The King of Content

by Keach Hagey

  Sumner’s own explanations of his actions mentioned almost none of this. He did complain about the performance of Paramount, where the flop of Christmas-season Harrison Ford vehicle Sabrina capped a dismal year. Viacom executives told the New York Times that Sumner was frustrated that Biondi didn’t tighten control over the studio, despite his request that he do so.3 But Sumner had just renewed the contracts of Jonathan Dolgen and Sherry Lansing, the two executives who were running the studio. Several other Viacom executives mentioned he blamed Biondi for the departure of Geraldine Laybourne, one of his favorite executives, for Disney.4 In his autobiography, Sumner wrote that the last straw was Biondi’s lack of enthusiasm about flying to meet personally with European broadcaster Leo Kirch’s company to seal a $1.2 billion deal to license Paramount content in Germany. Philippe Dauman and Tom Dooley had already gone to Europe for a round of talks, and Sumner thought he and Biondi should go to finish the transaction.5 In the wake of Biondi’s firing, he told the New Yorker, “Frank is not an aggressive person.”6

  Many Viacom executives working with both men at the time said it was an earlier article in the New Yorker, which dubbed Biondi “Redstone’s Secret Weapon,” that was the beginning of the end for Biondi.7 Up to that point, he had gotten relatively little press, but in 1995 he was the subject of a series of laudatory profiles. According to a subsequent New Yorker article, when Wired wanted to put Biondi on its cover, the PR shop at Viacom insisted that Redstone be included as well.8

  Biondi perhaps should have known this was a risk. In the wake of the Paramount takeover, Sumner ostensibly decided he wanted to get rid of Richard Snyder, the revered head of Simon & Schuster, because Snyder was not enthusiastic about sharing his division’s financial information with his new bosses, and his use of a chauffeur struck Viacom’s executives as signaling a dangerous profligacy. (Snyder said the notion that there was anything optional about sharing financial information was preposterous. “He didn’t want to share the podium and the press,” he said, adding that multiple Viacom directors told him “you were dead from the first day this deal was done.”) But Sumner didn’t want to be the one to do the deed, Biondi said, because Snyder was a legend in the press. “Oh no, why don’t you and Philippe do it,” he told them. After they did, and got some press for it, Biondi said, “He was pissed because he’s not mentioned.” As one person who was part of the discussions to fire Biondi put it, “He had to be fired because Sumner couldn’t be in the same room with him anymore.”9

  Instead, Sumner increasingly preferred to be in the same room with Dauman and Dooley. Dubbed by some executives as “double D,” they were both promoted to deputy chairmen in the wake of Biondi’s ouster. Sumner responded to queries about whether he, at age seventy-two, was too old to be CEO by pointing to the candidacy of Bob Dole. “If Dole thinks he can run the country at 72, then I can run Viacom.”10

  * * *

  Wall Street, which loved Biondi for his competence, directness, and good humor, was doubtful, sending Viacom’s stock tumbling on the news of his shocking departure. That hunch turned out to be correct. Sumner was no better at solving the fundamental structural problems of the Paramount and Blockbuster deals than Biondi was.

  He got off to a strong start, forgoing a salary and immediately hopping on a plane to Germany to seal a ten-year, $1.7 billion deal with the Kirch Group that more than tripled what Viacom had been getting out of the market previously.11 He sold Viacom’s cable networks in what he called the “nick of time,” and Dolgen and Lansing began to turn Paramount around by slashing its film slate and revamping marketing.

  But a year into his tenure as CEO, Sumner still faced a disintegrating mess at Blockbuster. Viacom had to take a staggering $100 million write-down in the fourth quarter of 1995 to cover the costs of closing more than fifty failing Blockbuster music stores and then dealt analysts another unpleasant surprise three months later when it further revised down its cash-flow estimates for the video rental giant to a decline of 15 percent.12 “I was shocked when I got the numbers so soon that were so different than the numbers we had been given,” Sumner told the New York Times, sounding every bit like the dog had eaten his homework. The stock had dropped even further, to $27—half of what it had been six months before—prompting the Times to declare that “the financial community is skeptical of Mr. Redstone’s stewardship.”13

