October 13, 2022 • 42 mins
Jeff Bewkes started at HBO as something of a traveling salesman; his job was to urge motels to add HBO to their properties and their marquees. Later, Jeff would become the last CEO of Time Warner, and engineered the company’s sale to AT&T. Jeff shares the original programming gambles that paid off, what television in the 90s teaches us about the streaming wars and how spending childhood summers on a farm shaped his business sense. Plus, Bob and Jeff give their intersecting stories from the historic Time Inc. / Warner Communications merger.
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Speaker 1 (00:03):
You're listening to Math and Magic, a production. I heart radio,
giving the audience the power over the programming and not
the advertisers. For us, that's what we were saying with
our campaign, It's not TV, it's HBO. We were saying
that we're different, We're not like every other network. I
(00:26):
am Bob Pittman. Welcome to this episode of Math and Magic,
where we explore the entire range of business from the
analytics to the creative. Today we have as our guests
someone who really does embody both. He was the last
CEO of Time Warner and was CEO of HBO before that,
in what could be argued was HBO's greatest decade of
growth and innovation. It's Jeff Bucas. He checks all the boxes,
(00:50):
by the way, dear Phil for prep school Yale, for
undergrad Stanford, for his m b A. Even started his
career as that background, Mike suggests, at a prestigious financial institution,
City Bank, But in nineteen seventy nine he made a
faithful decision to give up that traditional and joined this
new media upstart that was trying to reimagine TV HBO,
(01:15):
and that path eventually took him to the head of
Time Warner, and of course, before that, the head of HBO.
Jeff and I have had forty years of intertwined careers
and friendship. He's not only a great business leader and
a brilliant strategist, but he's a great guy with a
terrific sense of humor. Jeff, Welcome. We're gonna dig into
(01:37):
the real meat. But first I want us to warm
up by doing you in sixty seconds. Do you prefer
cats or dogs? Dog call or text herb your enthusiasm
or sex in the city Larry Sanders Show, Early Riser
or night Owl, Night Slow and steady or pedal to
(01:58):
the Metal Slow. Instead, it's about to get harder. Smartest
person you know. Jimmy Buffett, Childhood Hero, The Swamp, Fox Technology,
you can't live without Television, Favorite ever movie, The Godfather,
First Job, Bill, Collecting in Paris. Oh, that's pretty exotic.
(02:20):
Favorite ever TV show, Sopranos, Favorite Sopranos character. It's a
tough one, man, but I'm going with Tony. And finally,
what did you want to be when you were growing up?
A singer? Songwriter? Okay, let's really get serious. Now. Let's
(02:41):
get started by going back in time by all outward measures.
You had made every right decision in building towards a
great life in finance in the nineteen nine is and
mentioned in the intro, you gave that up to go
to this new upstart HBO. And for those thing who
weren't around then, HBO back then was only on in
(03:02):
prime time. It ran some Hollywood movies and some pretty
cheesy original shows, not at all what it became. So
it took a lot of imagination and courage to make
that jump. What made you make the job? How did
that happen? I always wanted to work in TV, and
when I was in college, we had nightly movies, International movies,
(03:24):
foreign movies. I was watching them every night. I wanted
to work in Hollywood or in TV, and I got
a job in the summer of seventy three of my
junior year in college out in l A. I was
a go for for a TV show that nobody remembers,
The Diana Rigg Show, and it was a sitcom. Occasionally
(03:45):
they tent me around to get scripts or pick up extras,
and once they told me to drive Diana rig from
one place in LA to the other place. I didn't
make it into TV. I got out of college. I
tried to get into networks I could to get a job.
I ended up working at NBC News. The year after
I got out of college, I was working on a
(04:06):
gun documentary for Lucy Jarvis that actually got very well reviewed.
After that thing ended, I got laid off, and you know,
if you're out of college and you don't have a job,
I started thinking what am I gonna do? I basically
failed to get a job like a lot of other
people in that seventy four seventy five were sessions. So
I ended up going to business school, which had not
(04:29):
been any plan I ever had, and I worked in
the summer at a wine ring, and I was actually
going to keep working at the winery after, but then
in an argument with my father, who was telling me,
you know, you're working for a privately on wine or
you're never going to get anywhere. You went to a
business school so you could sell wine. So I took
(04:49):
a holding job. Not I wasn't trying to go into finance.
I basically took a job at City Bank because I
couldn't figure out what else to do and started trying
to find another place, and I was looking at CBS, ABC, NBC,
but they just wouldn't hire. So I found out about
this HBO. I went over there, and remember the guy
(05:10):
who hired me, it was the president, Jim Hayward said
to me, well, what do you want to do here?
And I said sales, as though I knew what I
was talking about. And he said, but you're a finance guy,
and I said, well, well no, I'm twenty three. I
haven't done anything. I'm nothing. I just I figured that's
your main business. He said, yeah, it is, but we
don't have any jobs. So I'll tell you what. We
(05:32):
got a job for you if you want to go
kind of not on the roster, but we're trying to
sell motels to put HBO out on the marquee, you know,
so if you check into a hotel, you can get
free HBO. So my first months at HBO, I was
driving around in rented cars in the Midwest and the
Florida band Handle, going up to motel owners and saying,
(05:52):
you know, you out of court HBO in this hotel
and they'd say, well, why so, Well, because if you
put free HBO out there, when people are driving in
and they're trying to decide to go to your hotel
or the one across the street. They're gonna go to
EU hotel. Slowly we got a few sales, and then
of course as soon as one hotel motel would put
(06:15):
up h the other one across the street would do it.
By the end of it, nobody had an advantage. What
did you go from there? At HBO? So in HBO
in those days, this is seventy nine, we had less
than a fewer than a million cubs. At this point,
there was not that much cable in America. You remember
this from MTV. I started the cable business in nineteen
(06:36):
seventy nine as well. I remember, yes, So in those
days people got cable not to get a new programming serve.
They just got it so they could watch CBS, ABC, NBC,
maybe an independent or something with clear reception. And so
it was HBO that came along, and then MTV right
after one TIMTV h So, so we had been a
(07:00):
few years before. So we're going around saying to people
cable operators, well, you could get more people to sign
up or pay you a little more if you offered
uncut movies in your home. And in those days you
could get basic cable, which is like five channels for six,
seven eight dollars a month, and you could pay seven
(07:20):
or eight blucks for HBO. We'd get three dollars and
they'd keep the rest. What everybody forgets you you know it,
and I know it is that back in the seventies
and eighties, in order for people to get on TV
or HBO, they had to build cable system, string wire
down all the streets, and they had to put satellite
(07:41):
dishes in and this was costing the cable operator a
fair amount. So HBO was a product that drove cable
builds and cable companies to expand. But in order to
get franchises from the city politicians think of St. Louis, Indianapolis,
they wanted to be able to tell the government officials
(08:03):
that they had a product for people. It wasn't so
expensive as HBO, So it wasn't seven eight bucks a month,
it was three or four, and it didn't have all
the dirty stuff on it. So we had a kind
of a MINIAGEBO called TAKEE two. I'd forgotten about that.
