid could open his board up to shareholder lawsuits. Paramount put out a statement that it still believed Viacom was the “best fit” but would “evaluate the QVC proposal.” Paramount shareholders, meanwhile, were delighted to watch a full-scale bidding war unfold. As Mario Gabelli, whose Gabelli Funds made up one of Paramount’s biggest shareholders, put it: “Let the auction begin!”11 Paramount’s stock price climbed as Wall Street licked its lips awaiting Viacom’s higher bid.

  The clash of the business titans that ensued dominated the business press for the next six months and turned Sumner into a household name. At age seventy, he was at the top of his game, squaring off against the biggest names in the industry—Diller, Roberts, Malone—and bringing the full force of his decades of ruthless legal and negotiating experience to bear. As a media mogul, he might still be learning, but as a deal brawl
er, nobody was better. This occasionally caused tensions with Frank Biondi. When the Journal called up Biondi asking if Viacom planned to sweeten its bid, he said he couldn’t rule it out, but Sumner, in the same story, was unequivocal: “Maybe Frank is not as precise or articulate as I am, but there has absolutely not been any discussion or contemplation of increasing our bid.”12

  This was Sumner’s battle and, as such, would be fought with Sumner’s favorite weapon. Three days after QVC made its bid, Viacom filed an antitrust lawsuit in the U.S. District Court for the Southern District of New York against TCI, alleging that QVC’s bid for Paramount was “one more step in John Malone’s conspiracy to monopolize” the cable industry.13 The charge came as the media industry and regulators were growing increasingly worried about Malone’s growing clout. Through TCI and its spin-off, Liberty Media Corporation, he now controlled 20 percent of the country’s cable subscribers, making him the de facto gatekeeper for which cable channels lived and died. Altogether, his market power combined with his hardball tactics—he was not above using his leverage over distribution to get better terms on a programming acquisition—led then senator Al Gore to dub him “Darth Vader” and the leader of the “cable Cosa Nostra.”14

  Given Malone’s power over Viacom’s channels, Viacom’s management was terrified at the prospect of suing their biggest customer. A few days before filing the suit, Sumner gathered them and the company’s legal team in a conference room at Viacom to lay out his plan. Several of them begged him to reconsider, worried that Malone would retaliate by kicking channels like MTV and Nickelodeon off TCI. Tom Freston voiced some of these concerns. But Sumner was not swayed. “Nobody shits in my mouth!” he bellowed, red-faced. The blood drained from Freston’s face. The suit progressed, and Sumner’s gamble paid off: MTV and Nickelodeon were indeed too popular for TCI to kick off its service.

  In the meantime, Sumner tried to dampen the enthusiasm for Diller, who was being portrayed on Wall Street and in the press as a maestro who could conduct the orchestra of the interactive media future. “I don’t care if the shopping channel is the best shopping channel in a zillion places, it is what it is,” Sumner told the Los Angeles Times. “Interaction: you mean a bunch of telephones? . . . I guess that’s the interactivity. Somebody calls you up and orders some jewelry. Right? That’s great interactivity.” He added, lest anyone was unclear: “Short of a bullet going through me, this merger is going to take place.”15

  Behind the tough talk, Sumner’s team, led by Dauman and Greenhill, was frantically trying to assemble more backers so they could raise their bid. They wooed Blockbuster Entertainment and Nynex, the telecom that later became Verizon, to put up $1.8 billion between them.16 Meanwhile, Sumner’s play to knock out Diller’s biggest backer yielded results. Just as whispers were coming up from Washington, D.C., that the Federal Trade Commission was going after QVC’s Paramount bid, Malone dropped the bombshell that TCI was merging with Bell Atlantic Corp.—a much bigger deal that would keep him from being much help to Diller with Paramount.17 Sumner, who had testified before the Senate as part of his fight that “Mr. Malone decides what people can hear and see in the United States,” was happy to claim credit for sidelining his rival.18

  But the victory was temporary. Cox Enterprises and the Newhouse family’s Advance Publications stepped in to help finance the deal for QVC, and the battle wore on.

