The King of Content

by Keach Hagey

  A few months later, the whole painful episode repeated itself when News Corp swooped in and snatched IGN, the unprofitable gaming media company that had been on Hirschhorn’s wish list, for $650 million. This time, Freston went to Sumner to personally apologize and explained the structural problem of not having Viacom’s deals team reporting to him. Sumner said he would just have to wait until he got his own CEO title in January, when the companies split.28

  A few years later, News Corp would off-load both of these purchases in a fire sale, each for under $100 million, but people close to Viacom’s deal-making say MySpace’s descent into tawdry, ad-choked irrelevance was not inevitable. “MySpace under Tom Freston would have been a home run,” said one senior Viacom official.

  Again and again, Viacom showed that it had the tuned-in talent to identify where media was going in the Internet age but not the corporate nimbleness to execute deals at the speed that age required. It did make a few small digital purchases, but the misses outweighed the hits. As infamous as the MySpace miss would soon become, the biggest miss of all was yet to come.

  By Thanksgiving of 2005, MTV Networks was intent on buying Facebook. Earlier in the year, MTV strategy chief Denmark West had informally offered to buy the not-yet-two-year-old site for $75 million, which was rejected, and in the process had gotten word that Facebook founder Mark Zuckerberg only wanted to deal with other CEOs. So Freston welcomed Zuckerberg—in flip-flops, in February, in New York—and pitched him on the overlap between MTV’s and Facebook’s audiences. According to David Kirkpatrick’s The Facebook Effect, Freston even suggested he could help Facebook develop content for his platform, an idea Zuckerberg dismissed, saying, “We think of ourselves as a utility.” One Viacom executive described it as a “no-thank-you meeting.” But MTV Networks’ new president, Michael Wolf, formerly a well-known media industry consultant, was not about to give up. He had seen the data from MTV’s focus groups of college students, who talked constantly about Facebook, and took to IM’ing Zuckerberg to set up dinners near Facebook’s headquarters in Palo Alto, which he would then fly out to attend. Wanting to get a sustained stretch of the young CEO’s attention, he devised a plan to offer him a ride home for the holidays on the Viacom plane, which Zuckerberg accepted. Before Zuckerberg’s parents picked him up at the Westchester County Airport in their minivan, Wolf and Zuckerberg talked about just how much Facebook’s audience loved MTV shows like Laguna Beach. Zuckerberg had told Wolf he believed his company, which was projecting $20 million in revenues for 2006 and essentially no profit, was worth $2 billion.

  Soon after, Viacom made a bona fide offer to buy Facebook for $1.5 billion—a little over half up front and the rest earn-out. As Kirkpatrick noted, “It was by far the most serious and concrete offer Facebook had ever received.” MTV and Facebook’s deal teams negotiated for weeks. Zuckerberg wanted more cash up front. Wolf got the number up to $800 million but couldn’t justify going beyond that for a company with no revenue. As the talks faded, Facebook announced it had raised a $25 million round of venture capital and that it had never been for sale.29

  Freston did bag one critical deal for his side of the company before stepping out into the glare of the Wall Street spotlight. As confident as he was about his ability to run MTV Networks, which brought in most of the revenue and nearly all the profits on his side of the company, he was worried about Paramount, which was in a slump. Earlier in the year, at media magnate David Geffen’s suggestion, he had surprised Hollywood insiders by tapping Brad Grey to run the studio. Grey was the talent manager of clients like Brad Pitt and Jennifer Aniston, and he had helped bring groundbreaking shows like The Sopranos to television. He had a reputation as a savvy deal maker but lacked studio experience. His mandate was a top-to-bottom overhaul of the studio, but that would take time. In the near term, they needed films, and fast. When Grey caught wind that DreamWorks SKG, the studio that Geffen cofounded with Steven Spielberg and Jeffrey Katzenberg, had run into a snag in its talks to sell itself to General Electric’s NBC Universal, he took the opportunity to Freston, who approved a plan for Viacom to try to buy it.