There was a thing called Home Theater Network. So Time
had their mini channel, we had ours. They were both
(08:25):
really franchise offerings that no consumers wanted. Eventually we figured
out that on three or four dollars a month, he
couldn't make money. Had to be seven or eight. So
we invented a thing and there was a task for us.
Michael Fuchs, Frank beyond the wed Bore, John Billick, and
I were on this thing. It was called the Max
(08:47):
task for us. We needed to have a channel that
had enough stuff on it you could charge eight bucks
for it, and offered alongside HBO, and it became Cinemax.
I remember it well because actually my first job is
running the Movie Channel, which was the first twenty four
hour movie service, which did really, really well until you
launched Cinemax, and then it knocked the legs out from
(09:09):
under the Movie Channel, and we eventually merged it with Showtime.
A little bit of trivia by the way, just to
put this in context for the folks listening in this
period of time, there was no home video yet and
there was no pay per view, so you had no
way to get a movie unless the broadcast networks ran
it on their movie of the week or something with
(09:29):
commercials in it, or seeing it at the theater. So
HBO was really the service that opened up this idea
of movies on TV all the time to the American public.
You were the first mission driven TV business. How did
you describe that mission back then? HBO was always an idea.
It's like America right back in the early days of
(09:51):
pay TV, and really continued past the year two thousand.
The main draw for people to sign up for Movie
Channel or HBO, which they wanted uncut Hollywood movies in
their house. And there's two things about it. It's not
only that they didn't have commercials interruptions, which really screws
up the movie if you think about, but they were
(10:13):
uncut because everybody forgets I mean, you thought you were
watching up till then you thought you were watching you know,
The gods Father, whatever the movie was on ABC really
the wait, but you weren't really getting the movie. They
were cutting it for Procter and Gamble and Ford Motor
because they didn't want to have racy stuff in there,
if it was sexual, if it was language, if it
(10:35):
was violence, if it was political. So there was a
huge draw that everybody forgets about. When we moved away
from that supported movies into your subscribe or supported movies,
so people were not signing up for HBO so they
could tune into a specific show that Sunday night. They
wanted the range of shows, but they were hearing everybody
(10:58):
raving about. So that fact that we didn't have advertising
is what shaped our original programming breakthroughs and it led
to what we modestly called the Golden Age of television
because we were the only network with movie channel that
didn't make shows for the advertisers. We made shows for
the audience. And so that's what we were saying with
(11:21):
our campaign, it's not TV, it's HBO. We were saying
that we're different, We're not like every other network. And
that reminds me another big line from cable networks, I
want my MTV a huge breakthrough campaign, and I think
you were saying to your audience, you're in control. You
(11:43):
want your MTV, you get your MTV. And giving the
audience the power over the programming and not the advertisers
for us, was the key to it's not TV, It's HBO.
So the you know, the math of it is we
didn't have advertising. That's the structural thing. And the magic
was it's not TV, it's HBO. So we're gonna come
(12:05):
back to some of these lessons you learned there. But
I want to go back further in time. You were
born in New Jersey, started off life in New Jersey,
then moved to Connecticut. Can you paint a picture of
your childhood. We moved around because my dad wasn't taken
off as he was a lawyer. He tried to be
a lawyer, but he didn't practice very low. I moved
(12:25):
about five times, so we were always the new kids
in some suburban New Jersey. With the continuity for us
was that my grandfather, my father's dad, was a college
professor up in New York State in the farm country,
and so we spend every summer on a farm. We
were basically country kids in the summer and then we
(12:48):
go back to the suburbs in the wintertime. So for me,
I love my childhood because I spent all day with
no She's out in our little lake or running around
the words. I love that I was there with my
two brothers and my cousins. What kind of lasting impact
do you think that had on you in terms of
shaping who you are. You just had a feeling of peace,
(13:12):
you know, if you're used to be an app by
yourself in the fields of the forest with nobody else around.
The next farm was half a mile away. It's just
beautiful and peaceful. Well, by the way, I would say
I've known you forty years, I would say that actually
most people would describe you that way. Of all the
people I know who have risen to the topping companies,
(13:34):
you're so calm, so collected, good humor, and so now
we know why. Well, thank you for saying that. Let's
jump a little bit. You go to boarding school for
high school. Was that a positive experience for you? I
mean it sounds like you're talking about the suburban life,
the farm and now you're off at one of the
most prestigious prep schools in America. And also, by the way,
(13:57):
you got to be hard as hell too. How did
that work out? And what it impact did that have
on you? You know, it was a big thing for me.
If I hadn't done that, we wouldn't be talking probably
right now, because for me, when you come out of
the other side, if you look at all of us graduands,
you can't really tell the difference three years after at
(14:19):
the end between a public school kid from the suburbs
that goes in there, which is what half the class was.
I was one of those or the other half of
the class, which were private school kids, and they all
had all these uh you know houses in the Hampton's
or the Brooks Brothers stuff. I've never heard of it.
I got there, some guy came down the hall and
(14:40):
kind of flashed hit my Lopel's to find out what
kind of a jacket I was wearing. I had a
factory store polyester from Norhawalk. I wanted to fit in
with this whole thing. We went to Yale at that
point of very progressive school, especially in the area you
went like sixties early. It hadn't been before Yield, you know.
(15:02):
It was a pretty traditional establishment play. And then every
all the alumni got piste off because Yale was getting
so radicals, remember Dad, the Bobby Seal demonstrations going in there.
There was a pretty controversial time. And did they go
co ed in your time at Yale? Yeah, they went
coed a year before I got there. And just to
(15:23):
give you the sad fact about it, because it went
slowly unfortunately, there were a thousand males in the entering classes,
let's say, and there were two hundred women in my
class entering and there were two hundred women in the class.
Before months there were four hundred undergraduate women at Yale
(15:43):
and four thousand male undergraduates and another five thousand Mayle
graduate students. More mathemagic. Right after this quick break, welcome
back to at the Magic Let's you're more from my
conversation with Jeff Buchas. If you could go back in
(16:06):
time and you could give your twenty one year old
self some advice, what would that advice be. Just be honest.
Don't try to pretend that you know what you want
to do or that you know, let's say you're on
a Jeff, that you know something when you don't. Like
you mentioned, I had to go to these schools where
everybody's trying to get in. People are always trying to
(16:27):
build themselves into some kind of resume of the perfect
person or something for whatever job they think they want
to do. Well, none of us know what you want
to do because we haven't done it yet. So if
you get in that habit, which unfortunately now young people,
you get in the habit of pretulating yourself into something
(16:48):
which may or may not do what you ought to do,
you don't know, so you don't have the habit of
trying to find out what you want to do, and
you don't have the habit of expressing your actual impulses
are natural inclinations. You're always looking for what do they want?
