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The Mtv Tycoon


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THE MTV TYCOON

Viva Zapata is not Sumner Redstone's kind of place. The atmosphere in the raucous Key West (Fla.) cantina is more Jimmy Buffett than Jimmy Stewart. Yet when MTV hosted a party for its managers there last January, the 69-year-old owner of MTV partied with the best of them. Staffers marveled as the normally reserved Redstone downed shots of tequila and worked the crowd like a practiced pol. By the end of the evening, some were chanting: "Redstone for President!"

Relax. This is one billionaire who isn't angling for the White House. But Sumner M. Redstone is in hot pursuit of what may be an even more elusive goal: the rapt attention of the world's young people. Redstone owns 76% of MTV: Music Television and its parent, Viacom International Inc. He also owns Nickelodeon, which has become the top-rated children's channel. Together, MTV and Nickelodeon give this Boston movie-theater magnate unrivaled access to millions of TV viewers aged 2 to 24. Nine months before his 70th birthday, Redstone has emerged as the foremost purveyor of pop culture to young America.

Now, Redstone is taking his youthful message around the world. And at a time when every media mogul wants to go global, Redstone is closer to that goal than many of his better-known counterparts. In the past five years, Viacom has expanded MTV into Europe, Australia, Latin America, and Russia. Last fall, the network announced a joint venture with an Asian satellite company to beam MTV into Hong Kong, China, Korea, and Taiwan. And in December, MTV goes back on the air in Japan, a market it abandoned last year because it couldn't get enough airtime.

All told, MTV is beaming its music videos into 210 million TV households in 71 countries. True, Cable News Network is available in more than 130 countries. But Ted Turner's CNN reaches an audience of fewer than 100 million households. And while CNN is recording annual revenue gains of 16% to 18%, MTV's revenue is growing at an even brisker rate of 18% to 22%. "He's beating the pants off CNN in global markets," says Porter Bibb, an investment banker who brokers media deals at Ladenburg, Thalmann & Co.

MR. MULTIPLEX. If you've never heard of Redstone, don't worry: neither have some of the twentysomething staffers who bounce off the walls at MTV's New York studios. To them, as to many in Corporate America, Redstone is just some rich old guy who bought MTV's parent company five years ago in a messy takeover battle. In truth, Redstone's metamorphosis from obscure Massachusetts-based theater owner to bona fide media mogul is an improbable tale, even by the baroque standards of the entertainment business.

It starts with a canny New Englander who concluded in the mid-1980s that cable TV had replaced movie theaters as the wave of the future. The kinetic imagery of MTV rock videos was fast becoming the cultural touchstone for young people that movies had been for his generation. Redstone, who prides himself on being one step ahead of the curve, resolved to buy the company that created those images.

He did know a thing or two about popular culture. After all, Redstone is credited with pioneering the multiplex--those huge suburban palaces that offer moviegoers a dozen or so cinemas. But that scarcely prepared him to run a debt-laden media conglomerate, let alone one as complicated as Viacom. In addition to MTV and Nickelodeon, the company owns VH-1, a music-video channel for baby boomers; the Showtime pay-cable network; a production and syndication business; several cable systems; and some radio and TV stations.

Even some of his supporters wondered whether Redstone was making a costly blunder. Herbert A. Allen, a confidant whose investment firm advised on the leveraged takeover, says: "Many people didn't think Viacom was a good investment and wondered why Sumner was risking his fortune onit. But he has exceeded everyone'sexpectations."

Using MTV as an engine, Redstone has turned Viacom into a coherent and dynamic media machine--one that he figures is poised to take the world by storm. If viewers around the globe can watch a Gun N' Roses video on MTV, why not introduce them to The Ren & Stimpy Show? In case you don't know, Ren and Stimpy are an animated hyperthyroid Chihuahua and a moronic cat in a new cartoon on Nickelodeon. Among their antics, Stimpy regularly spits up hairballs. So, of course, the show is one of the hottest things on TV.

