And then there was the second issue: the investment bankers. In addition to controlling the business language—the basic means of business expression without which you could not communicate with other businessmen—investment bankers also controlled the market. You could not sell something without bankers.
Now, if you controlled distribution, or if you could merely argue a reasonable case that you would be able to control distribution, then the bankers would certify an altogether different type of pro forma than if you were just a mere content purveyor. The difference was a difference in scale. Scale. After covering fixed costs, how do we grow exponentially with only incremental new expenditures?
That’s scale. Bankers would say: “How do we scale this? I don’t see any scale here. How do we show scale?”
If you controlled distribution, you had scale.
And if you had scale, then the value of your business—what someone, some investor, or some other business that might acquire you, would pay you for every dollar you earned (the “multiple”)—increased geometrically. At least according to the bankers.
The fact the Messier’s and Compagnie Générale des Eaux’s water pipes had nothing to do with media was beside the point. He’d nailed the metaphor.
There were two other big themes in the rise of Jean-Marie Messier and the transformation of Compagnie Générale des Eaux: national pride and personal vanity.
Neither should be underestimated.
Each European country had its media barons who could play on an international stage. The Germans had Bertelsmann. The Italians had Berlusconi. The English had Murdoch (however strained this relationship might be—and, even though he was actually an Australian). Being a media power was something like being a nuclear power: It brought you to the table; you were a player in the world. Another world now existed which was made of digital networks and cross-culture brands and, largely, the English language. You didn’t want your country to not have a stake in this.
So Jean-Marie came into the media-mogul game not only with the right metaphor but with lots of French capital.
And then the vanity: What was required in the transformation of Compagnie Générale des Eaux was someone who was willing to gamble very safe and stable wealth and power in a business of fathomless risk and low reward. Someone who valued the reward by a different measure than just a financial one. You had to understand the value of personal exaltation—of being a powerful individual and puffed-up popinjay on the world stage.
Now, possibly the vainest thing a human being can do is go to Hollywood. More precisely, the vainest thing a human being can do is go to Hollywood with money. A step further: The vainest thing a human being can do is to be a foreigner who goes to Hollywood with money. You are, ipso facto, conceited and deluded enough to assume that while all other foreigners who have gone to Hollywood with money have had it ignominiously taken from them, you will not.
It is possible, perhaps, that Messier was thinking something like, Lightning doesn’t strike twice in the same place. Considering that his vehicle of going to Hollywood was a vehicle that, previously, had been the instrument by which another ludicrously vain pretender had been fleeced.
This was Edgar Bronfman Jr., who, in the same way that Messier was trading his stable and conservative water business, had cast aside Seagram’s, his family’s old-hat liquor business (with a big and lucrative interest in chemicals which Edgar sold to finance the Hollywood adventures), for the high-risk entertainment business.
The Bronfman story is an unexpected and extreme tale of paternal love. A father, Edgar Bronfman (along with his brother, Charles, the uncle, who must really be pissed off) acts as a good, if passive, steward to a great family fortune based around the Seagram’s liquor company. He has a son, Edgar Bronfman Jr., with few demonstrable business talents or career focus. Rather than go to college, Edgar Jr. goes out to Hollywood, begins a long association as a friend to movie stars, and, briefly, considers a career as a songwriter (he writes “Whisper in the Dark” for Dionne Warwick) before being given unspecified duties in the family business. Then, placing filial regard above profit motive, the father allows the son, now in his mid-forties and still keenly infatuated with Hollywood, to redirect the family’s historic business interests. The company liquidates its enormously profitable holdings in the chemical industry and in 1995 acquires, from the Japanese, Universal Studios, and then goes on to buy a substantial interest in the music business. After vastly overpaying for these acquisitions, Edgar Jr. engages in several years of almost nonstop mismanagement during which many of his Hollywood friends, most notably Barry Diller, take great advantage of him. The family fortune is not only compromised, but the family is suddenly the object of great ridicule—almost as hurtful as great financial losses. Father and uncle direct Edgar Jr. to sell all of the family holdings.
Edgar Jr.’s single victory in the entertainment business is managing to sell his company, at what seems like a significant premium to its worth (although at a significant loss for the Bronfman family), to Jean-Marie Messier. (“The best thing about owning an entertainment company,” Edgar Bronfman Jr. memorably said, “is selling it.”)
This would have been the reasonable point for everyone to break down in laughter. But no one does.
Jean-Marie Messier, heretofore unknown, is treated as a great foreign potentate—rather than a doomed and comic figure engaged in an act of hubris and narcissism so transparent as to, in any melodramatic rendering which Hollywood people ought to understand, broadly foreshadow an inevitable and desperate end.
Let me offer a conspiracy theory here. People in the entertainment and larger media business did know that he was doomed. But they had a clear self-interest in making Messier believe he was safe and proceeding successfully. The greater his delusion, the larger his failure, the richer other people’s take.
This analysis shouldn’t be shocking or extreme. There is, everyone knows, a kind of flattery that happens in Hollywood that is very much akin to fattening a pig.