What am I trying to present myself as? Try to
(17:10):
keep that as minimum as you can, because you want
to get kicked that of places, they're where you don't belong.
Everybody's afraid. Well, they're gonna tell me they don't belong.
That's not bad, that's good. This is not where you
should be. Get oppy. Take five. Okay, good, I'll go
somewhere and see if I've fit over there. You were
(17:31):
a rising star at HBO in the eighties. You end
up being CFO. Along comes Steve Ross and Time Inc.
And by this time HBO is a major part of
Time Inc. And Warner Communications merge, the first of the
big media mega mergers. I was on the Warner side,
(17:52):
and you and I really got to know each other.
I guess from that merger, how did that deal look
from your side of the street? There so Time macause
the parent company of HBO, this little, you know, guerrilla
operation that was very scrappy because HBO was always threatened
with extinction from either the movie companies that wouldn't sell
(18:14):
us the movies, or the cable companies that didn't want
us to have high share of subscribers that we had,
and we were the leader, so we weren't running scared exactly.
We were well aware that we were chased by a
pack of dogs. So we were always trying to move.
We were always trying to stay ahead of what we
(18:34):
thought would be that the cable people or the movie
people were wiping us out. They both tried. There's some
famous cases. The movies companies got together and tried to
stop selling HBO movies and we sued him for an
of trust in one and it was very chaotic because
we were growing fan and we got a lot of
(18:54):
leadership changes. We survived at Michael Fuchs, who was a
vital part of us. He was the guy with the
vision in the hoods, but to weigh the foundations for
our original programming, which he saw more than any of us,
would become well the central thing at HBO, and he
had the ability to do that. He attracted a brilliant team.
(19:18):
These people are famous now in that world. They probably
have more oscars and peabodies and enemies than anyone in
that category. And then the thing everybody now knows because
they're thinking of Sopranos or lately Game of Thrones, Bridget Potter,
Chris Albret kallen Strauss creating really our original programming series
(19:39):
business out of nothing. And this is when the big
networks had thirty plus series each a week. That's a
hundred series on USTv with big stars, big budgets, big
schedules to premiere new shows, audience flow, all the things
you're supposed to have to have for series. And we
had enough money for maybe two or three series. And
(20:00):
we know that the network series failed four out of
five times. Our competitors have a hundred of them. They've
launched four hundred pilots. We've got enough, but three What
are we going to do? And so we happened to
get somewhat lucky. We decided we got to be very different.
Michael deserves the credit for them. You know this show
(20:20):
and I mentioned alright, Larry Sanders show, I think was
what put us on the map as a network that
could really do something that changed the genre that Larry
Sanders was in. He basically put a new layer on
what Johnny Carson and let him in We're doing I mean,
would you agree with that? Absolutely? It was fantastic, kind
(20:42):
of showed us what we could do. The problem was,
you know, we had a marketing thing. This is under
Michael's top. We had a marketing thing for that big
success for us. We called it the best hour on TV,
and in fact, I think it was on What the
joke was? It was only in that because so Sanders
was a half hour show and we had ten episodes
(21:05):
a year, and we paired it on the schedule with
another sitcom, very good show dream On, which starred Brian
ben Ben along with Wendy Malick and Dorian Wilson. We
called those two half hours. So let's say it's an
hour block ten times in a year, we called the
(21:26):
best hour on TV. But we had ten hours in
a whole year. And here we have a three day
program network. That's one twenty four hours a day. I mean,
you know, we had literally nothing, so we had to
when the blockbuster came in and all of a sudden,
movies that you could watch on DVD in your house
(21:47):
whenever you wanted to was wiping out or previous selling
point which was a big movie from Hollywood on Saturday
nights or Sunday night, but you had to watch it
at nine o'clock. But let me interject, because I was
around the business. Then the movie companies actually invented home
video rental to try and get some leverage on HBO.
(22:10):
HBO is that powerful and that important to them. And
HBO used to play a strategy called odd man out
where you'd leave one studio out of your by so
their movies wouldn't get any pay TV money, and it's
so infuriated. Actually think it was m c A that
started it, that said, well, we can't have that kind
of instability, so we're gonna start home video and sell
(22:31):
the movies. And of course people start running them and
doing whatever. But just as an aside, that's how powerful
HBO was in the movie business. And it's so powerful
that it actually started its own competitor. Yeah, that's true.
And also there was another competitor all of us inside
used to fight about because when we had the one
man out movie studio and we left Universal like a
(22:54):
loaded gun on the table, I think it was six
or seven, they weren't going to go nowhere. So it
ended up feeding the start of John Malin's Encore Stars
competitor if you had Showtime Movie Channel together, we had
an HBO. We thought out nowhere for them to go
and they created stocks, which not a great development for
(23:16):
us because it raised all the movie costs and it
creates leverage for the cable operators. Again our cable deal.
So let's go to the Warner deal. You clearly are
vulnerable to the movie companies. And suddenly here comes a
movie company, Warner Communications, and this merger happens. Yeah. Well,
so one problem with the merger was an undervalued Time
(23:39):
anchor and overvalued the Warners. Nobody outside cares inside he
created a problem because the Warner side, everybody got wealthy,
and the Time side, everybody got wiped out. Then what
happened was that because Steve was so powerful in his momentum, force, skills, etcetera,
that he was really roll over as everyone expected that
(24:03):
he would do. Now, this is Steve Ross, who was
the CEO of Warning Communications. Yeah, and he was a
unique guy with a huge and loyal following on the
street and inside Warners. And he was quite talented, and
he was real entertainment god, which the Timing people were not.
They were magazine and so he was on the way
(24:23):
to completing pretty much domination, and I think possibly all
of what was all of us the little brother HBO,
We're gonna get wiped out. And then, as you know,
because you were there, Steve died and their time in
people really HBO people ended up integrating and coming back.
(24:48):
Jerry Levin took over a CEO. You've gone now from
a sales guy at HBO, CFO CEO and then CEO
of HB oh and so you saw this whole rise
of cable reinventing the television business, and just as the
Internet was emerging for the mass market, you turned down
(25:10):
the job to be CEO of American Online. I know
because I was on that board and was part of
the recruitment effort. Why didn't you want to go for
something new again? Was HBO now in your blood? Yeah?
It was mostly that. Secondly, I didn't know anything about
it well online. I mean I could study it and everything,
(25:31):
but I didn't know really well how it worked. I
thought all of you guys were much better to run
it than I would be. And the other reason, as
I had a twelve year old son, I wasn't about
to move to California, when he was in Connecticut. I
wasn't trying to do anything. I was trying to stay
(25:51):
I loved during HBO. We weren't finished with the transformation
we were making at HBO. We wanted to have vr
D get going. We wanted to fill out the original program.
We were just started with soprano sex in the city.