  Meanwhile, Diller’s side had launched a legal attack of its own in Delaware, where a judge blocked Viacom’s friendly merger, criticizing Paramount’s board for improperly rejecting QVC’s higher bid.19 Paramount’s board members were shocked. Davis was devastated.20 After losing their appeal, Paramount had no choice but to put itself up for auction.

  The haggling between Sumner and Diller pushed the price of Paramount past $10.5 billion.21 Analysts started to complain that whoever won would be overpaying by several billion dollars. “We’re in a bit of a tulip craze now,” one investment banker told the Wall Street Journal.22 Sumner didn’t care; he was intent on winning. But he was also out of money. When Diller raised his bid again, it looked like he would win the day, until Sumner agreed in the heat of battle to merge Viacom with Blockbuster, thereby getting the extra cash he needed to raise his bid.

  Wall Street hated the Viacom-Blockbuster merger. They thought the Florida-based Blockbuster was a village under a volcano, its home video rental business about to be wiped out by on-demand cable systems. Viacom’s stock dropped. But Viacom looked at the hundreds of millions in annual cash flow and saw a sound way to service the debt it was going to rack up to pay for its Paramount deal, as well as more gunpowder for the battle at hand. Sumner would keep control of 61 percent of the new company, Viacom-Blockbuster Inc.23

  Blockbuster chairman Wayne Huizenga was the kind of entrepreneur Sumner could relate to, if never entirely trust. After turning a Florida garbage-hauling business into the world’s largest disposal company, Waste Management, he branched into everything from portable toilets to pest control before entering the video rental business. He took Blockbuster from nineteen video stores to more than thirty-six hundred, creating a workaholic culture that mirrored his own: come in early, stay late, go ahead and come in on Saturday.24 Although he saw the writing on the technological wall years before and began diversifying into content with investments like a controlling stake in Beverly Hills 90210 maker Spelling Entertainment Group, analysts interpreted the merger as a “beautiful bailout” for Huizenga, going out at the top of his game before his 50 percent quarterly earnings increases drooped.25

  The Blockbuster merger would cause no end of headaches for Sumner and Viacom down the road, but for now, it gave Sumner the ammunition he needed. The auction continued. As the February 1 deadline for bids loomed, Viacom made one last tweak to its bid, adding $800 million in additional cash and stock and a partial guarantee, or “collar,” that it would make up the difference if its stock fell below a minimum price. Both its and QVC’s bids were worth roughly $10.4 billion, but Viacom’s seemed like more of a sure thing. “On the surface, Barry’s bid is higher, but Sumner’s bid has more cash and the back end has a little more certitude,” Gabelli told the Los Angeles Times.26 Diller raised his bid a bit before the deadline but did not add the protections against a stock price drop that Viacom added.27 That would prove definitive. Viacom won the day.

  “It was painful,” recalled Diller. “After staring at a wall and realizing that it had gone as far as we wanted it to go, we knew that if we did not make a bid, we would lose it. We didn’t.” For years afterward, Diller thought he had made a mistake. “I was too new at this large-scale mergers and acquisitions business, I had never been in that position before. I should have raised the bid. The truth is, I’d let an opportunity go by.”

  For Sumner, news of his victory arrived on an auspicious day, February 14, 1994, Phyllis’s birthday. A few months earlier, in the midst of the bidding, she had filed for divorce yet again. This surprised few Viacom executives, who witnessed Sumner and Phyllis’s constant fighting aboard the company plane. And yet as much as Phyllis hated Sumner by this point, she also admired and loved him. “She used to tell me, ‘We fight like cats and dogs, but afterwards the sex is amazing,’” said one former Viacom executive. “They lived to fight. It’s just what they did.” As in past incidences, she had withdrawn the suit after a few weeks, but her point was made. As the Wall Street Journal wrote, “Her action raises questions about whether Mr. Redstone could ultimately lose control of his cable-TV empire in a divorce proceeding.”28 It would not be the last time the question would become an issue for Sumner during a merger.