  Around midnight on December 8, 2005, Freston secretly boarded a private plane to Los Angeles with the aim of swooping in with a last-minute offer to buy DreamWorks. Over sandwiches at Spielberg’s house overlooking the Pacific Ocean, he made a successful pitch, and two days later the companies announced that DreamWorks would be sold to Viacom for $774 million, plus the assumption of $840 million in debt. (Sumner worried about the size of the deal, so Freston rounded up outside investors to fund $1 billion of the $1.6 billion.)30 Viacom might get beaten on the tech pitch, but here in the halls of old media, where relationships and deference to talent are everything, GE’s obtuse number crunching had nothing on Freston’s charm. The deal included an agreement for Spielberg and Geffen to produce four to six movies a year, a godsend to bolster Paramount’s thin slate.

  * * *

  Shari, too, was preparing for the split, recruiting independent directors for the boards of newly separate Viacom and CBS, including significantly more women and Robert Kraft, a friend and owner of her beloved New England Patriots. But before she could formally assume her roles in the new companies, she would have to do a more unpleasant bit of family empire housekeeping.

  Since beginning to ramp up his share two years earlier, Sumner had grown increasingly obsessed with Midway Games. All through 2005, he continued to buy the stock until he owned 89 percent of the company, pushing the stock price up 81 percent in the process. “The prime reason for the stock’s run has been Redstone,” said one analyst. “There are few other buyers of the stock.” The Redstones wanted to replace unprofitable Midway’s management, but before they could, Sumner ran into debt problems. He had borrowed $425 million from Citicorp to buy Midway stock using National Amusements stock as collateral, and as Midway delivered a series of disappointing earnings in 2005, Citicorp issued a margin call, which meant Citicorp could have seized Sumner’s shares of National Amusements.31 Sumner asked National Amusements to bail him out by buying the stock. Shari, as a minority owner of National Amusements, agreed to do the deal on the provision that she be given full control of National’s Midway holdings and National never again be put in a position where it had to buy Midway stock. In a document filed with the Security and Exchange Commission at the end of 2005, Sumner and Shari agreed that if Sumner wanted to buy more Midway stock, he’d have to do it with his own money, not the family fortune.32 Sumner abruptly stopped buying, and Midway’s share price plummeted 50 percent in the next two months.33

  While Sumner was watching the more than $500 million he had pumped into his plaything evaporate, his broader empire was hit with its most serious blow to date. Out of the blue, Brent, armed with the documents unearthed in Eddie and Madeline’s lawsuit, sued his father, alleging a campaign to freeze him out of the empire and demanding that his father’s $8 billion media empire be dissolved so that he might be able to walk away with his one-sixth share. Brent’s list of grievances against his father was long, including kicking him off the Viacom board, failing to give him adequate information about National Amusements’ business so he was forced to abstain when voting on issues, and failing to ever declare a dividend “despite monumental profits.” He complained about Sumner’s favoritism to both Shari and her ex, accusing Sumner of self-dealing when he “caused NAI to gratuitously award a severance package worth millions of dollars to Ira Korff.” High on the list was the Midway debacle. Brent again accused his father of self-dealing when he borrowed $425 million from Citigroup “and then arranged an NAI bailout of his loan and repayment of his debt in exchange for stock, much of which he had acquired with the loan proceeds.”

  Among the most interesting aspects of the complaint was its straightforward declaration that Sumner had “repeatedly” told Brent and Shari that they would “run the company.” The documents from Eddie and Madeline’s lawsuit had only strengthened this sense of birthright: Mickey had set up the Grandchil
dren’s Trust clearly wanting the company to be passed down from one generation to the next. “Plaintiff shared these expectations.”34

  Brent did not succeed in breaking up his family’s media empire, but he would eventually walk away with a $240 million settlement.35 He would never speak to his father again.

  Chapter 16

  “This Is Crazy!”

  On Tuesday, August 22, 2006, Tom Freston, now a public company CEO, was taxiing onto the Van Nuys runway in Los Angeles in his new Global Express when his flip phone rang. The stunned voice of Carole Robinson, his head of communications, informed him that Sumner had just given an impromptu interview to the Wall Street Journal declaring that Paramount was firing Tom Cruise, its biggest star, over concerns that his increasingly erratic behavior had dampened the box office for Mission Impossible III. “It’s nothing to do with his acting ability,” Sumner told the Journal. “But we don’t think that someone who effectuates creative suicide and costs the company revenue should be on the lot.”1 Freston, livid, called Sumner.