  Viacom was forced to pump money into Blockbuster immediately to buy many more copies of hit movies after realizing that many of Blockbuster’s customers were leaving stores empty-handed. But none of the grand synergies that were promised—turning Showtime into the “Blockbuster Channel,” a new chain of Blockbuster-launched Viacom stores selling Star Trek watches and “MTV Party to Go” CDs, MTV executives using their juice in the music industry to help Blockbuster’s music stores—materialized. Most troublingly, the Wall Street Journal reported that Viacom changed Blockbuster’s accounting after it acquired the video rental giant, writing down the cost of its videotape inventory to the tune of $318 million, effectively goosing its earnings over the course of the next crucial year when it was trying to keep its stock price high to avoid having to pay out on its VCRs.14 Blockbuster was revealed as the veritable sick patient it was, an aging sugar daddy whose medical bills were piling up.

  But the worst blow for the press-obsessed Sumner landed in a Businessweek cover story, published on March 2, 1997. The story, titled “Sumner’s Last Stand,” argued that he had “trouble articulating a comprehensible strategy for the company,” was too far down in the weeds to ably manage his executives, and, worse still, was failing by the only metric he ever cared about, Viacom’s stock price. The stock had lost half its value since 1993, meaning that his stake, worth $6 billion just before the Paramount and Blockbuster mergers, was now worth just $3.5 billion, including shares he had bought recently for $250 million.15 Sumner had been expecting a positive profile in the magazine and nearly lost his equilibrium. “I could hardly sleep at night,” he wrote in his autobiography. “I saw my whole life not just slipping away but being pulled out from under me. In a way it was like a second fire.”16

  But rather than hand off the CEO role to a more experienced executive, Sumner doubled down. He ousted Bill Fields, the former Wal-Mart chief he had just recruited to turn around Blockbuster, and he, Phyllis, Dooley, and a new recruit from Booz Allen Hamilton named Bob Bakish flew down to the company’s half-empty Dallas headquarters to fix it themselves.17 They nixed Fields’s general-retail strategy, which had been an attempt to make up for declines in the video rental business by hawking cheap candy and sodas near the checkout counter, along with its vague “One World, One Word: Blockbuster” tagline.18 “We are out of the retail business,” Sumner told analysts on an earnings call. “We are not selling underwear.”19 When a Blockbuster executive explained to Sumner that sales were declining because they were in the business of “managed dissatisfaction,” meaning convincing people who had walked into the store to rent the new Tom Cruise movie to walk out with a five-year-old Tom Clancy movie instead because the Cruise flick was sold out, Sumner blew his top. “I thought Sumner was going to have a stroke,” recalled one executive in the room. “He started screaming at the guy, ‘What do you mean, managed dissatisfaction?’” He came up with a plan to get more copies of the new movies for less by negotiating revenue-sharing deals with the studios, and then did much of the negotiating himself. He hired Taco Bell CEO John Antioco to be Blockbuster’s CEO and business picked up. Meanwhile, Viacom chipped away at its debt with the sale of its half of USA Networks and Simon & Schuster’s educational, professional, and reference book units.

  Within a year, the stock was back up to $56, and Sumner was gleefully crowing about his managerial skills to the Los Angeles Times. “I don’t think anybody has a passion for a company more than I do for Viacom,” he said. “I love what I’m doing, and I know I’m good at it. When the day comes, and I will know it, that I don’t feel I can contribute as much as I should to Viacom, somebody else
will have the job of CEO.” When the interviewer asked the seventy-four-year-old if he’d like his successor to be within his family, he demurred. “I have two highly qualified kids. I guess kids is not the right word for people in their 40s. But management will come from the present managers of this company.” In the same interview, he said, “We are not, not, not interested in buying CBS.”20

  Neither of those last two statements turned out to be true.

  * * *

  Mel Karmazin had been ruthlessly chewing his way up through the floors of corporate suites for much of the 1990s until arriving atop CBS with an enormous Wall Street fan club. With a helmet of prematurely white hair, bushy black eyebrows, and a tan that suggested a leisure life that he did not, by most accounts, actually have, he came up through the business of radio advertising sales, where budgets were lean, salaries were low, and commission-based salesmen had to eat what they killed.

