The King of Content
Page 24
Then Sumner took off the gloves.
On July 20, 2007, Sumner sent an open letter to Forbes lashing out at his daughter, throwing her talk about “good corporate governance” back in her face. “While my daughter talks of good governance, she apparently ignores the cardinal rule of good governance that the boards of the two public companies, Viacom and CBS, should select my successor.” He said he would allow Shari to be bought out, “as long as the price is acceptable,” and ended with a vicious kicker: “It must be remembered that I gave to my children their stock; and it is I, with little or no contribution on their part, who built these great media companies with the help of the boards of both companies.”8
For Shari, who had spent more than a decade running the theater chain, trying to balance full-time work with motherhood, taking the Delta Shuttle down to New York for Viacom board meetings and then back in time for dinner, only to return again the next morning, it was a devastating blow. It was also revisionist history. Her spokeswoman shot back that Shari had received her first shares in National Amusements in 1959 from her grandfather Mickey and suggested that the chairman title was not her aim. In a dig meant to highlight Sumner’s obsession with clinging to the CEO title, she added, “Anyone who knows Shari Redstone knows she is the one Redstone family member who does not aspire to power or covet titles.” But she did say that Shari would be willing to consider selling her 20 percent stake of her father’s empire for $1.6 billion, using the same valuation that Brent had used in his lawsuit.9
Dauman was once again tapped to help out with one of Shari’s divorces, only this time he represented Sumner in talks, as Fortune put it, “about reducing her influence in the affairs of CBS and Viacom.” It was a curious role for him to be playing, as the chief executive of Viacom, but people who know the family say he was always Sumner’s fixer first. They discussed Sumner buying her voting stock or offering her the theaters in exchange for voting stock, but in the end, according to her spokeswoman, she had “no intention of leaving the board.”10
By the end of the year, the feud appeared to have blown over when Sumner named Shari chairman of Midway Games. “I fully support the election of Shari as chair and I am totally confident of Midway’s success,” Sumner said in a statement, despite the stock being down 60 percent for the year.11 In fact, Shari’s ascension to the chairmanship of Midway was just another stop on its downward spiral. The previous chairman, Ken Cron, had left in frustration after Sumner refused a $300 million offer for the troubled company. A large part of Phyllis’s divorce settlement had been in Midway shares, and Shari felt duty-bound to try to right the ship. But Sumner didn’t let Shari run Midway any more than he had let Cron.
And then, in the early morning hours of September 15, 2008, Lehman Brothers collapsed, triggering the nightmare scenario that had long kept Shari up at night: the debt from Sumner’s Midway Games purchases suddenly threatened National Amusements. As global markets went into free fall over the next three weeks, the value of CBS was cut in half, while Viacom dropped nearly 40 percent. Unbeknownst to Viacom and CBS investors, National Amusements owed $1.6 billion in bank debt that, while unsecured, had covenants linked to the value of National Amusements holdings.12 As that value plunged, National Amusements was forced to sell $233 million’s worth of nonvoting shares of CBS and Viacom to avoid breaching covenants on the loan.
