Mogul Dreams

Levin exited; Pittman faltered; Parsons ascended. Murdoch resigned his satellite ambitions – but not before EchoStar’s Charlie Ergen usurped them. AT&T’s Michael Armstrong surrendered his cable and convergence dreams. The Roberts family in Philadelphia assembled a near-national cable monopoly – and hired the humiliated Armstrong. Vivendi’s Jean-Marie Messier moved to America (like Murdoch before him) and offered Barry Diller an attractive retirement package.

This has been perhaps the single most momentous season in the transformation of the modern media business. But these deals came so fast and furiously at year-end that it was hard to appreciate their vast reach. No doubt, too, after a decade or more of momentous media deals, they stop seeming so momentous. What’s more, there was Osama on the run, the fate of the rat Walker to consider, and the man with the plastique sneakers.

Here, then, is an effort to score who’s up and who’s down – and who owns what portion of our media life.

The press-release version of the transition at AOL Time Warner has it that Gerry Levin, having accomplished all of his professional goals, was now, in the wake of September 11, resigning to do good works, leaving behind his chosen successor, Richard Parsons. Publicly, almost nobody offered a different scenario; privately, everybody was spinning alternative versions.

There was at last a sense that after a year of mostly following the upbeat party line (actually two years since the announcement of the deal), AOL Time Warner had awakened to the oddness, even the embarrassment, of its existence.

At the height of Internet mania, Levin, high on concepts (or at least words) like disintermediation and digital transformation, had married Time Warner to the most low-down, ruthless company this side of Microsoft. By the time the deal closed, it was evident (but too late to do anything about it) that Levin and his shareholders and employees were the biggest dupes of the Internet-stock-market bubble. The value they’d placed on AOL would have been cut in half three months later had they not agreed to merge, and cut in half again six months later, and half yet again by the time the deal was done.

Things only got worse. Within a few months of the merger, it was clear AOL couldn’t make its advertising numbers and that its subscription growth had seriously slowed; what’s more, Time Warner’s own broadband service, Road Runner, was becoming a significant competitor to AOL. And yet AOL’s lightning rod, Bob Pittman, was taking over the combined company. Then, too, the AOL guys were talking about spinning out the Time Warner cable business – Gerry Levin’s raison d’être.

This was the elemental dish: It was Pittman against Levin. There was even a proxy war: It was Levin’s P.R. guy, Ed Adler, in New York, against Pittman’s P.R. guy, Ken Lerer, in Dulles.

The battle became pitched over a spring 2001 Pittman cover story in Business Week that had a crystal-clear subtext: Levin doesn’t count; Parsons doesn’t count; I am the heir apparent. Levin fired back with a story in Time Inc.’s own Fortune and one in The New Yorker by mogul Boswell Ken Auletta about the triumph of Gerry Levin. (Then there was another story in Fortune – this one included Levin on the cover as one of the most brilliant thinkers of the age.)

At the same time, there were other rumors out of the rumor-mad Time Warner camp (never many rumors out of the AOL side): Levin couldn’t get the support of an ambivalent board to buy AT&T’s cable system (which would make AOLTW the national media monopoly); Levin was having trouble getting that same ambivalent board to extend his contract.

Here is the Talented Mr. Ripley Theory about Gerry Levin: He seems harmless enough until he kills you (e.g., Nick Nicholas, Terry Semel, and Bob Daly). The weapon of choice against Bob Pittman was Levin’s surprise early retirement and the sudden inevitability of Richard Parsons – Levin was out, but he had scuttled Pittman.

Everybody said “Huh?” about Parsons – but if you were a member of the AOL Time Warner board, there was something absolutely perfect about Parsons. The media business, after all, isn’t an operating guy’s business anymore. A good operator or a bad operator is going to get the same results: grim ones. That grimness can be offset only by the next chapter of monopolistic growth – what big, audacious, controlling deal can you do?

Parsons was a deal guy. A Washington guy. A regulator’s dream. A Republican (his wife is actually named Laura Bush!). The message of his elevation was clear: The real life of a media company takes place outside the company. Success or failure will be determined by how a company maneuvers in the next few winner-take-all, last-man-standing years.

Now, most of what has happened in the modern media business is the result of other people trying to do what Murdoch did. It’s not enough to own one kind of media; you have to own all kinds. Not enough to own content; you have to own a network too. Not enough to own networks; you have to own the pipes through which the content and the networks flow.

So there’s going to be a particular poignancy when others do Murdoch one better. Or, perhaps, it’s not so much that Murdoch has been outdone, but that Murdoch, possibly weary of all this, is letting others march by. Murdoch, at 70, having spent the past two years attempting to buy DirecTV from General Motors, having staked the future of News Corp on becoming the world’s satellite megalopolis (News Corp combined with DirecTV would have been the national media monopoly), at the ultimate hour, gives up. He’s outhustled by EchoStar’s Ergen, or the advertising slowdown has weakened News Corp too much, or the risk just isn’t worth it anymore.