Jean-Marie Messier was given the pig-fattening mogul treatment.
Certainly there was lavish press attention—the kind that comes not just from Jean-Marie’s own people saying loving things about Jean-Marie, but from everybody talking him up, pumping him greatly.
And wouldn’t this have been a smart idea?
For a period after Messier did his deal for Universal, which would bring him into frequent dealings with Barry Diller, Diller went around telling everybody who would listen how astute Messier was. He’s the real thing, Barry kept saying.
At the same time, let’s just assume that Barry knew Messier was the opposite of the real thing. That he was entirely a made-up creation. A self-actualized creature. A … joke. Let’s assume this not least of all because Diller has made his career on the basis of the best instincts for other people’s weaknesses.
Now, surely, Diller wants to foster goodwill with the new owner of a business he’s in substantial partnership with. But too, let’s consider the advantages of getting your partner to believe he’s vastly more capable and cunning and astute than he really is.
Messier receives the full Vanity Fair treatment—Vanity Fair being a kind of Debrett’s of Hollywood power and royalty—proclaiming him the new mogul.
He is invited everywhere to speak.
He is drawn in. He even begins the process of moving to America, of becoming an American.
I saw him speak at a Variety conference. Messier, who spoke a French person’s idea of good English, went on and on about his vision: convergence, the digital world, handheld devices, transactions, cell-phone movies.
What was this, if not a setup?
If you don’t know who the fool is in a room full of bankers and deal makers and media bigs, it’s you.
There is, further, a belief among deal doers that as a result of language and cultural barriers and compensatory arrogance (with the French, of course, being among the most compensatorily arrogant), foreigners are incapable of doi
ng proper due diligence—that is, making a basic assessment as to the substance of what they are buying, whether the land is underwater or not. Therefore you can sell them anything—especially in the media business, where what you’re buying is such an uncertain affair anyway.
This was true of the Japanese when they bought Hollywood studios, the Germans when they bought book companies, the Dutch and the French and the English (who have their own linguistic—and emotional—issues) when they bought magazines, and the French and the English when they bought ad agencies: They all bought much less than they thought they were buying. (Murdoch, as it happens, is the exception to the foreigners-always-get-brutalized-and-robbed paradigm. But then, he did what most foreigners would never do: He became an American—which, oddly, and comically, and in Murdoch’s image, Jean-Marie Messier tried also, haplessly, to do.)
Foreigners may do okay when they buy factories (although the Germans don’t seem to have done great buying Chrysler), but media really complicates the buy-sell equation.
The cool factor is one of the big complications. You buy media to be cool; and paying attention to details (like leases and contracts and trademarks, and, in general, who owns what, and what moneys are reliably due and what the kettle of fish should actually be worth in a reasonable world) is not cool. Indeed, foreigners to assert their own cool often cultivate a dismissive attitude about the silly American obsession with details (and low-class obsession with money).
This casualness and assumption of superiority on the part of the French allowed the Bronfman family to sell Jean-Marie Messier an illusion as much as a film studio.
“Everybody makes a lot of money when the French come to town,” said the advertising man Jerry Delia Femina when I called him to ask about his experience when the French bought his advertising agency. (The French company that bought his agency became, in the great sweep-up, part of Vivendi too—and then later was spun out.)
It is, though, in all fairness, not just a case of American (or, in the case of the Bronfmans, Canadian) media people taking advantage of foreign media people (indeed, the Japanese took advantage of the Bronfmans).
Hollywood people are surely crooks, and even if they were virtuous, they might not have been able to resist taking money from foreigners who are so guileless and yet so arrogant. (Sometimes foreigners who are ruined in Hollywood are crooks themselves. Let us not forget that Gian Carlo Paretti, who bought MGM, took the French bank Crédit Lyonnais, which financed the deal, for nearly all it was worth and has been on the lam pretty much ever since.) But at the same time, you have to consider the intent of the foreigners: Their desire is to out-Hollywood Hollywood.
The process of becoming a mogul is the assumption of mogul-like powers—you start to believe that you can outhondle any hondlers, that you can take advantage of anybody before they take advantage of you. It’s a straight-up Hollywood syndrome: They’ve seen it done in the movies, so they think they can do it.
And so Euro moguls, in deep cross-cultural celluloid thrall, try to ape (or outape) American moguls.
In some sense, they achieve even more outsize egos and a greater sense of entitlement than their American mogul counterparts because in Europe there is a greater tradition of the one true strutting supremo (together with milder accounting rules and securities oversight).
Everyone’s favorite Euro-media supremo is of course Berlusconi, the Italian in the guise of the very American figure of a smiling, affable salesman. He has managed to monopolize his nation’s media (half of its television, its largest magazine publisher, its leading newsmagazine, a major national newspaper, and the biggest book publishers) as well as its political system.
Indeed, it is this connection between the government and the media, a deeply incestuous relationship in almost every European country, that suggests, not unreasonably, a lot of self-dealing and tends to create a culture of people saying things with the assumption that other people know they are saying something else.