Redstone plans to expand Nickelodeon into Europe on the heels of MTV, which already boasts 39 million viewers there. Will Europeans respond to hairballs the way they respond to music videos? "Just as teenagers are the same all over the world, children are the same all over the world," declares Redstone.

Coming from someone else, such a statement might sound naive. But Redstone's troops say this devoted grandfather really does understand what excites young people. They point to his performance at the Key West party as a case in point: "He won over a lot of people who might normally be suspicious of high corporate authority," says Thomas E. Freston, chairman of MTV Networks.

Redstone also surrounds himself with managers who are just as well-attuned. After taking over Viacom, he kept operating execs such as Freston and Nickelodeon President Geraldine Laybourne on board. And in a coup, he lured Frank J. Biondi Jr. to be Viacom's CEO.

Colleagues and rivals describe the 47-year-old Biondi as one of the industry's savviest players. He ran Coca-Cola Co.'s television business, held a top job at Columbia Pictures, and even headed archrival Home Box Office Inc. Redstone won Biondi with a munificent compensation package. The 1987 contract stipulates that Biondi will earn a minimum of $15 million on top of his $1.7 million annual salary if Viacom's stock reaches an undisclosed price.

LATITUDE. What's more, Redstone pledged not to interfere with him. Biondi says MTV's extraordinary growth has led Redstone to get more deeply involved in the past year, but the boss still gives him plenty of latitude: "Unlike any other chairman I've worked for, he's enormously deferential."

Under Redstone and Biondi, MTV and Nickelodeon now virtually define what is hip for young people. Critics may carp that they fuzz the line between entertainment and crass commercialism. But nobody denies that they wield profound influence. Just look at MTV's coverage of the Presidential race (page 62). Soon after the network began covering the 1992 campaign for its young viewers, it bagged Democratic candidate Bill Clinton for a question-and-answer session with an audience of 18- to 24-year-olds.

Redstone's keen nose for that market is starting to pay financial dividends. In the first quarter of 1992, Viacom posted its first positive net earnings since the acquisition: $7 million on revenues of $430 million. For the first six months of 1992, operating income (earnings before depreciation and amortization of debt) rose 8%, to $250 million, on revenues of $882 million. As Nickelodeon follows MTV around the world, that growth should accelerate. Mary L. Kukowski, a television analyst at First Boston Corp., figures Viacom's operating income will jump at an annual rate of over 16% from 1993 through 1996.

Redstone refers to the cable networks as Viacom's crown jewels. For one thing, they kick in half of the company's revenue and profits (table). What's more, their operating income jumped 18% in the first half of 1992. MTV and Nickelodeon earn revenue from both subscribers and advertisers. As the U.S. cable industry matures, their growth in subscribers is modest. But both networks enjoyed double-digit gains in ad revenue in 1991 despite the media recession.

Redstone's other businesses aren't nearly so dependable. Profits in Viacom's entertainment division have been battered as the TV syndication market dries up. Redstone had a great run after Viacom syndicated The Cosby Show for a record $600 million in 1988. But that cash will tail off by the middle of 1993. And Viacom wasn't able to command similar prices for Roseanne, which it is syndicating this year. Meanwhile, the radio and TV stations have been struggling with the advertising drought.

Beyond these weak spots, some rivals snipe that Redstone is still a mere squire among media barons such as Turner or Rupert Murdoch. After all, he didn't create Viacom--he acquired it in a takeover battle. And though he clearly wants to compete with global conglomerates such as Time Warner Inc. and News Corp., Viacom has neither the size nor the range of assets. "This isn't an institution like Time Warner," says Michael Fuchs, chairman of Time Warner's HBO, which competes with Showtime. "This company is one man."

ON THE PROWL. So the media world is eagerly awaiting Redstone's next move. Several big Viacom investors say he's on the prowl for an entertainment company with a studio. A studio would round out Viacom's portfolio by supplying feature films and TV shows for its distribution channels. Investors say he has discussed merging Viacom with Paramount Communications or Matsushita's MCA subsidiary. But sources say the talks fizzled over issues of governance: Redstone says he would want control of any merged company. As long as he insists on that, analysts say, Redstone will have trouble pulling offa deal.

