| BUSINESSWEEK ONLINE : APRIL 5, 1999 ISSUE | ||||||||
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| COVER STORY
Q&A: From the Mouth of Mel What's on the mind of CBS CEO Mel Karmazin these days? Plenty. BW Media Editor Richard Siklos met recently with the outspoken Karmazin at his office atop CBS headquarters in Manhattan, where they discussed the state of the TV industry, CBS's growth plans, the Internet, high-definition TV, and more. Here's an edited transcript of their conversation. Q: What are your financial targest for CBS? A: Both CBS and Infinity are growth companies. The target is top-line revenue double-digit, translating into 20%-plus EBITDA [earnings before interest, taxes, depreciation, and amortization] growth, and even more significant cash-flow growth. Q: How are you doing in terms of those targets? A: We're very much on target. Every part of the company is having a very good first quarter. Q: But what more needs to be done to make it work for the long-term? A: What more? Everything needs to be done. We're certainly at the 20-yard line with 80 yards to go. We're at the early stages of growth for both companies. We need to continue to improve in every area of our business. But we fully expect into the future that we will show double-digit, top-line revenue growth, forever. That is my goal. Q: How do you expect to do this in an environment when fewer people are watching network TV? A: I don't know what declining network environment you are talking about. The facts are that the declines will continue, just like there used to be three big auto makers. Once they began selling a whole lot more cars in this country from a whole lot more places, the consumer had a whole lot more choices, and that's great for the American public. I fully expect that there will continue to be increased competition for viewership, Internet-inclusive, and audiences will continue to erode. Having said that, network television is still the best game in town. In a very very fragmented world, we start looking better and better. The fragmentation that is taking place gives more choices to the consumer--and as a citizen, that's great. As a business, it puts us in a stronger position than we've ever been in as compared to any of our alternatives. Q: How will you manage to increase sales 10% a year? A: I think we're going to do a far better job selling advertising than we have ever done in the history of CBS. And we're making great progress in that area in the last few months. We're now No. 2 in the ratings. Our network before Leslie Moonves joined was in a less competitive position. So we have an opportunity to pick up share compared to some of the other guys, because our share of advertising dollars was lower. So even if the network pie wouldn't grow--and I have every reason to believe it will grow--we have the opportunity to pick up market share. And also coming from the network is the opportunity for us to derive benefits from syndication. Q: Have you made a deliberate decision to spend more on sports and less on drama and sitcoms, or is that just the way it's shaken out of late? A: I think that's how it shook out. I don't think that business model will continue. Some very expensive shows we had last year were not renewed, had come to end of their time frame. Murphy Brown, more than $2.5 million an episode, replaced with King of Queens, which is doing better in ratings and it was one-fifth the cost. If you aggregated our schedule, you will find that our costs have not gone up, but it's not because we won't invest in programming. Shakespeare always said the play is the thing, so we're certainly not going to skimp on programming costs. Q: You keep saying you want to buy NBC, and you are lobbying the federal government to lift the rules that bar such a thing. Are you serious, or just being provocative? A: It was honest. I don't know what was so shocking, but why would somebody find it so ridiculous that if the law allowed us to buy NBC, we would buy NBC? We're an expander, we're a grower. We think that the rule that restricts us to one channel in this multichannel universe is archaic. It needs to be changed. It will be changed. I can't tell you it'll be changed sooner as compared to later. But there's no good argument when you've got 84 choices on your cable system, you can own two networks. You came in here with something I totally disagreed with--but that's what America's all about--that the network business isn't a good business. I happen to feel differently, but [let's assume] it is a bad business. Whenever there's bad businesses, the government has allowed consolidation. You know, I've been in the radio business for 30 years, and 10 years ago no one was saying the radio business is a great business. Now they are. Where were they 10 years ago? I think the same thing is true about network TV. I think it's a great business. Q: Is it true you'd like to buy Viacom? A: I'd love to, just like I'd love to buy NBC. Why wouldn't we love to buy Viacom? They're a great company, they have great assets. Q: Have you met Viacom Chairman Sumner Redstone? A: I've met Sumner Redstone, but he said his company's not for sale. I think it's a compliment to these companies to say we'd like to buy them. Q: How do you deal with the fact that although CBS's viewers are getting younger [and advertisers pay a premium for younger audiences], they're still 10 years older than the next-oldest network, NBC? A: If you have older viewers, you try to find advertisers for that demo. There was a time when new-business development was not a part of the network. It is now a very very big part of our network sales efforts. 60 Minutes II is being sold very differently: We have gone to advertisers to find who is a good category for a news magazine. And we have sold them on the concept of the show. So it's been a totally different approach for selling. Q: So you're going after new advertisers? A: We go after your advertisers. But you don't have as many as we need. If, in fact, Business Week was more successful we'd go after more of your advertisers. We go after pharmaceuticals, we go after direct-to-consumer, drugs, financial--institutionals advertisers who are interested in going after pepole who have the money. We don't want to be UPN, WB, Fox. We're glad for them, that's their niche. We have ours. Q: What happens to your growth targets in a recession? A: There are 3,500 salespeople in CBS. Whatever happens in the economy, every one of these 3,500 sales people has to sell 10% more advertising than the year before. Maybe if there's a recession, that's hard. Or maybe it's easy. I don't care. They just have to sell 10% more advertising. So if you look at [our predecessor radio company] Infinity, we operated through four recessions. 