Sumner tried to get out in front of the story, sending his allies to whisper to the press that the $1.6 billion loan had been used for expanding the theater chain, prompting Shari to put out an on-the-record denial. “The implication that this stock sale was required by the operation and expansion of the company’s theater circuit is not accurate,” National Amusements said in a statement the day after the sale. The real reason for the loan was a combination of Midway Games stock purchases, retrofitting National’s old theaters, expanding the theater chain, and Brent’s settlement.13 Investors began to panic that Sumner would be forced to sell his voting stakes in CBS and Viacom, and perhaps even the companies themselves. Sumner tried to calm them, telling the Wall Street Journal that there was “not a chance” he would sell any more shares of the companies.14
But the money had to come from somewhere. Not surprisingly, Sumner came for the theaters first, proposing to the bankers that he sell the family’s entire fifteen-hundred-screen chain to help restructure the debt. But Shari, whom he tapped to lead the negotiations with lenders, pushed back. She hired her own financial adviser from the Blackstone Group, and talk resurfaced that she might exit the family media empire altogether as part of the restructuring. But the situation was dire enough that those talks had to take a backseat to saving National Amusements. The New York Times speculated that, with his debt so high and the value of his assets so depressed, Sumner might not even be a billionaire anymore.15
Instead, Midway was the first to go. At the start of December, National Amusements sold its 87 percent stake in Midway to an investor named Mark Thomas for the fire-sale price of $100,000, a stunning loss for a company that Sumner had pumped nearly $800 million into. The sale wasn’t part of National’s talks with banks, but it did improve the company’s financial picture. Sumner’s lawyers looked at the sale as a tax maneuver—National could count the loss against its income from the year.16 But the sale doomed Midway by triggering change-of-control provisions that let its bondholders demand full repayment of some $240 million’s worth of debt.17 Two months after the sale, Midway filed for Chapter 11.18
The theaters were next. Although Shari was leading the negotiations, she was part of a three-person special committee of National Amusements directors, along with Andelman and Abrams, and by late December she had been outvoted on selling off the theaters.19 The situation grew so tense by then that Shari and Sumner were only communicating by fax.20 By February, the Redstones struck a deal with the banks to repay the $1.46 billion it now owed by the end of the year, and put together a prospectus to sell some of its 118 theaters, which analysts estimated were worth between $500 million and $700 million.21 In October 2009, National Amusements sold $1 billion in nonvoting stock in Viacom and CBS to pay off its debt, which kept it from having to sell off the entire theater chain. A few months later, it sold thirty-five theaters, including The Bridge in Los Angeles.22 The company that Mickey had envisioned as a national chain had been pared back to its roots in the Northeast. Shari blamed her father for destroying her grandfather’s legacy.
Shari was so upset that she came very close to following in her brother’s footsteps and suing her father. In 2009, her lawyer, Betsy Burnett of Mintz Levin, delivered an explosive eighty-page draft complaint to Sumner and Dauman, outlining a host of grievances, including the Midway affair and years of mistreatment from her father, threatening to file it the next day. Negotiations followed, and Shari ended up with a settlement that gave her the Russian theaters, a lifetime employment contract at National Amusements, charitable donations, and $5 million with which she would go on to start a venture capital fund. As part of the settlement, she agreed to give up all legal claims on these issues. While she had tried to get the language promising her the chairmanship of Viacom and CBS made less ambiguous, the old, ambiguous language remained. As far as the outside world knew, Shari was still her father’s possible successor, but within the family, their bonds were broken. “Sumner hated Shari at that point,” said one person familiar with the negotiations.
Amid these crises, Sumner and Paula amicably divorced.23 She felt isolated in LA and was seen in a few nasty public blowups with Sumner at premieres and Dan Tana’s.24 His empire in shambles, Sumner was now alone.
Chapter 18
Strange World
One summer evening in 2011, the five members of the raunchy, ostensibly bisexual all-girl band the Electric Barbarellas spilled out of a black SUV onto a West Hollywood sidewalk. Drunk and dressed for clubbing, they were in high spirits, shrieking like teenagers and playfully calling each other “whore!” At one point, the ringleader, a towering, willowy blonde in dark
glasses, faced the paparazzi and declared, “One of the Barbarellas has lost her virginity tonight!” Their antics were meant to stir up buzz for their eponymous reality show, which had recently debuted on MTV. Taking the hint, the others turned to the cameras and continued to riff. “In the butt!” added one. “These guys told me that they were going to put it in her butt tonight, and she said, ‘OK, for $500.’” Another, remembering that one of the show’s narratives was supposed to be that they were constantly sleeping with each other, chimed in, “It was me!”1
But none of this salaciousness had been on display a few weeks earlier, when the band had made its network television debut on CBS’s The Late Late Show with Craig Ferguson. Dressed, in the words of one Web commenter, like “10-cent hookers,” they woodenly plodded through a middling pop song from their album Strange World, candy-colored deer in headlights, more off-key than on, their stripper heels so tall they could barely dance.