But Redstone has made a sport of confounding the skeptics. On Aug. 20, for example, Viacom settled on highly favorable terms an antitrust lawsuit Redstone filed against Time Warner in 1989. The $2.4 billion suit charged that Time Warner discriminated against Viacom's Showtime pay channel by not carrying it on its cable systems to protect its Home Box Office unit. Insiders say Redstone pursued the case against the advice of his deputies and rival cable execs, who worried that he was airing the industry's dirty laundry just as Congress was considering reregulating the business.

But Redstone, who was once a lawyer in the U.S. Justice Dept., forged ahead. And after three years of wrangling, Viacom got Time Warner to pay $75 million. It also agreed to enter into a joint marketing campaign that will make Showtime more competitive with HBO. People familiar with the settlement say it will eventually be worth hundreds of millions. And what about Redstone's colleagues in the cable industry? "It's not my mission to be popular," he snaps.

Few would dispute that: Friends and rivals say Redstone has always been a ferocious competitor. A. Alan Friedberg, chairman of Loews Theatre Management Corp., recalls that Redstone used to phone the heads of studios at home late at night if he heard they were planning to give a hot new movie to a rival chain. "If one call didn't work, he made 30," says Friedberg. "It's not just a business for him. It's a crusade."

That tenacity was dramatically underscored in 1979 when a fire swept through Redstone's room in a Boston hotel. He survived the blaze by hanging from the third-floor windowsill by his fingertips until he was rescued. Although he was severely burned over much of his body, Redstone has recovered so well that he plays tennis and runs each morning on a treadmill.

Redstone says he owes his drive to his father, Michael, whose parents emigrated to Boston from Germany. Starting out as a linoleum salesman, Michael Redstone worked his way up to owning nightclubs and later opened one of the first drive-in theaters in the U.S. Young Redstone graduated from Harvard University in 2 1/2 years and was chosen for an elite intelligence team that broke Japanese military codes during World War II.

From there, it was on to Harvard Law School and his stint in the Justice Dept. After a few years, Redstone returned to help younger brother Edward run his father's theaters in 1954. That arrangement ended in the early 1970s when Sumner and Edward clashed, people close to the family say, and Edward left the company. Neither brother will discuss the dispute, which sources say left Edward bitter for years afterward.

Meanwhile, Redstone was building the National Amusements Inc. chain into a behemoth. Based in Dedham, Mass., it now has 750 screens and $250 million in revenues. Unlike many theater owners, who lease the property they build on, Redstone owns the land under his theaters. That real estate forms the basis of his personal fortune, which is worth well over $3 billion (table, page 57). Although Redstone turned over management of the chain to his son-in-law, Ira A. Korff, after he took over Viacom, he still exerts tight control, even ordering films switched from screen to screen.

Occasionally, his zeal for competition has landed Redstone in trouble. Last year, police in Rochester, N.Y., arrested two private investigators for breaking into the office of a lawyer who opposed a theater Redstone was trying to build. He admits his chain hired the detectives but says he was unaware of the decision. Although Redstone deplores the break-in, he adds that he has noqualms about using detectives.

For the most part, however, Redstone has avoided publicity by following a lifestyle of archetypal Yankee frugality. He still lives in the mod-est three-bedroom house he bought in Newton, Mass., in the 1950s. In New York City, where he spends four days a week, Redstone walks from his suite in the Hotel Carlyle to work at Viacom's Times Square headquarters.

JUST PLAYING. Indeed, Redstone was a virtual unknown on Wall Street until the early 1980s, when he began trading stock in Hollywood studios. In short order, Redstone made millions by buying and selling stakes in Twentieth Century-Fox Film, Columbia Pictures Entertainment, MGM/UA Entertainment, and Orion Pictures. At first, says Redstone, Viacom was simply another play. But as he delved deeper, he began to view cable television's growth as the flip side of the maturing theater business.