We came behind to Brothers and all the things after that,
and we were moving international. I just thought, well, I
know how to do that. I like doing it. Let's
(26:12):
do that. As I said before, I never had a
plan to go to the next job. Well, I will
tell you that when I left Time Warner two thousand
and two and a O l Time Warner at the
moment and you and Don Logan, we're going to replace
me in that job. And you said to me, you know,
(26:33):
I really love my job at HBO, but I think
I got to take this job to protect myself against
could be an asshole that gets in this job. So
I will attest to the fact that you were never
plotting or planning your next move, that they just sort
of always happened to you. Can I ask you this?
So there were one time you were the boss, you
were the head of it I was reported to do,
(26:53):
and we always got along, and you were saying to
me something in one minuting and I was saying, look,
HBO is fine. Can you guys stop screwing with it?
And I think when you and I learn in your
office and you said to me, as a kind of
a friendly test, he said, do you think that you
could do this job? I mean you want you And
I said to you, see if you remember that, look,
(27:16):
I want you to be doing this job. There's nobody
in this whole building that wants you to succeed in
this job more than I do, because I'm afraid if
you're not doing it, I'm gonna ben have to do it.
I thought it was kind of an impossible job. It
sort of was an impossible job. What can I say?
On your behalf and my that was a terrible job. Look,
(27:43):
inherently it's not awful. It's a lot of fun. You
got the music company and the movie companies in the
Turner networks, and you know, there's a lot of fascinating
business as we have. But with the challenge at a well,
they think it was all you tell me, was it
a culture clash? It's interesting. I do think it was
a terrible culture clash. I mean, the reality was two
(28:04):
thousand and one. Actually the financial performance of AO L
Time Warner was substantially better than any of the other
entertainment and media companies. But what I think it was was,
remember A O L was about fort of the free
cash flow of the combined company, and the decision was
made instead of taking that free cash flow and using
(28:25):
it to continue to grow and evolve. You know, you
could argue that with AOL, instant Messenger, all the services
that what Twitter did, what Facebook did, what Google did,
should have been a O l's future, And instead they
took that free cash flow and gave it to the
cable company. And I think it was that voracious appetite
(28:47):
that the cable company had for capital and starving a
O L when it was the growth engine. You know,
people sometimes say, wow, it was a great merger for
a O L. And I said, actually, it was a
horrible merger of AO well, because if we had stayed
an independent company, we would have continued to use that
enormous cash flow and that huge leadership position we had
(29:07):
and continue to uh, you know, grow and evolve and
buy new companies, add companies, As a matter of fact,
right before the merging with Time Warner, we had a
handshake with the eBay people to buy eBay, and so
we were just gobbling up these companies and adding it
to the to o L. So I think it was
probably that more than anything else. I think once it
(29:29):
became part of a big company and was no longer
the priority it suffered, that is interesting. Now you also
owned a big, a big slice of Google. Right. Well,
the last deal I did, the board asked me Dick
Parsons to make the decision. Is we decided we were
going to let a search engine take the traffic from
(29:52):
a o L, which at that time I think fifty
of the traffic Internet traffic of the U S went
through a o L at that time, and we were
going to sell it and Google did a deal. We
actually had another bidder we had between two. We decided
to go with Google and we gave them the search
traffic for at that time an enormous amount of money,
(30:13):
and they gave us I can't remember it was five
or of Google. Now, someone after my time, Jeff, I'm
not going to say it was. You sold that stake
in Google for billions of dollars, not hundreds of billions.
It was billions. That was when Time Warner was shedding
debt because we had a debt problem. I just think
we should sell it, but we did, and there you go.
(30:34):
I mean the irony is that would probably worth a
couple of hundred billion today when you look at stuff
in hindsights, it's really interesting. So let me jump to
you built. HBO is one of the core team shaped
Time Warner, what roll this corporate culture play and something
like that significant amount, But it depends on which company.
(30:57):
The Time Warner company, as we've been saying, it came
about by a series of mergers. So the Time merger
with Warner that was the biggest merger in media when
it happened, and it was not like to like merge.
It was industry leaders in studio production of film, studio
(31:18):
production of TV series, music, Warner Brothers merging with a
big magazine company, an HBO, and a cable company. Those
are six different industries. That's a little different than when
people merge things that are in a shared industry. Then
after that you had the Turner merger, which added a
lot more scale to the network side, but it tied
(31:40):
the whole company more to the basic cable bundle, which
is having a hell of a time right now coming
out in the internet streaming world, because it's hard to
shrink four or five basic channels like t NT, TBS,
Cartoon Network, CNN into a singular or one or two
(32:01):
streaming services. So that set of mergers then a o
L the biggest Internet at that point, and a portal company.
If you think about that, that's an unwieldy group of
conglomerated industries put together. And if you then say, well,
(32:22):
what's the right carbon culture for that? And it's a
different answer than if you're the Disney company and you
can bolt on Pixar, Lucasfilm, Marvel into the Disney flywheel
of Family I P. That's been going on for fifty years.
So for us, and you know this from all the
(32:45):
culture and the core capabilities of the warners, we're very
different than the network people at HBO on pay TV,
which has no ad support versus the little closer to
the cable cousins that turn had down in Atlanta, and
then the magazine PEP, which are different yet again and
(33:06):
a whole different trajectory. So you're saying, what to do
with those corporate cultures. How much do you mail them?
What kind of culture do you have? You need a
certain amount of decentralization if you're an Unlike businesses, they
need to be separated at some point, not integrated in
a top down thing. So you really looked at corporate
culture by sort of operating group and looked at it
(33:28):
more of handling a portfolio of companies. Then you did
one overarching corporate culture which affected all of these operating businesses. Well,
there were some core businesses Turner Warner, HBO. They clearly
could and should be operated together strategically. That's why we
made them the core of the company. You couldn't keep
(33:50):
the cable company in that because the cable company was
too small and we needed to double the size of
it for its own efficiency. But you couldn't get that
through any trub them, So we had to spin it
off so it could merge and become charter. The result
was it became ten times more valuable. The magazine company
was irrelevant to any of this and needed to be
(34:11):
separated and merged for scale with another magazine company. You
could make an argument that the music company could stay
in the gena Warner HBO thing. I am not saying
that you don't have a unified corporate culture. I'm just
saying you have to do it carefully when you have
so many pieces of the giant numprodre that we had
(34:33):
to spin off. And you know, if you asked, you
didn't not to say it because what other thinking about,
and that's what our saolders were pressing about. We had
to streamline the thing where there was no way we're
going to be able to stay together. And people sometimes say, well,
you could have invested in this or that or defied
(34:55):
the shareholders to a point. We couldn't because it would
be easy to break it up. I can't. Tried to
do it in oh five, we beat him out of it.
Murdoch tried to do it in fourteen. We beat him
out of it. It was a pretty easy pitch for
the owners to say, hey, I'll take it and break
(35:15):
it up and we can get all this unlock value
when merge of the magazines are publishing, or the music
with a like thing and make it a scale play.
