NEWS ANALYSIS October 7, 1999

Egomania vs. Merger-Mania in the Media Biz
Fewer megadeals are likely because the players left are all control freaks

Ever since Viacom Inc.'s $36 billion deal to buy CBS Corp., investors have been waiting for the other shoe to drop. What would be the next megadeal? And critics worried anew, what would be the effect of an ever-greater concentration of media owned by fewer and fewer corporate leviathans?

For now at least, anxious investors and media pundits can probably relax. Sure, logic says that if your competitor is bulking up and adding new markets for its wares, then you had better do the same. Still, a greater power may be at work against more megadeals: corporate egos. Folks like Walt Disney's Michael Eisner or Rupert Murdoch love running globe-girdling companies that give them the ability to influence what people see and hear. They don't relish giving that up. One deal-minded mogul speaks candidly -- though anonymously -- about why control is such an obstacle to deals getting done. "Why!?" the mogul shoots back. "We build companies, we don't give them to someone else."

Even in an era of vast conglomerates, most media and entertainment empires are still ruled by CEOs whose self-esteem would stack up against that of the Paleys and Mayers of yesteryear. "This has always been a business of founder-managers, of moguls," says Michael J. Wolf, senior partner at the management firm Booz, Allen & Hamilton. "It is very important to these guys to be able to execute their visions."

"A LITTLE NUTS." Besides, let's face it. It's just plain fun being a media mogul. Jack Welch, chairman of NBC parent company General Electric, is said to review every new show his network airs. Murdoch and Eisner travel the world, treated like dignitaries. And such folks as Ted Turner and Barry Diller are themselves celebrities as big as the stars their media machines create. "The only people who get written about more than these guys are baseball players and world-class chefs," says former Walt Disney Studios President Rich Frank, currently chairman of "I think it makes us all a little nuts."

Stubborn, too. Before announcing NBC's $415 million investment in Paxson Communications's 72-station TV group, the two sides dithered for weeks over how much input NBC would have over the operation for its 32% stake. In the end, the deal was concluded once NBC had what its CEO, Robert C. Wright, called a "clear path to control." Translation: Options to go to 51%.

Still, lots of potential deals are being shopped. Just ask Barry Diller. The USA Networks CEO has been in talks with NBC, ABC, and even his old boss at Fox, News Corp. Chairman Rupert Murdoch. Then there's Sony, whose execs turned up at Herb Allen's annual media mogul gathering in Sun Valley last month, pondering a possible alliance with NBC or CBS.

OLD BUDDIES. But the issue over control has come up time and again with Diller, slowing negotiations with Disney, which was seeking a stake in USA Network's TV stations. Diller and Eisner know each other well: For more than 20 years, Eisner was Diller's assistant first at ABC and then at Paramount Pictures. Now both have their own empires to build and run. "Neither of these guys wants to let the other run this thing," says a source who knows both men.

Diller has become a veteran at wrangling with control issues. He left Murdoch's News Corp. after founding the Fox network to run shopping channel QVC Inc., but he was fired by his major investors after he tried to buy CBS without their permission. Now, despite holding stock and options valued at only 11% of USA's stock, his management agreement gives him almost total control.

Diller still has one powerful mogul to answer to: Seagam Co. CEO Edgar Bronfman Jr. Seagram traded its Universal Studios TV assets for a 43% stake in Diller's company and can effectively block any deal valued at 10% of USA's $17 billion market cap. It already did so once, last year thwarting Diller's bid to buy NBC because it would dilute Seagram's holdings. And Diller vetoed a larger deal that would have spun off USA's TV assets into a separate company with NBC because the assets would slip from his control.

Want another example? The fledgling DreamWorks skg could use a library of old films for added cash flow but refused a merger with Kirk Kerkorian's MGM studio earlier this year because its media-celebrity management team didn't want to share control.

LONG STRINGS ATTACHED. CEOs unwilling to cede control is not strictly an American phenomenon, of course. Sony execs have dragged their feet for months on possible deals. They don't want to sell a piece of their studio to NBC for fear they would lose control of the movies and TV shows.

When deals get made, they often come with strings. After selling his company to Time Warner Inc., Ted Turner still controls CNN and his cable channels. Even the film studio New Line Cinema reports to him instead of the Warner Brothers chiefs.

Just look at the Viacom-CBS deal. It's fraught with control issues. The "governance" agreement over who gets to run Viacom -- what execs there politely call "social issues" -- reads like a prenuptial contract that would do Donald Trump proud. Precisely what Mel Karmazin, as CBS president, will do is spelled out in rich detail, giving him considerable powers over the company during his three-year contract. The problem for Karmazin is that Viacom's Sumner Redstone, with majority control of the new company, is still the boss. And in the new ego-driven media world, there's usually no room for two bosses.

By Ronald Grover in Los Angeles, with Richard Siklos in New York

EDITED BY DOUGLAS HARBRECHT _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

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