By then, everyone in the industry knew that this awkward performance had been mandated from the top. A little over a year earlier, the band’s leader, a twenty-nine-year-old named Heather Naylor, had been spotted at Dan Tana’s with Sumner, Moonves, and Moonves’s wife. Sumner wanted Naylor to pitch her show to the CW network, which was partly owned by CBS. Someone tipped off Daily Beast reporter Peter Lauria, who wrote a bombshell story that Sumner had taken a shine to Naylor, flying her and her bandmates by private jet out to New York to convince MTV’s extremely reluctant executives to give them a show. The tensions got so bad that Judy McGrath—a woman who wore Chuck Taylors, had won Peabodys, and spent her adult life fiercely guarding the authenticity of the MTV brand—considered resigning. Viacom spokesman Carl Folta didn’t even try to deny what was going on. “He loves the concept of the show, believes the women are extremely talented, and thinks there’s a very good chance this could become a major hit,” he said.2
Sumner got his way but was determined to plug the leak. A few weeks after the story appeared, Sumner, whose favorite film was The Godfather, left Lauria a menacing voice mail that would have made Don Corleone proud. He offered financial rewards if Lauria coughed up his source. “We are not going to kill him,” he said. “We just want to talk to him.”3 After all those years of trying to shed his father’s underworld associations, here, as old age closed in, was Mickey Redstone’s son.
The voice mail only made matters worse by causing a sensation, and soon it emerged that Sumner had given Naylor, a former MTV production assistant, $150,000 worth of Viacom stock.4 Another of Sumner’s girlfriends would later claim he gave Naylor some $21 million before it was all over. (People familiar with Ms. Naylor’s thinking say the $150,000 was payment to dissolve a contract in connection with her show, and that while Sumner did financially invest in her band and show, she was not given $21 million.) Naylor was just one of many beautiful young women upon whom Sumner lavished riches in the years following his divorce from Paula.5 If he didn’t pluck them from some corner of his media empire, as he did with Malia Andelin, the flight attendant on CBS’s corporate jet, then he hooked them up with jobs in it, as he did with Rohini Singh, the thirty-year-old party girl he demanded Showtime executives employ. Both got $18 million, according to the later girlfriend’s lawyers. Company executives referred to the period as “Sumner’s third mid-life crisis.”
Sumner met some of these women through his grandson Brandon Korff, who had moved to Los Angeles in 2009 at age twenty-four to work at MTV. Of all his siblings, Brandon was the one with showbiz most in his veins. A natty dresser with a smoldering stare who had moved to LA “to be rich and famous,” as one person who knew him put it, Brandon’s first job after graduating from the George Washington University in 2006 was at Eminem’s record label, Shady Records. By 2008 he had joined the family business, as manager of corporate development at National Amusements—essentially the same job that Michael Redstone had once held—overseeing the launch of the Showcase Live music venue at Patriot Place, near the home of the New England Patriots. After a year, he moved in with his grandfather and then got a place near Beverly Park, while still returning to his grandfather’s estate to watch sports with “Grumpy” in the fish room or to escort him to events. Meanwhile, he also had a hedonistic streak, driving a Bentley, producing a well-regarded documentary on the Electric Daisy Carnival electronic dance festival, and hanging out with gorgeous women. Some he introduced to his grandfather, who would date them and lavish them with gifts. Once he brought a beautiful woman to an MTV event who ended up going with Sumner.