So those are just inevitable facts that time. Warner, let's say,
was there when you inherited it in two thousand. That
was not a sustainable collection of assets over time. The
(35:39):
lesson you had a like a blocking shareholder who could
turn down hostile offers because it's too easy to make
more money separating them. And the proof of it is frankly,
when I got it in a eight it was worth
in equity terms, Time Warner about but if you had
to share, oh wait, we had nine or ten times
(36:02):
your money through all of these spins and the increase
in the Time Warner core value at HBO Warner and Turner.
I think you did, and I think everyone would agree,
a spectacular job creating value for shareholders at Time Warner.
And I think even the eventual sale to A T
(36:22):
and T made an enormous amount of sense at the
time too, and for the shareholders was a spectacular deal. Well,
thank you for saying that all of us thought, not
just me alone, that we knew we couldn't stay turn
our HBO Warner with Netflix coming. It was just impossible.
So we needed more scale to invest in the streaming thing.
(36:44):
Because if we took it, the Time Warner earnings from
the BILLI into four, which would have still left us
at a quarter of the Netflix program. But that's just
not gonna work. We'd have been bought by you know,
hostile offers, and A would have been sliced. So when
we found a T and T. One thing is yet
(37:05):
they can write the check and they've got a big
enough scale with a three billion dollar company, they can
take those losses and not have a suffering of the
stock rush. They could finance it. They had a lot
of cash dollars, a lot of free cash. Though. We
never thought that they would go and try to replace
(37:25):
the management at Warner Turner and HBO. I don't mean
just the top people. You can know that, you'd always
see that, But they went down and really lost a
great deal of expertise in the top fifty ranks. And
each of those Warner, HBO, Turners and all those people
were highly capable. They knew how to pivot into the
(37:47):
new streaming world, and they knew how to keep the
maximization of the old cable wholesale world that you know
and I know. And it's not one versus the other.
It's basically, how did you do this smoothly and maintain
maximum resources all the way along? And you're seeing it
(38:08):
now because I was just out of sun Valley talking everybody.
The streamers are five. People always ask who's gonna win
the streaming war, probably Netflix, Disney, Amazon, and HBO. But
when they win, what are they gonna what's their economics
going to be? It may not be anything close to
what it was. You sat at the top of the
(38:31):
pyramid for a long time HBO, then eventually Time Warner.
What is surprised you most after leaving the CEO role?
It's really gonna sound crusty, and it reminds me of
something Walter Riston said. He was the famous head of
City Bank back in the seventies. When I was recruited
(38:53):
there for my short time, he said to the train
and look, you think that all your fancy analysis and
all the modern skills, that those are the things that
are going to protect and lead to the most success
for this massive worldwide institution. But no, it's actually the
(39:14):
character of whoever you're dealing with, whoever is leading the institution.
If you make a tightly structured we will be able
to bad person, You're gonna have a bad outcome. If
you make a loosely structured, sloppy deal with a good person,
you're gonna have a good outcome. You need to know
the character of the person. And that's what surprised me
(39:35):
the most is it really makes a difference who's doing it.
And I don't mean by that just the quote CEO.
It's the people and the culture that are dominant in
the company. I mean, if you ask me, what's the
one thing I remember about HBO, the singular thing is
(39:56):
people could trust us. If we said we're going to
do this, we would do it. Didn't really matter it
was informal. We owe that to Jerry Levine, Michael Fuchs,
Nick Nicholas Tony Cox. People stood by their work. It
was the most important thing and I still think it's
the most important thing. So this leads us to how
(40:16):
we end each episode. We give a shout out to
the stars of the math side of the business, those
analytics folks who sort of run businesses through the numbers,
and those from the magic side, the promoters, the people
who see and feel and touch and have these incredible ideas.
Can you give us your nod, your shout out? Want
(40:38):
you to pick the best mathematician, the best magician, so
to speak, Well, these days I'm worried about the country,
So for me in math Alexander Hamilton's in Magic, I
gotta go with the Ministry of Magic, Joe rolland runner
up Michael Fix. That's very nice, Jeff, you have an
amazing legacy. As you built your career, are you have
(41:00):
lifted so many others up with you. You talked about
your days at HBO. There was that great sense of
camaraderie and collaboration. You also developed and executed some of
the most impressive strategies and media and entertainment. Congrats and
thanks for sharing with us today on Mathew Magic. Hey Rob,
thanks for having me. Here are a few things I've
(41:21):
picked up in my conversation with Jeff. One retire the
advice fake it till you make it. For young people
starting their careers, Jeff says, you'll have an easier time
finding the right gig if you're honest about what you
know and what you don't to Character matters when making
a deal, As Jeff says, good deals are made by
good people, So the first step and every budding deal
(41:43):
should be getting to know the people you're doing business with.
And three decentralization Foster's specialization. During the time Inc and
Warner merger, Jeff learned that while you need some elements
of overarching culture, specialized team should maintain the operating systems
they've fine tune for success. Parent companies need to play
by the golden rule. If it ain't broke, don't fix it.
(42:07):
I'm Bob Pittman. Thanks for listening. That's it for today's episode.
Thanks so much for listening to Math and Magic, a
production of I Heart Radio. The show is hosted by
Bob Pittman. Special thanks to Susan Ward for booking and
wrangling our wonderful talent, which is no small feat Marissa
Brown for pulling research, our editors Derek Clements, Mary Dow
and Ryan Murdoch, our producer Morgan Levoy, our executive producer
(42:28):
Nikki Eator, and of course Gayle Roel, Eric Angel Noel,
and everyone who helped bring this show to your ears.
Until next time,
You're listening to Math and Magic, a production. I heart radio,
giving the audience the power over the programming and not
the advertisers. For us, that's what we were saying with
our campaign, It's not TV, it's HBO. We were saying
that we're different, We're not like every other network. I
(00:26):
am Bob Pittman. Welcome to this episode of Math and Magic,
where we explore the entire range of business from the
analytics to the creative. Today we have as our guests
someone who really does embody both. He was the last
CEO of Time Warner and was CEO of HBO before that,
in what could be argued was HBO's greatest decade of
growth and innovation. It's Jeff Bucas. He checks all the boxes,
(00:50):
by the way, dear Phil for prep school Yale, for
undergrad Stanford, for his m b A. Even started his
career as that background, Mike suggests, at a prestigious financial institution,
City Bank, But in nineteen seventy nine he made a
faithful decision to give up that traditional and joined this
new media upstart that was trying to reimagine TV HBO,
(01:15):
and that path eventually took him to the head of
Time Warner, and of course, before that, the head of HBO.
Jeff and I have had forty years of intertwined careers
and friendship. He's not only a great business leader and
a brilliant strategist, but he's a great guy with a
terrific sense of humor. Jeff, Welcome. We're gonna dig into
(01:37):
the real meat. But first I want us to warm
up by doing you in sixty seconds. Do you prefer
cats or dogs? Dog call or text herb your enthusiasm
or sex in the city Larry Sanders Show, Early Riser
or night Owl, Night Slow and steady or pedal to
(01:58):
the Metal Slow. Instead, it's about to get harder. Smartest
person you know. Jimmy Buffett, Childhood Hero, The Swamp, Fox Technology,
you can't live without Television, Favorite ever movie, The Godfather,
First Job, Bill, Collecting in Paris. Oh, that's pretty exotic.