  The son of Eastern European immigrants, he grew up in a Queens housing project and entered the advertising business out of high school, earning his college degree at Pace College at night. After seven years at an agency, he went to do ad sales at WCBS-AM, and later at WNEW-AM and WNEW-FM. In 1981, he cofounded Infinity Broadcasting, the radio station group, and by 1987 he was its president. Under Karmazin, Infinity became the country’s biggest independent radio company, as he bought poorly performing stations in major markets and turned them around. In 1992, Infinity went public and its stock climbed an average of 58 percent each year—powered by stars like Howard Stern and Don Imus, as well as Karmazin’s obsession with bottom-line results—until Westinghouse bought it in 1996. “I was driven by opening up the paper and seeing my stock price every day,” the famously press-shy Karmazin told Fortune in a rare interview in 1997. “I truly got off on that.”21 Along the way, Karmazin got results by focusing on driving ad sales. “He’d walk into a sales office where there’d be a bunch of salesmen sitting around,” one longtime associate told the Los Angeles Times. “He’d say, ‘You, you and you are fired and the rest of you are all on commission.’”22

  His success building Infinity and selling it to Westinghouse brought Karmazin, then regarded as the smartest manager in radio, into the executive and shareholder fold of Westinghouse Electric Corporation, a century-old Pittsburgh-based manufacturing company that, in 1995, had acquired CBS for $5.4 billion as part of a bid by CEO Michael Jordan to reinvent itself as a media company. By 1997, Westinghouse had sold off its defense and technology assets and renamed itself CBS Corporation, and Karmazin, the company’s largest shareholder, was fast climbing its executive ranks.23 He went from running the combined Westinghouse/CBS radio group to chief executive of its TV station group (in a move the Wall Street Journal described as a “boardroom putsch”) to president and chief operating officer of the company.24 When CBS announced near the end of 1998 that Jordan would retire three years earlier than expected and Karmazin would take over as chairman and CEO at the start of the year, CBS shares jumped 10 percent.25

  Karmazin was not about to stop there. For a couple of years, he had been eyeing Viacom, going so far as to say publicly that he wanted to buy it. Sumner rebuffed his attempts to meet, but in August 1999, the bureaucrats at the Federal Communications Commission gave him an in. They loosened rules limiting how many television stations a company could own in a single market, allowing “duopolies” in certain markets for the first time. That gave Karmazin, who controlled fifteen stations, an excuse to reach out to Sumner, who controlled seventeen, to see what they could do together. In the third week of August, Sumner invited Karmazin to lunch at Viacom, and Karmazin laid out his pitch: What if we combined our stations in markets like Boston, Dallas, and Miami, where we both own one, so we could get the benefits of duopolies? Or what if we swapped our cable networks for your television stations? Or, actually, what if we merged?

  Sumner was hesitant to buy a broadcast network after telling the world so loudly that he did not want one. Disney’s purchase of Capital Cities/ABC in 1996 had been challenging, and the networks were all losing audience to cable. But Karmazin urged him to look past the network to the TV stations, radio stations (the biggest group of them in the country), outdoor billboards, and syndication holdings and to see the total package as an advertising behemoth. “He began to turn me on and then overnight we entered into very serious discussions,” Sumner later told the Wall Street Journal. Karmazin returned to Viacom for another meeting a few days later, this time with double D, Dauman and Dooley, who urged Sumner to consider the merger. Soon the negotiations got so intense that they had to be moved from Viacom’s headquarters, where they were making executives like Freston start to ask questions, to Karmazin’s apartment in Trump Tower, which just happened to be the former headquarters of Paramount. On a rainy Tuesday, August 24, they came to a deal, and over Labor Day weekend, Viacom’s board approved it.

  On another rainy Tuesday, September 7, seventy-six-year-old Sumner and fifty-six-year-old Karmazin stood together at a podium and announced the biggest media merger of the twentieth century. Viacom would acquire CBS Corporation for $37.3 billion, creating the second-largest media company after Time Warner. Sumner would keep control, with a majority of board seats on the merged board, as well as his now largely ceremonial CEO title, but Karmazin would run it, with all executives reporting to him under the title of president and chief operating officer.