  “This is crazy!” he said. “First of all, you can’t fire Tom Cruise, because he doesn’t work for us. And even if he did work for us, and if we were going to fire him, it should be done by Brad Grey who runs the studio, not by you, not by me.” Cruise was the cornerstone of the Paramount library—why would Sumner want to diminish him? Sumner countered that he controlled the company and could do anything he wanted to do. Freston started pacing up and down the aisle, yelling, “You can’t do this! This is bullshit! This is crazy!”

  It was their first screaming fight in twenty years of working together, and it was a doozy. Sumner was famous for bellowing at underlings, but he had an almost paternal relationship with Freston, with whom he dined often and considered one of his dearest friends. Back in the 1990s, during Sumner’s first trip to Asia, Freston had even, at Sumner’s request, taken Sumner and Delsa around the sex clubs of Bangkok. (The sight of a naked, fornicating couple descending from the ceiling atop a Harley-Davidson would be Sumner’s first taste of commercial sex but not his last.) But Freston was now in the most famously dangerous job in media: CEO of Sumner Redstone’s Viacom.

  It wasn’t going especially well. After all the talk of how Freston’s side of the company was going to grow fast while Moonves’s was going to crawl, the opposite had happened: CBS’s stock was up almost 8 percent since the start of the year, while Viacom’s, battered by a sector-wide cable advertising slowdown, was down almost 12 percent. Freston now walked into his office every morning to a stack of angry faxes from Sumner, wanting to know why the stock was down a few cents. His first quarterly earnings surprised investors with a 10 percent decline in profit, in part due to the loss of an advertiser in Germany that Wall Street wasn’t expecting, leaving analysts grumbling that Freston could have communicated with them better. And the annual spring “up-front” advertising sales season was soft, stoking fears that MTV was losing its youth marketing mojo to upstarts like YouTube.2 By July, just six months into his tenure, analyst Rich Greenfield declared, “If Mr. Freston cannot swiftly reorient Viacom, Sumner Redstone and the board need to find a new CEO.”3 To top it all off, Rupert Murdoch had appeared on the cover of July’s Wired magazine in a pinstripe suit behind the giant word “MySpace.” The title of the largely laudatory piece? “His Space.”

  Freston wasn’t the only one who thought firing Tom Cruise was crazy. For decades, Cruise had been a money-minting machine for Paramount, hauling in some $3 billion from films like Top Gun, The Firm, and the Mission Impossible franchise. He was paid handsomely for it: Paramount paid him and his business partner, Paula Wagner, up to $10 million a year to develop films, and he got an enormous 20 percent cut of gross box office revenues from his movies, not to mention a substantial portion of DVD sales. But over the past year, his fiercely disciplined facade had begun to slip. He became more outspoken in his promotion of Scientology, went on the Today show and criticized Brooke Shields for using antidepressants for her postpartum depression, and became an object of Internet mockery when a clip of him jumping on Oprah Winfrey’s couch declaring his love for Katie Holmes became a viral sensation.

  Sumner said it was his wife Paula who had first understood the impact this behavior was having on Viacom’s bottom line. “Paula, like women everywhere, had come to hate him,” he told Vanity Fair. He claimed the nearly $400 million box office haul from Mission Impossible III would have been $100 million higher had Cruise not alienated female fans. In fact, Paramount already had been working on a more graceful way to lower its Cruise-related costs, putting a lowball offer of around $2 million on the table as the deadline to renew his production deal loomed. When his production company didn’t respond, it seemed like Cruise would exit the lot quietly. (Indeed, Wagner said later that they weren’t fired but quit.) But then Sumner went public in a massive breach of Hollywood protocol that undercut both Grey and Freston. The news shot through Hollywood like a bolt of lightning, confirming the suspicions of the growing number of entertainment industry players who had lately spotted the octogenarian tottering into walls or wandering disoriented into the kitchens of posh Beverly Hills eateries. As Hollywood’s best-sourced and most savage chronicler, Nikki Finke, put it: “If I were a Viacom shareholder, I’d be asking Ol’ Sumner right now: Are you nuts?”4

  Little did Freston know when he was arguing with Sumner on the tarmac that he was already toast. A week before, Sumner had offered Freston’s job to Dauman. Sumner would later claim that the decision was the result of weeks of deliberation at the board, where they weighed Freston’s strengths and weaknesses against Dauman’s.5 But other board members remember no such deliberation, only a hastily arranged conference call at five p.m. on Labor Day during which the board voted to buy out Freston’s $60 million contract.