(02:20):
Favorite ever TV show, Sopranos, Favorite Sopranos character. It's a
tough one, man, but I'm going with Tony. And finally,
what did you want to be when you were growing up?
A singer? Songwriter? Okay, let's really get serious. Now. Let's
(02:41):
get started by going back in time by all outward measures.
You had made every right decision in building towards a
great life in finance in the nineteen nine is and
mentioned in the intro, you gave that up to go
to this new upstart HBO. And for those thing who
weren't around then, HBO back then was only on in
(03:02):
prime time. It ran some Hollywood movies and some pretty
cheesy original shows, not at all what it became. So
it took a lot of imagination and courage to make
that jump. What made you make the job? How did
that happen? I always wanted to work in TV, and
when I was in college, we had nightly movies, International movies,
(03:24):
foreign movies. I was watching them every night. I wanted
to work in Hollywood or in TV, and I got
a job in the summer of seventy three of my
junior year in college out in l A. I was
a go for for a TV show that nobody remembers,
The Diana Rigg Show, and it was a sitcom. Occasionally
(03:45):
they tent me around to get scripts or pick up extras,
and once they told me to drive Diana rig from
one place in LA to the other place. I didn't
make it into TV. I got out of college. I
tried to get into networks I could to get a job.
I ended up working at NBC News. The year after
I got out of college, I was working on a
(04:06):
gun documentary for Lucy Jarvis that actually got very well reviewed.
After that thing ended, I got laid off, and you know,
if you're out of college and you don't have a job,
I started thinking what am I gonna do? I basically
failed to get a job like a lot of other
people in that seventy four seventy five were sessions. So
I ended up going to business school, which had not
(04:29):
been any plan I ever had, and I worked in
the summer at a wine ring, and I was actually
going to keep working at the winery after, but then
in an argument with my father, who was telling me,
you know, you're working for a privately on wine or
you're never going to get anywhere. You went to a
business school so you could sell wine. So I took
(04:49):
a holding job. Not I wasn't trying to go into finance.
I basically took a job at City Bank because I
couldn't figure out what else to do and started trying
to find another place, and I was looking at CBS, ABC, NBC,
but they just wouldn't hire. So I found out about
this HBO. I went over there, and remember the guy
(05:10):
who hired me, it was the president, Jim Hayward said
to me, well, what do you want to do here?
And I said sales, as though I knew what I
was talking about. And he said, but you're a finance guy,
and I said, well, well no, I'm twenty three. I
haven't done anything. I'm nothing. I just I figured that's
your main business. He said, yeah, it is, but we
don't have any jobs. So I'll tell you what. We
(05:32):
got a job for you if you want to go
kind of not on the roster, but we're trying to
sell motels to put HBO out on the marquee, you know,
so if you check into a hotel, you can get
free HBO. So my first months at HBO, I was
driving around in rented cars in the Midwest and the
Florida band Handle, going up to motel owners and saying,
(05:52):
you know, you out of court HBO in this hotel
and they'd say, well, why so, Well, because if you
put free HBO out there, when people are driving in
and they're trying to decide to go to your hotel
or the one across the street. They're gonna go to
EU hotel. Slowly we got a few sales, and then
of course as soon as one hotel motel would put
(06:15):
up h the other one across the street would do it.
By the end of it, nobody had an advantage. What
did you go from there? At HBO? So in HBO
in those days, this is seventy nine, we had less
than a fewer than a million cubs. At this point,
there was not that much cable in America. You remember
this from MTV. I started the cable business in nineteen
(06:36):
seventy nine as well. I remember, yes, So in those
days people got cable not to get a new programming serve.
They just got it so they could watch CBS, ABC, NBC,
maybe an independent or something with clear reception. And so
it was HBO that came along, and then MTV right
after one TIMTV h So, so we had been a
(07:00):
few years before. So we're going around saying to people
cable operators, well, you could get more people to sign
up or pay you a little more if you offered
uncut movies in your home. And in those days you
could get basic cable, which is like five channels for six,
seven eight dollars a month, and you could pay seven
(07:20):
or eight blucks for HBO. We'd get three dollars and
they'd keep the rest. What everybody forgets you you know it,
and I know it is that back in the seventies
and eighties, in order for people to get on TV
or HBO, they had to build cable system, string wire
down all the streets, and they had to put satellite
(07:41):
dishes in and this was costing the cable operator a
fair amount. So HBO was a product that drove cable
builds and cable companies to expand. But in order to
get franchises from the city politicians think of St. Louis, Indianapolis,
they wanted to be able to tell the government officials
(08:03):
that they had a product for people. It wasn't so
expensive as HBO, So it wasn't seven eight bucks a month,
it was three or four, and it didn't have all
the dirty stuff on it. So we had a kind
of a MINIAGEBO called TAKEE two. I'd forgotten about that.
There was a thing called Home Theater Network. So Time
had their mini channel, we had ours. They were both
(08:25):
really franchise offerings that no consumers wanted. Eventually we figured
out that on three or four dollars a month, he
couldn't make money. Had to be seven or eight. So
we invented a thing and there was a task for us.
Michael Fuchs, Frank beyond the wed Bore, John Billick, and
I were on this thing. It was called the Max
(08:47):
task for us. We needed to have a channel that
had enough stuff on it you could charge eight bucks
for it, and offered alongside HBO, and it became Cinemax.
I remember it well because actually my first job is
running the Movie Channel, which was the first twenty four
hour movie service, which did really, really well until you
launched Cinemax, and then it knocked the legs out from
(09:09):
under the Movie Channel, and we eventually merged it with Showtime.
A little bit of trivia by the way, just to
put this in context for the folks listening in this
period of time, there was no home video yet and
there was no pay per view, so you had no
way to get a movie unless the broadcast networks ran
it on their movie of the week or something with
(09:29):
commercials in it, or seeing it at the theater. So
HBO was really the service that opened up this idea
of movies on TV all the time to the American public.
You were the first mission driven TV business. How did
you describe that mission back then? HBO was always an idea.
It's like America right back in the early days of
(09:51):
pay TV, and really continued past the year two thousand.