1991 was allegedly one of the worst years in the history of media. Infinity had a record year, despite the Gulf War and recession. It's not like there's not gong to be any advertising. Q: Not to sound like an editorial snob, but if one network has a hit show and another doesn't, that's a tough thing to emulate. Can't your competitors just emulate your sales strategy if it's working? A: Could they? I wish they did. It's good for all of us. It's good for the industry. I wish the other guys were more aggressive than they are, and that's why--being a pure-play media company--we have to be. We have no place to hide. We don't have other divisions that we can fall back on. Q: Wouldn't you want to have other revenue sources like other media conglomerates do? And if so, why did you sell your interest in cable channel Eye On People? A: We think the cable business is a terrific businesss. I did not believe in the business model of Eye on People. I just did not believe in the competitive world of cable channels. I did not think could get 30 million subscribers, and we didn't have a lot of leverage with other cable channels. That business model didn't work for me. Q: One criticism of the assets you do have (Country Music Television and Nashville Network) is you haven't integrated them with the network the way that, say, NBC does with MSNBC and CNBC. A: There's some stuff that overlaps, particularly between Nascar [broadcasts on CBS] and the Nashville Network. We also have the most significant group of country music radio stations, where a lot of work is being done.I wish [CBS founder William] Paley started CNN instead of having Ted Turner do it. And I wish that CBS had an all-sports cable network like ESPN. We don't. If the point is Dateline is on NBC, and they're able to put some of it on MSNBC, that's true. But they're still losing money on MSNBC. I think there's a lot talked about [but] we're in the business of generating free-cash flow. That's our business. We do multipurpose programs: Touched By An Angel [the CBS drama] has a double-platinum album. Q: I haven't heard it...yet A: You must get it--it's awesome. Q: Do you think CBS ultimately needs a ownership relationship with a studio? A: I don't have a preference one way or another. It certainly hasn't helped ABC. Certrainly, the business model that says Fox has the X Files, but we don't feel a need to have a studio. If in fact an opporunity came up for us to buy a studio, we could look at it. Our current thinking is that we see no advantage. The two networks that are doing the best are NBC and CBS, and neither of us has a studio. We were No. 2 in sweeps, and we have the most-watched network. We could be No. 1 without owning a studio. Q: What role is the Internet going to play? A: We think the impact of the Internet is going to be great, and I don't mean just because that has become a more important advertising category that is helping our entire corporation. We have an Internetcompany in the medical field that would like us to use the squeeze credits during Chicago Hope to help them brand. In the last 12 months, we've created about $750 million in value, just because of the network, though our investments in SportsLine USA and CBS MarketWatch.com. Q: And in the case of both CBS MarketWatch and SportsLine, you didn't put any cash in... A: Not only no cash, no commercial time! The area that we are using to promote SportsLine and MarketWatch is not places that otherwise would have been sold. When you see Dan Rather giving stock market results, it's from MarketWatch, Jim Nance during golf saying go over to SportsLine. The areas that we're looking at are areas that don't take up normal inventory, that generate value for us. This year we'll have a number of additional projects along the lines of SportsLine and MarketWatch. Q: Are you willing to spend money investing on the Internet, or just doing deals like the MarketWatch deal? A: We have the money, but with all the venture capital money around, the money is least attractive to everybody. We have a brand, we have the audience. We reach more of the customers than anybody else does. We have content--CBS News, CBS Sports, David Letterman, Don Imus--a sales organization with 3,500 people in it today and relationships with advertisers. All these Internet companies get valued on a multiple of revenue. We have $8 billion in revenue. With CBS Plus we have the ability to package old media with new media and drive revenue. We have all these, and cash. Would we put cash up? Absolutely. We have four companies that we are at the stage of drafting deals with along the lines of SportsLine and Marketwach. All are principally related to the network and our radio stations. A couple will bear the name CBS--which they will pay more for--a couple who are interested in marketing promotion, sales organization without the brand name. We are of mixed reaction today about a traditional portal. There is a viewpoint that says you really don't need a portal. What you want to do is have all of the verticals. Great vertical in CBS News, SportsLine, MarketWatch. We're going to add a bunch more verticals. I wouldn't rule out getting involved with a horizontal portal type. CBS does not have as significant a position in cable as we would like. We will have one of the significant positions in new media. We're not going to miss cable and the Internet. Certainly AOL will be there, and Yahoo and CBS will be there. Q: Why were you not more involved in the Internet until recently? A: From the day I became CEO I wasn't really in the position of setting the company's priorities. I had believed in the importance, and don't believe it's a fad. People are spending time on the Internet, and if people are spending time on the Internet, CBS wants to be where they spend their time. A lot of people believe that if we just put our radio stations together, Infinity.com would be a very compelling investment opportunity