“The French,” in Delia Femina’s analysis, “are simply incapable of telling the truth.”
The Europeans, of course, accuse the Americans of small-time literal-mindedness, hypocritical moralizing, and intellectual dishonesty. Life and business, the Europeans argue, are complex, shaded, many-layered.
As it happens, this live-and-let-live, you-scratch-me-I’ll-scratch-you attitude results in many European countries in a national web of interlocking companies so tight that all companies become one and monopoly is truly complete (or else unnecessary). On the other hand, the Euros would argue that this is exactly what AOL Time Warner is about, so shut up.
Here’s a Euro-media snapshot:
Havas, one of the early pieces of the Vivendi media empire and the largest and oldest publisher in France, collaborated with the Germans during World War II and, as punishment, was nationalized after the war. (So, along with Bertelsmann, that makes two of the most important media companies in the U.S. former Nazi accomplices.) Under the management of the French government, Havas added advertising agencies, bus-tour companies, and pay television to its portfolio.
Under chairman Pierre Dauzier, an associate of French prime minister Jacques Chirac, Havas arrived in the U.S. in the late eighties, when it took a small stake in the English advertising group WCRS, which owned the U.S. agencies Della Femina McNamee and HBM/Creamer. As the English group encountered financing difficulties, the Havas agency, Eurocom, continued to raise its stake, taking over all of the WCRS advertising and public-relations interests by the early nineties.
In 1991, under the firm encouragement of the French government, Eurocom merged with the ailing French advertising group RSCG (“Why should we?” perhaps the conversation went with government authorities. “Why? Because you are French” was perhaps the answer), which owned U.S. agencies Messner, Vetere, Berger, McNamee & Schmetterer and Tatham-Laird.
In 1995, Havas, officially privatized but with the French government still a major shareholder, exchanged part of its shares with French telecom giant Alcatel Alsthom, another partially government-owned entity, and took over its publishing operations. In 1997, utility conglomerate Générale des Eaux, also partially owned by the French government, and run by Jean-Marie Messier, the former Finance Ministry functionary who had headed the government’s privatization team, acquired 30 percent of Havas. In 1998, Générale des Eaux, now renamed Vivendi, bought the 70 percent of Havas it didn’t own, which included a 49 percent interest in Canal+. Then Vivendi bought Cendant’s computer-game division for something close to $1 billion. It also took a 24.5 percent stake in Murdoch’s BSkyB satellite operation. It allied too with Vodafone AirTouch, the world’s biggest mobile-phone company, to create Vizzavi (for vis-à-vis), a wireless Web portal, which promised to revolutionize the world of media and communications by rerouting content to handheld devices all over the world.
This is what Messier was trying to do in America—and this was his fatal error. He thought that in America he could enter into a realm of Euro-ish we-all-understand-each-other-and-we-all-get-rich-together. That the mogul class, which he thought he was joining, was such a rich-get-richer realm.
And so he got close to Barry Diller, assuming that there was a great, even historic, alliance being formed here.
It’s almost painful to recount the details of what happened. Diller had already taken the Bronfmans, when, in an effort to “play” with Barry, Edgar Jr. had sold Barry an undervalued position in the Universal television holdings. While this deal exposed the Bronfmans to great ridicule, the connection to Diller probably held great attraction for Messier. By getting Universal, he got Barry. I’ll bet Messier’s fantasy was to turn Diller into his consigliere, his Zen master even. And such a relationship—perhaps he even thought he was hiring Barry, that Barry would become something of a French civil servant—would put him in some front rank of mogul masters. Together, Jean-Marie and Barry would be a new axis.
In fact, suddenly, in a kind of ultimate conquest, an annexation even, Jean-Marie seemed e
ven to buy Barry. The same television properties that Universal had sold to Barry at a steep discount, it now bought back from Barry (plus much more) at a great premium.
And, briefly, many people saw this as a Messier triumph. He was lovingly attended in Vanity Fair. The deal was part of his strange, public, and ultimately embarrassing metamorphosis, or supposed metamorphosis, from French bureaucrat into major world leader. There were other deals, more publicity, more speeches.
There are two points here:
You, the mogul, might naturally come to believe, because of all the machinations and alliances and dramatic as well as subtle shifts of power, that you are involved in a process of geopolitical moves, even that you are engaged in an historical process of taking over the world (God knows, Messier had the French briefly believing they meant something again in the global community).
But the other point is that with everything getting so very heady and estimable, it’s very easy to forget that you’re a con man too—that being a con man is what keeps you alive, that if you don’t keep getting the better of someone, that probably means they’re getting the better of you. It’s easy to forget that your great historical significance depends on your workaday opportunism.
Deals are complex things: You get conned (sometimes you have to even let yourself be conned in order to do a deal) and then you have to con someone else. You have to keep the balance (and balance sheet) right—that is, you have to con more than you get conned.
Messier, in a way that you can almost bring yourself to admire (there is a certain innocence to it, at any rate), got swept up in his historic, world-beating, grandiose role—and kept letting himself be conned, without conning anyone.
Autumn of the Moguls Page 6