The main draw for people to sign up for Movie
Channel or HBO, which they wanted uncut Hollywood movies in
their house. And there's two things about it. It's not
only that they didn't have commercials interruptions, which really screws
up the movie if you think about, but they were
(10:13):
uncut because everybody forgets I mean, you thought you were
watching up till then you thought you were watching you know,
The gods Father, whatever the movie was on ABC really
the wait, but you weren't really getting the movie. They
were cutting it for Procter and Gamble and Ford Motor
because they didn't want to have racy stuff in there,
if it was sexual, if it was language, if it
(10:35):
was violence, if it was political. So there was a
huge draw that everybody forgets about. When we moved away
from that supported movies into your subscribe or supported movies,
so people were not signing up for HBO so they
could tune into a specific show that Sunday night. They
wanted the range of shows, but they were hearing everybody
(10:58):
raving about. So that fact that we didn't have advertising
is what shaped our original programming breakthroughs and it led
to what we modestly called the Golden Age of television
because we were the only network with movie channel that
didn't make shows for the advertisers. We made shows for
the audience. And so that's what we were saying with
(11:21):
our campaign, it's not TV, it's HBO. We were saying
that we're different, We're not like every other network. And
that reminds me another big line from cable networks, I
want my MTV a huge breakthrough campaign, and I think
you were saying to your audience, you're in control. You
(11:43):
want your MTV, you get your MTV. And giving the
audience the power over the programming and not the advertisers
for us, was the key to it's not TV, It's HBO.
So the you know, the math of it is we
didn't have advertising. That's the structural thing. And the magic
was it's not TV, it's HBO. So we're gonna come
(12:05):
back to some of these lessons you learned there. But
I want to go back further in time. You were
born in New Jersey, started off life in New Jersey,
then moved to Connecticut. Can you paint a picture of
your childhood. We moved around because my dad wasn't taken
off as he was a lawyer. He tried to be
a lawyer, but he didn't practice very low. I moved
(12:25):
about five times, so we were always the new kids
in some suburban New Jersey. With the continuity for us
was that my grandfather, my father's dad, was a college
professor up in New York State in the farm country,
and so we spend every summer on a farm. We
were basically country kids in the summer and then we
(12:48):
go back to the suburbs in the wintertime. So for me,
I love my childhood because I spent all day with
no She's out in our little lake or running around
the words. I love that I was there with my
two brothers and my cousins. What kind of lasting impact
do you think that had on you in terms of
shaping who you are. You just had a feeling of peace,
(13:12):
you know, if you're used to be an app by
yourself in the fields of the forest with nobody else around.
The next farm was half a mile away. It's just
beautiful and peaceful. Well, by the way, I would say
I've known you forty years, I would say that actually
most people would describe you that way. Of all the
people I know who have risen to the topping companies,
(13:34):
you're so calm, so collected, good humor, and so now
we know why. Well, thank you for saying that. Let's
jump a little bit. You go to boarding school for
high school. Was that a positive experience for you? I
mean it sounds like you're talking about the suburban life,
the farm and now you're off at one of the
most prestigious prep schools in America. And also, by the way,
(13:57):
you got to be hard as hell too. How did
that work out? And what it impact did that have
on you? You know, it was a big thing for me.
If I hadn't done that, we wouldn't be talking probably
right now, because for me, when you come out of
the other side, if you look at all of us graduands,
you can't really tell the difference three years after at
(14:19):
the end between a public school kid from the suburbs
that goes in there, which is what half the class was.
I was one of those or the other half of
the class, which were private school kids, and they all
had all these uh you know houses in the Hampton's
or the Brooks Brothers stuff. I've never heard of it.
I got there, some guy came down the hall and
(14:40):
kind of flashed hit my Lopel's to find out what
kind of a jacket I was wearing. I had a
factory store polyester from Norhawalk. I wanted to fit in
with this whole thing. We went to Yale at that
point of very progressive school, especially in the area you
went like sixties early. It hadn't been before Yield, you know.
(15:02):
It was a pretty traditional establishment play. And then every
all the alumni got piste off because Yale was getting
so radicals, remember Dad, the Bobby Seal demonstrations going in there.
There was a pretty controversial time. And did they go
co ed in your time at Yale? Yeah, they went
coed a year before I got there. And just to
(15:23):
give you the sad fact about it, because it went
slowly unfortunately, there were a thousand males in the entering classes,
let's say, and there were two hundred women in my
class entering and there were two hundred women in the class.
Before months there were four hundred undergraduate women at Yale
(15:43):
and four thousand male undergraduates and another five thousand Mayle
graduate students. More mathemagic. Right after this quick break, welcome
back to at the Magic Let's you're more from my
conversation with Jeff Buchas. If you could go back in
(16:06):
time and you could give your twenty one year old
self some advice, what would that advice be. Just be honest.
Don't try to pretend that you know what you want
to do or that you know, let's say you're on
a Jeff, that you know something when you don't. Like
you mentioned, I had to go to these schools where
everybody's trying to get in. People are always trying to
(16:27):
build themselves into some kind of resume of the perfect
person or something for whatever job they think they want
to do. Well, none of us know what you want
to do because we haven't done it yet. So if
you get in that habit, which unfortunately now young people,
you get in the habit of pretulating yourself into something
(16:48):
which may or may not do what you ought to do,
you don't know, so you don't have the habit of
trying to find out what you want to do, and
you don't have the habit of expressing your actual impulses
are natural inclinations. You're always looking for what do they want?
What am I trying to present myself as? Try to
(17:10):
keep that as minimum as you can, because you want
to get kicked that of places, they're where you don't belong.
Everybody's afraid. Well, they're gonna tell me they don't belong.
That's not bad, that's good. This is not where you
should be. Get oppy. Take five. Okay, good, I'll go
somewhere and see if I've fit over there. You were
(17:31):
a rising star at HBO in the eighties. You end
up being CFO. Along comes Steve Ross and Time Inc.
And by this time HBO is a major part of
Time Inc. And Warner Communications merge, the first of the
big media mega mergers. I was on the Warner side,
(17:52):
and you and I really got to know each other.
I guess from that merger, how did that deal look
from your side of the street? There so Time macause
the parent company of HBO, this little, you know, guerrilla
operation that was very scrappy because HBO was always threatened
with extinction from either the movie companies that wouldn't sell
(18:14):
us the movies, or the cable companies that didn't want
us to have high share of subscribers that we had,
and we were the leader, so we weren't running scared exactly.
We were well aware that we were chased by a
pack of dogs. So we were always trying to move.
We were always trying to stay ahead of what we
(18:34):
thought would be that the cable people or the movie
people were wiping us out. They both tried. There's some
famous cases. The movies companies got together and tried to
stop selling HBO movies and we sued him for an
of trust in one and it was very chaotic because
we were growing fan and we got a lot of
(18:54):
leadership changes. We survived at Michael Fuchs, who was a
vital part of us. He was the guy with the
vision in the hoods, but to weigh the foundations for
our original programming, which he saw more than any of us,
would become well the central thing at HBO, and he
had the ability to do that. He attracted a brilliant team.
(19:18):
These people are famous now in that world. They probably
have more oscars and peabodies and enemies than anyone in
that category. And then the thing everybody now knows because
they're thinking of Sopranos or lately Game of Thrones, Bridget Potter,
Chris Albret kallen Strauss creating really our original programming series
(19:39):
business out of nothing. And this is when the big
networks had thirty plus series each a week. That's a
hundred series on USTv with big stars, big budgets, big
schedules to premiere new shows, audience flow, all the things
you're supposed to have to have for series. And we
had enough money for maybe two or three series. And
(20:00):
we know that the network series failed four out of
five times. Our competitors have a hundred of them. They've
launched four hundred pilots. We've got enough, but three What
are we going to do? And so we happened to
get somewhat lucky. We decided we got to be very different.