The entire focus of the media world is now on who owns the way into your house. The combination of EchoStar and DirecTV means that Charlie Ergen controls 17 million viewers. The possibilities of that kind of control, the current view holds, are limitless. You’re the man. The monopolist. The next Mr. Gates (indeed, Gates had been one of Murdoch’s backers and hovers behind many of these media-consolidation deals). In the world of modern geopolitical media shifts, EchoStar-DirecTV becomes a superpower. If this deal gets done – at first, Ergen’s chances were rated as remote; now, because he is already perceived as the man, his chances seem very good – then there are no limits, it is thought, on what he’ll next acquire. Disney, which without any way into your house is now thought of as a rather pathetic thing, is a likely target (Disney just had to go to court to keep EchoStar from knocking the ABC Family Channel off the air).

And then there’s News Corp itself, of course – if it can’t acquire, it must be acquired.

Possibly the strongest player in the media business at this moment is Vivendi Universal’s Messier. He has the good fortune of being less dependent on the currently devastated U.S. advertising market than his mogul brethren. Still, he understands that this is an anomalous advantage, that he needs this market – it’s the sine qua non of moguldom (will he, like Murdoch, become an American citizen?). So now he’s using the leverage of his independence from this market to become more dependent. In a cost-be-damned deal, he’s bought back control of Universal’s television properties along with Barry Diller’s USA Networks – along with Diller himself, who will now run Vivendi Universal’s movie studio. What’s more, Messier has deftly placed himself, by investing a timely billion and a half in EchoStar, at a key spot in the new satellite distribution universe. Messier, whose company began as a monopolistic utility, controlling the French water pipes, no doubt has media pipe dreams of his own.

While the U.S. press has spun the Diller story as triumphant, it is, as likely, a cautionary tale. In the ten years since he left Fox, having chafed under Murdoch’s control, he failed to get into the ultimate game. The deals he might have done, possibly almost did – AOL, CBS, QVC among them – floated out of his grasp. The media company he built – worth $10 billion or so – never was more than an eccentricity. Now here he is, at 60, a few billion richer, back in harness, running a movie-and-television business for an ambitious, and meddlesome, foreigner who knows less than he knows.

One might have thought that the unmitigated failure of AT&T and its vast cable strategy would have sorely tested the great faith in consolidation and the power of distribution. But the failure of AT&T, and, indeed, of the telcoms in general, along with every dot-com would-be media mogul, hasn’t undermined the central strategy as much as it has purified the idea of a media mogul. Only a media mogul can be a media mogul. Bill Gates can’t be one; telephone guys can’t be one; the technology boys can’t do it, either (Excite@Home RIP).

What you need are cable guys – with monopolizing skills. The Roberts family (backed by Microsoft), representing two generations of cable guys, will now unite its Comcast cable system with the AT&T system and control the pipes that reach into 22 million American households.

The Robertses, together with Charlie Ergen, will control 40 percent of the U.S. television audience, thereby turning the media business into your basic duopoly.Comcast and EchoStar are – regulators willing – the two poles. The rest of the media will be like magnets toward them.

Comcast and EchoStar will be taken over, or they will take over. Inevitably, AOL Time Warner, Viacom, Vivendi, Disney, News Corp, which have already vastly, and ridiculously, overconsolidated the American media business, will collapse into the duopoly.

The consolidation imperative, this last-man-standing theory, makes Michael Powell, chairman of the FCC and son of the secretary of State, the most powerful, or at least the most necessary, person in the media business. In some sense, he sets the timetable, too. He’s demonstrated and expressed an altogether frictionless level of tolerance for media consolidation. If you’re a media consolidator, you want to get as much consolidated as you can during the next three years that Michael Powell will reliably be around. So do it now.

This eagerness to own all of the media oddly belies the fact that this has been the most disappointing era in the modern media business. Consolidation itself, while generally good for moguls, has largely been unkind to the shareholders in consolidated companies (no media giant has kept pace with the S&P 500), and to the various core media businesses (most of which are weaker now than they were a generation ago). But the largest, most horrifying factor, which the entire media business is engaged in a conspiracy to obscure, is that advertising – what it can do, how it should do it, and at what cost – is undergoing a crisis of faith. This may be the ultimate fallout of dot-comdom. The promise of the Internet was that you could measure the value of your advertising dollar. As it happens, that value turned out to be next to nothing – raising existential questions about advertising everywhere.

The monopolist, however, believes he can use his power to fix the market – or at least hold on until it becomes somebody else’s problem.


Mogul Dreams