  But on this evening, that all seemed a distant memory. As the final shares were being tendered, Sumner was strangely serene. He left the office mid-afternoon to play tennis with a pro, then attended the opening of a Nickelodeon boutique at FAO Schwarz. That evening, he hosted a small birthday party for Phyllis at the hypermasculine deal den “21,” a wood-paneled New York institution just two years younger than Paramo
unt. Dauman, Tom Dooley, and Frank Biondi were all in attendance when the call came around eight thirty p.m. to tell them that they had won. Sumner picked up a glass of champagne and said, “Here’s to us who won.”29 He then turned to his wife and joked, “Don’t say I never bought you anything for your birthday.”

  The high-profile battle had not just brought the warring spouses together. It had also finally piqued Shari’s interest in her father’s media empire. She happened to be in his office the day that he and his team worked out the structure of the Blockbuster merger. The world of business, which she had always regarded as dry and boring, could, she realized, actually be quite thrilling.

  Chapter 12

  Immortality

  If buying Viacom in 1987 had made Sumner feel ten years younger, winning Paramount seven years later proved twice as rejuvenating. People around him marveled that he seemed twenty years younger since he closed the deal. The universe had bent to his will once again. It was increasingly hard for him to imagine that it would not continue to do so. But at seventy-one, he was also not taking any chances. Always a health nut, he continued to rise before dawn each morning and run three miles on the treadmill or play tennis. He became increasingly obsessed with his diet, monitoring his intake with clinical precision. Sugar was out, protein was in. Lunch often consisted of a single slab of dried corned beef.1 Waiters were berated for bringing baskets of bread to the table. Those dining with him who dared order dessert could expect a wry smile of disapproval. “I’m one of those people,” he told the Boston Globe, “who would like not to die.”2

  Living forever was worth the trouble because Paramount had given him, now, finally, in his eighth decade, the life he had always wanted. Days after the deal was done, he flew to Los Angeles to deliver the requisite call for corporate synergy to his new employees gathered in one of Paramount’s theaters. But the real treat for Sumner was sitting down with Paramount Motion Picture Group chairman Sherry Lansing, first in the conference room outside her office on the Paramount lot and later at a candlelight dinner at The Ivy, the celebrity-packed, paparazzi-encircled fishbowl of a West Hollywood restaurant. Lansing, a raven-haired former actress whose mother had narrowly escaped the Nazis as a teenager, had become Fox’s first female studio chief at age thirty-five and become chair of Paramount in 1992. Two years into her tenure, she was still rebuilding the studio’s slate, but as she laid out her philosophy of focusing on scripts instead of talent-driven “packages,” Sumner brought up a project in Paramount’s pipeline that he thought could change all that. “At some point, he said, ‘So tell me about this movie Forrest Gump.’ That was extraordinary to me because we never mentioned any of our movies” at that stage, Lansing recalled. “I said, ‘How do you know about that?’” Sumner clearly had his own sources in Hollywood and had gotten wind that this quirky, episodic film that had been slowly grinding its way through the gears of the industry for the better part of a decade had promise. “That’s going to be a big movie,” he said. He was right. A few months later, Forrest Gump, the subject of a financial fight that had capped its budget at $55 million, became an instant cultural phenomenon, racking up more than $660 million globally and winning six Oscars including Best Picture.3 It was the beginning of another golden decade for Paramount, with hits like Braveheart, Titanic, Saving Private Ryan, and Mission Impossible. Lansing described Sumner as an ideal boss who gave her and her business-side partner, Jonathan Dolgen, whom Sumner made chairman of the Viacom Entertainment Group, both autonomy and support. “What I think made him so good—and he was just brilliant—was that he was a fan, and he loved movies.”