  Wall Street loved the deal, which sent both stocks up in heavy trading. Strategically, a deal that combined Viacom’s programming assets with CBS’s distribution holdings struck analysts as making a great deal of sense, as did one that offered advertisers a single place to reach all stages of life from watchers of Rugrats to fans of 60 Minutes. Everyone else was bulking up, from Disney’s purchase of Capital Cities/ABC to Time Warner’s purchase of Turner Broadcasting, so the combination had a sense of inevitability. There was also a certain poetry to the notion that Viacom, cleaved off from CBS in the 1970s with an uncertain future, was now returning as the victorious buyer. But among the most important advantages of the deal for many Viacom watchers was that it finally gave Sumner an heir apparent. As part of the deal, Karmazin wanted Dauman and Dooley gone. They were sent packing with golden parachutes of $150 million each, though Dauman stayed on the board. “We felt it was important to the deal,” a pale and tired Dooley told the Journal the day the deal was announced.26

  “This is the deal I have wanted to make from the time I was bar-mitzvahed,” Karmazin declared. But as he was launching into his strategic vision for the merged CBS and Viacom on national television, Sumner couldn’t help blurting out, “I’m in control! Remember—I’m in control!”27

  Except, of course, as his wife of fifty-two years was about to demonstrate, he was not. One week after the Viacom-CBS merger was announced, Phyllis filed for divorce again, alleging adultery and cruelty and demanding half of his $6 billion fortune. If she got the full $3 billion she was asking for, the New York Post noted, it would be the biggest divorce settlement on record. It could also very easily force the breakup of Sumner’s media empire, since nearly all of his wealth was wrapped up in Viacom stock. Phyllis had learned a thing or two from half a century married to a master negotiator and had picked a point of maximum leverage.

  “The previous two times, Mr. Redstone talked her into dropping proceedings for the sake of the family,” her lawyer, Irving Helman, of Boston’s Nutter, McClennen & Fish, told the Post. “But she doesn’t care anymore.”

  This time, Phyllis had photos.

  Phyllis had put up with Sumner’s philandering for most of her life, but after Sumner bought Paramount, he took it to a whole new level. Movie openings became opportunities to meet bright young things. Paramount executives introduced him to girls whom they thought he might like. He began to dye his hair ever-wilder shades of orange. And then, a few years into Sumner’s ownership of Paramount, his old friend Bob Evans, who had a production deal with the studio but whose films had been few and far between in the decade before Vi
acom bought Paramount, had his deal come up for renewal. Evans sent his business partner, a high-cheekboned, model-esque blonde named Christine Peters—the ex-wife of former Columbia Pictures cochairman Jon Peters—to do the presentation for him and to meet Sumner. Peters presented the films they had in development, including the promising romantic comedy How to Lose a Guy in 10 Days, which went on to be a hit for the studio. Evans’s deal was renewed, and Sumner was smitten.28 Here were beauty, brains, and Hollywood hustle, rolled up in a single package. When Evans suffered a series of strokes in 1998, Sumner flew to his bedside every week, encouraging him to fight to get his old self back. While he was in town, he courted Peters, pressuring her to marry him.29

  Phyllis knew about it, of course, but knowing was not what made it intolerable; it was the public humiliation. The fame Sumner had garnered in the Paramount battle meant that his personal life was tabloid fodder.

  When Sumner vacationed with Peters in the summer of 1998 on the Mediterranean island of Sardinia, word got to a Daily News gossip columnist, who phoned Sumner, only to have him respond that Phyllis was “in the next room!” and he and Peters had only had “one dinner together, in Los Angeles.”30 By the next February, when Sumner and Phyllis were visiting Brent’s family in Colorado for Phyllis’s birthday, tensions were already boiling over. Sumner abruptly left in the middle of the visit to fly to California, despite Phyllis complaining that she didn’t feel well. “I remember them fighting about it,” Keryn Redstone recalls. “‘Don’t go to California! I know what you are doing. I know you are seeing that whore.’ She was convinced that he was building a house with Christine Peters.” Sumner went anyway, and Phyllis ended up in the hospital with an emergency appendectomy.