  Freston truly didn’t see it coming. An hour after the board vote, Sumner called Freston and asked him to come to his house in Beverly Park but got voice mail.6 Freston was busy enjoying the final hours of summer playing tennis with Yahoo! CEO Terry Semel at Bob Evans’s estate. When Freston did finally call Sumner back, Sumner asked him to come by the mansion.7 When he got there, Sumner was waiting in the living room with a press release, near tears.8 “Sit down,” Sumner said. “I’ve got really bad news for the both of us. The board of directors has decided that you have to go.” The implication was that the decision was somehow outside of Sumner’s hands. “Firing me?” Freston said, stunned. It had only been eight months. Just six weeks earlier, Sumner had told the Wall Street Journal that it would take at least a year to evaluate the success of the split and that there was “no circumstance” in which he could see himself ousting Freston.9

  Freston got up calmly and left without looking at the press release, so Viacom spokesman Carl Folta had to call him later to go over whether he wanted to say he quit or was fired. They went with “resigned,” and Freston contributed a classy, if implausible, kicker quote: “I have worked closely with Philippe Dauman and Tom Dooley over the years and have the highest respect for their abilities. I have every confidence that Viacom is well positioned to prosper under Philippe’s leadership.” The sting of this final indignity was soothed by an $85 million severance.10

  The press release that went out the next morning announcing Dauman and Dooley’s return from the wilderness to become Viacom’s chief executive and chief administrative officer was a masterwork of corporate propaganda, but it did contain one revealing comment from Sumner praising them as the executives “with whom I shared the most productive and successful period in Viacom’s history.”11 Sumner desperately missed the late ’90s, those go-go years when Viacom’s stock price tripled, powered by the juggernaut of MTV Networks.12 In an effort to reclaim them, he had split the company.13 But the rise in pay-TV subscribership that had fueled that growth—from 56 percent of American households in 1990 to 83 percent by 2000—had already begun to reverse by 2004.14

  Despite Sumner’s nostalgic note, the regime change was sold as a remedy to the percep
tion that Viacom was losing on the digital front. “We have to be more plugged in,” Dauman told analysts. There was truth to the criticism. MTV still claimed eighty-two million monthly viewers on television, but online, the four million monthly unique visitors who came to its MTV Overdrive video site were a fraction of the fifty-five million stopping by MySpace each month. But Sumner’s digital beef seemed more personal than industrial. “Before Rupert got into the act, MySpace was sitting there for $500 million. Tom never took it,” he told Charlie Rose. “It was a humiliating experience.”15

  Sumner suggested that Dauman and Dooley’s time as private equity investors gave them “important insights that will enable us to better navigate the digital transition and prudently capture the enormous opportunities that are clearly out there.” But their firm, DND Capital Partners, was mostly known for investing in start-up cable television channels like the Tennis Channel. It soon became clear that the most important word in Sumner’s previous phrase was “prudently”: he had no intention of opening his wallet for a transformational digital deal. “I would not consider Facebook because we looked at it, it’s a great company, [but] we thought the price was too high,” he told Charlie Rose not long afterward. “We are not going to overpay! . . . We are very financially disciplined.” Six months before, Facebook had done a fund-raising round at a valuation of $500 million. Today, its market capitalization is around $500 billion, thirty-seven times the size of Viacom.

  If the news of Tom Cruise’s firing was like a bolt of lightning through Hollywood, Tom Freston’s firing was an atom bomb. It’s hard to overstate how beloved and respected Freston was in every corner of the media industry, and even harder to find someone in a position of power in the business who does not claim to be his friend. In the wake of his firing, Oprah, Bono, Steve Jobs, Bill Gates, and Rupert Murdoch all beat a path to his door.16 At a previously scheduled roast of Freston a few weeks later, News Corp president Peter Chernin joked, “How bad it must feel for Tom to be screwed over by a man so old that he needed a little blue pill to do it.”17