Now, after only five years, Redstone and Viacom have grown so intertwined that many wonder what will happen to the company after he is gone. He hasn't groomed an heir, though both Redstone's son Brent and son-in-law Korff serve on the board. Some observers predict that Viacom will be carved up and sold off after his death. Not so, says Redstone, who insists he wants to leave it to his family. To doubters, he points out that many also predicted he couldn't handle the $3.2 billion acquisition. Redstone put up $500 million of his own equity to buy Viacom and borrowed the rest against its assets.

Through shrewd financial engineering, though, Redstone has cleaned up Viacom's balance sheet. For the most part, he swapped high-cost debt for cheaper debt, reducing interest payments from $297 million in 1991 to a projected $215 million this year. Total debt still hovers near $2.5 billion, but both Viacom and its bankers say that's manageable, with cash flow covering interest payments 2.3 times over.

SOMETHING FOR EVERYONE. With the deleveraging basically behind him, Redstone can focus on the future. At home, he is poring mver schemes to carve MTV and Nickelodeon into three channels apiece that will cater to slices of their current audiences. MTV may offer channels for rap-music aficionados and heavy-metal headbangers, for example, while Nick may have one for children and one for teenagers. Overseas, he is trying to consolidate MTV's growth and lay the groundwork for Nickelodeon. Last year, Viacom bought the 50% of MTV Europe it didn't own from the late press lord Robert Maxwell.

To bring Nick into Europe, Redstone is proposing partnerships with European media companies. Although he won't give details, other Viacom execs say some deals will be announced this fall. The network already co-produces one of its cartoons, Doug, with France's Canal Plus, and it plans to produce original programming in various languages for several of the markets it enters.

Most visibly, Redstone is spending heavily to produce more of the irreverent programming that gives MTV and Nickelodeon their distinctive image. He poured $40 million into four new animated shows for Nick. Among the network's other offerings is Clarissa Explains It All, a sitcom about the joys and traumas of being a 13-year-old girl. In the evening, Nickelodeon becomes Nick at Nite, which recycles vintage TV shows such as Get Smart and Mr. Ed.

Nickelodeon gets special attention from Redstone because his five grandchildren are loyal viewers. "If I try to have a conversation with my granddaughter while Clarissa is on, forget it," he laughs. Nick now gets a higher weekly share of viewers age 4 to 11 than the four major networks combined. Its enormous success has attracted new rivals: Turner Broadcasting Systems Inc. is rolling out a new cartoon network using characters such as The Flintstones from the Hanna-Barbera library.

Redstone believes he will stay a step ahead of Turner and other competitors because of the freshness of his troops. Indeed, the average age of employees at MTV and Nickelodeon is 27. And visiting MTV's cheerfully disorganized offices is like stepping onto a college campus. Staffers say the networks have become a tad more bureaucratic in the Redstone era. But a fundamental irreverence and freewheeling spirit remains.

That's good, because Redstone is counting on MTV and Nickelodeon to provide the creative ferment for the rest of his youth media empire. He wants them to produce more new shows. And he is relying on them to produce double-digit earnings gains to fuel Viacom's ambitious global expansion.

VOTER DRIVE. Meantime, Redstone is reveling in his role as a panjandrum of pop culture. He notes proudly that Bill Clinton chose MTV as the platform to introduce himself to young America. And he's quick to rebut critics who charge that MTV and Nick feed them a steady diet of commercialism: MTV, he points out, is airing a campaign to boost voter registration among young people.

But make no mistake: The MTV tycoon knows more about his network's bottom line than its top performer. In fact, the only time Redstone stumbles is when asked: Who does he watch on MTV? Pausing just a beat, Redstone concedes he'd really rather listen to the Glenn Miller Band. Well, at least he knows which one's Ren and which one's Stimpy.Mark Landler in New York, with Geoffrey Smith in Dedham, Mass.


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