for the Internet. What people who are doing streaming audio don't have is content. Our business model works a whole lot better than the others'. Q: You don't let other Internet radio companies carry Infinity stations? A: I won't let any of our stations be there. We're in the business of generating free cash-flow, so why do I want to give our radio statoins away for nothing. I say "no thank you, we'll do it ourselves." It may be different. Don Imus may be doing an interview with Anna Quindlen on the radio, and then off-air continue on the Internet, where people have the ability to chat and interact, and buy the book. To me, a business model that is putting radio as you know it today on the Internet so that you can listen to a radio station on your computer instead of through your radio--that's not very exciting. But the ability to enhance the experience and do things that you can't currently do is more exciting. So our tech people are working with a company that we may acquire to do things to enhance the radio-listening experience. Q: Will all this happen this year? A: In this Internet space, we're sort of talking weeks and months. In addition to the company acquiring radio stations, expanding in outdoor, getting to 35% of the country (in TV stations), we want to expand in the Internet area. And I don't understand why you would do something tomorrow if you can do it today. Q: Let's say definitively whether you will make money over the life of your NFL rights deal, because, as you know, people are saying your payments are back-loaded... A: I couldn't care less. I can't tell you we're going to make money every year. I can tell you we're going to make money this year. We have an eight-year agreement with the NFL. We certainly did the business model that says we make money first two years, then we have the Super Bowl in the third year. Then, god-willing. If people don't want to believe we made money, I don't care. What do I care? We're a publicly reported company. I'm very pleased with our financial results. Q: Some of the former CBS people that I've spoken with say that although they admire your track record, your aggressive personal style can make you difficult to work with. What is your philosophy about managing people? A: I'm not aggressive, I'm just sort of laid back. I'm shocked to hear that anyone would call me aggressive. We believe that investors have a choice of investing in lots and lots of companies. If we are going to ask them to invest in our company, then we have a responsibility to perform. It doesn't mean that we aren't going to have a lot of fun, and it doesn't mean that we're not serving the community, and it doesn't mean that these people aren't getting rich. Because I have been around a lot longer than most, I know that what we are asking for can be done. We know the business, we pay people well, we are demanding. I think my style is very hands-on, and on a lot of issues there's a lot of freedom. In areas where I don't think I can add a lot of value, I don't. In programming, I don't think I have anywhere near the expertise of the people in Hollywood. I don't pick music for radio, but I do have a meeting to discuss the marketing direction of one of the stations. I love the business, I like it a lot. I spend a lot of time at it, and a lot of people have gotten rich with us. There's not a whole lot of people in the industry who have left to assume bigger jobs. Because, generally speaking, if they're that good they've stayed with us and become multimillionaires with us. Q: Being a sales-friendly CEO, do advertisers call you and try to get you to intervene on reports about them on 60 Minutes? A: I get those calls. Q: What do you say? A: I just tell them to "f" themselves. Obviously we would not be compromised by an advertiser--for anything. Q: Are you looking at selling Black Rock, the CBS headquarters? A: We're not going to move out. This building is the CBS building. GM decided that it didn't need to be in the real estate business. I'm not sure that we need to be in the real estate business. We'll take a look and see what the building is worth. We're certainly committed to New York City, but we don't necessarily have to own it, we can lease in it. But we haven't made that determination yet. Q: What happened with your talks with Time Warner about combining news operations with CNN? A: It never really went anywhere. The thought that there was the possiblity of consolidating with CNN, I still think had some merits. Does it really matter who's driving the truck to get the story or how many microphones are in front of the President? Q: What kind of business plan do you see for digital or HDTV? A: We don't have a business model. I wish I could tell you we're going to make a fortune with high definition or multiplexing. We're going to do both. We'll let the marketplace decide if they're going to go out ad buy this high-definition receiver. Certainly, the transition from analog to digital is a great opportunity--there's no downside. But I don't have a plan as to how I'm going to make it work. Give me a tough one. Let me address what you're going to write as the most negative? I know there will be a lot of negative, so give me the most negative. Q: The most negative thing out there, aside from your personal style, is probably the notion that you have no real TV experience, that you are a radio person who's never operated on this scale--and the TV business today is far more complicated than radio. A: I manage people, I understand that you need to generate revenues. I understand that you need to control costs. I don't know that Jack Welch [chairman of General Eletric Co., owner of NBC] is a broadcaster. I don't think that he's either a radio guy or a TV guy. Fortunately in TV, we have a team of people. That's part of why I don't get involved in picking the shows. What can't I do in televison that I can do in radio? Control costs, invest in programming. I guess in this environment, with investors thinking so good of radio, it's probably good to have a radio guy running TV. Having somebody that came out of that fragmentation is probably an advantage from a marketing point of view and a sales point of view and a cost-control point of view. I don't view that as a rap. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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