Sumner had good reason to feel frisky. Since beating prostate cancer in 2004—a feat he credited to his doctor, celebrity oncologist Dr. David Agus—he had become more convinced than ever of his immortality and devoted to his regime of daily exercise and “eating every antioxidant known to man.”6 He kept bowls of dried goji berries and apricots nearby at all times, had red wine with meals, and was such a believer in the acai-berry drink MonaVie that he became a distributor. “I have the vital statistics of a 20-year-old man,” he bragged to Larry King at the Milken Institute in 2009. “I’m not going anywhere else. I like it here.” Part of why he liked it was that he had not slowed down sexually, he said, thanks to what he called “drugs for men.”7 He began work on a memoir titled How to Live Forever. 8
For the mogul who had long claimed “Viacom is me,” Viacom’s improving performance bolstered Sumner’s sense of invincibility.9 By 2010, the economy was climbing out of the financial crisis, and Viacom was climbing with it. The crash had not been all bad for Viacom. It gave Dauman cover to cut about three thousand of Viacom’s thirteen thousand jobs—nearly one thousand of them at Paramount—and leveled the media playing field.10 While Viacom’s stock had consistently traded at lower multiples than its peers before the crisis—due in some part to the “Redstone discount” caused by his overwhelming control—after the crisis the gap eased.11 MTV had its first bona fide hit of the Dauman era in Jersey Shore, a reality show celebrating the self-proclaimed “guido” lifestyle of a bunch of deeply tanned, Italian American twentysomethings. It drew an astonishing eight million viewers at its peak and turned stars like Snooki into household names.12 Along with other grittier reality fare like Teen Mom, the show helped MTV’s ratings grow by double digits over the next several years.13
Things were even turning around at long-suffering Paramount, where Grey’s strategy of nearly halving the studio’s slate to about a dozen films a year produced record profits. Although Paramount’s marriage to DreamWorks had ended in divorce in 2008 after Grey clashed with its leadership and Dauman referred to cofounder Steven Spielberg as “immaterial,” DreamWorks had left behind the crucial Transformers franchise, which delivered a blockbuster sequel in 2010. Combined with the breakout performance of the low-budget horror flick Paranormal Activity—which was made for $15,000 and brought in $107 million at the box office—Paramount was suddenly a profit maker after years in last place at the box office.14 Meanwhile, Viacom’s top brass promised Wall Street they’d make no big acquisitions and focus instead on buying back stock, a favorite technique across the industry for goosing a company’s stock price.15 By the end of 2010, Viacom’s stock was trading at $40, more than twice what it had been at the nadir of the crisis, and Dauman had taken home $85 million, making him the highest-paid CEO in America.16
But, even as Viacom’s financial performance was improving, some of the deals Dauman was making during this period threw the future of the business into question. In 2009, MTV Networks signed a deal to put old seasons of popular shows like South Park and SpongeBob SquarePants on Netflix. At the time, Netflix was a still-emerging streaming service with just ten million subscribers, a fraction of the roughly hundred million households that subscribed to pay television, and many media executives saw streaming deals as found money.17 But some worried that they were helping build a dangerous competitor that trained viewers to wait until they could watch their favorite shows in a sleek, easy-to-use environment without ads, for a fraction of the price of traditi
onal pay-TV. Dauman was not one of these worrywarts. In 2010, Viacom strengthened Netflix’s offerings even further when it signed a five-year, $1 billion deal to make Paramount movies available on the service through its pay-TV service Epix.18 “When satellite came along as a new form of distribution, that was a very good thing for a content owner,” he told the Wall Street Journal. “And in the same way, whether it’s Netflix, whether it’s Hulu, whether it’s other services that are developing models that are based on distributing professionally produced content, that’s a very positive development for us.”19
While Wall Street may have found Viacom’s lack of acquisitive appetite soothing, it meant Viacom missed some big opportunities. In 2009, Marvel Entertainment, the comic book empire that created Spider-Man, Captain America, and Iron Man, came up for sale. Paramount already had a deal with Marvel to distribute films, and would have made sense as a dance partner, but Dauman had ruled out big purchases. Instead, Disney bought Marvel for $4 billion.20 Analysts initially believed Disney overpaid for Marvel but began to sing a different tune after The Avengers—which Paramount had originally been contracted to distribute—made $207 million domestically during its opening weekend in 2012. Today the deal is considered one of the smartest moves Disney CEO Bob Iger ever made, part of a series of acquisitions, including Pixar and Lucasfilm, that helped the company become roughly twice as valuable as its closest competitor.21
Sometimes Viacom missed out on hits because of Dauman’s cool relationship with talent. While Freston would drive over to South Park creators Matt Stone and Trey Parker’s studio to hang out for hours, Dauman never visited. And when the duo was developing their Broadway musical The Book of Mormon, Dauman initially agreed to have Viacom invest $1 million, which would have given the company the rights to tack Comedy Central Presents onto the show’s title. But he changed his mind the day the check was due, approving half as much and giving up the naming rights. The musical, which raised $10 million for its launch in 2011, has gone on to gross more than $1 billion.22