Michael deserves the credit for them. You know this show
(20:20):
and I mentioned alright, Larry Sanders show, I think was
what put us on the map as a network that
could really do something that changed the genre that Larry
Sanders was in. He basically put a new layer on
what Johnny Carson and let him in We're doing I mean,
would you agree with that? Absolutely? It was fantastic, kind
(20:42):
of showed us what we could do. The problem was,
you know, we had a marketing thing. This is under
Michael's top. We had a marketing thing for that big
success for us. We called it the best hour on TV,
and in fact, I think it was on What the
joke was? It was only in that because so Sanders
was a half hour show and we had ten episodes
(21:05):
a year, and we paired it on the schedule with
another sitcom, very good show dream On, which starred Brian
ben Ben along with Wendy Malick and Dorian Wilson. We
called those two half hours. So let's say it's an
hour block ten times in a year, we called the
(21:26):
best hour on TV. But we had ten hours in
a whole year. And here we have a three day
program network. That's one twenty four hours a day. I mean,
you know, we had literally nothing, so we had to
when the blockbuster came in and all of a sudden,
movies that you could watch on DVD in your house
(21:47):
whenever you wanted to was wiping out or previous selling
point which was a big movie from Hollywood on Saturday
nights or Sunday night, but you had to watch it
at nine o'clock. But let me interject, because I was
around the business. Then the movie companies actually invented home
video rental to try and get some leverage on HBO.
(22:10):
HBO is that powerful and that important to them. And
HBO used to play a strategy called odd man out
where you'd leave one studio out of your by so
their movies wouldn't get any pay TV money, and it's
so infuriated. Actually think it was m c A that
started it, that said, well, we can't have that kind
of instability, so we're gonna start home video and sell
(22:31):
the movies. And of course people start running them and
doing whatever. But just as an aside, that's how powerful
HBO was in the movie business. And it's so powerful
that it actually started its own competitor. Yeah, that's true.
And also there was another competitor all of us inside
used to fight about because when we had the one
man out movie studio and we left Universal like a
(22:54):
loaded gun on the table, I think it was six
or seven, they weren't going to go nowhere. So it
ended up feeding the start of John Malin's Encore Stars
competitor if you had Showtime Movie Channel together, we had
an HBO. We thought out nowhere for them to go
and they created stocks, which not a great development for
(23:16):
us because it raised all the movie costs and it
creates leverage for the cable operators. Again our cable deal.
So let's go to the Warner deal. You clearly are
vulnerable to the movie companies. And suddenly here comes a
movie company, Warner Communications, and this merger happens. Yeah. Well,
so one problem with the merger was an undervalued Time
(23:39):
anchor and overvalued the Warners. Nobody outside cares inside he
created a problem because the Warner side, everybody got wealthy,
and the Time side, everybody got wiped out. Then what
happened was that because Steve was so powerful in his momentum, force, skills, etcetera,
that he was really roll over as everyone expected that
(24:03):
he would do. Now, this is Steve Ross, who was
the CEO of Warning Communications. Yeah, and he was a
unique guy with a huge and loyal following on the
street and inside Warners. And he was quite talented, and
he was real entertainment god, which the Timing people were not.
They were magazine and so he was on the way
(24:23):
to completing pretty much domination, and I think possibly all
of what was all of us the little brother HBO,
We're gonna get wiped out. And then, as you know,
because you were there, Steve died and their time in
people really HBO people ended up integrating and coming back.
(24:48):
Jerry Levin took over a CEO. You've gone now from
a sales guy at HBO, CFO CEO and then CEO
of HB oh and so you saw this whole rise
of cable reinventing the television business, and just as the
Internet was emerging for the mass market, you turned down
(25:10):
the job to be CEO of American Online. I know
because I was on that board and was part of
the recruitment effort. Why didn't you want to go for
something new again? Was HBO now in your blood? Yeah?
It was mostly that. Secondly, I didn't know anything about
it well online. I mean I could study it and everything,
(25:31):
but I didn't know really well how it worked. I
thought all of you guys were much better to run
it than I would be. And the other reason, as
I had a twelve year old son, I wasn't about
to move to California, when he was in Connecticut. I
wasn't trying to do anything. I was trying to stay
(25:51):
I loved during HBO. We weren't finished with the transformation
we were making at HBO. We wanted to have vr
D get going. We wanted to fill out the original program.
We were just started with soprano sex in the city.
We came behind to Brothers and all the things after that,
and we were moving international. I just thought, well, I
know how to do that. I like doing it. Let's
(26:12):
do that. As I said before, I never had a
plan to go to the next job. Well, I will
tell you that when I left Time Warner two thousand
and two and a O l Time Warner at the
moment and you and Don Logan, we're going to replace
me in that job. And you said to me, you know,
(26:33):
I really love my job at HBO, but I think
I got to take this job to protect myself against
could be an asshole that gets in this job. So
I will attest to the fact that you were never
plotting or planning your next move, that they just sort
of always happened to you. Can I ask you this?
So there were one time you were the boss, you
were the head of it I was reported to do,
(26:53):
and we always got along, and you were saying to
me something in one minuting and I was saying, look,
HBO is fine. Can you guys stop screwing with it?
And I think when you and I learn in your
office and you said to me, as a kind of
a friendly test, he said, do you think that you
could do this job? I mean you want you And
I said to you, see if you remember that, look,
(27:16):
I want you to be doing this job. There's nobody
in this whole building that wants you to succeed in
this job more than I do, because I'm afraid if
you're not doing it, I'm gonna ben have to do it.
I thought it was kind of an impossible job. It
sort of was an impossible job. What can I say?
On your behalf and my that was a terrible job. Look,
(27:43):
inherently it's not awful. It's a lot of fun. You
got the music company and the movie companies in the
Turner networks, and you know, there's a lot of fascinating
business as we have. But with the challenge at a well,
they think it was all you tell me, was it
a culture clash? It's interesting. I do think it was
a terrible culture clash. I mean, the reality was two
(28:04):
thousand and one. Actually the financial performance of AO L
Time Warner was substantially better than any of the other
entertainment and media companies. But what I think it was was,
remember A O L was about fort of the free
cash flow of the combined company, and the decision was
made instead of taking that free cash flow and using
(28:25):
it to continue to grow and evolve. You know, you
could argue that with AOL, instant Messenger, all the services
that what Twitter did, what Facebook did, what Google did,
should have been a O l's future, And instead they
took that free cash flow and gave it to the
cable company. And I think it was that voracious appetite
(28:47):
that the cable company had for capital and starving a
O L when it was the growth engine. You know,
people sometimes say, wow, it was a great merger for
a O L. And I said, actually, it was a
horrible merger of AO well, because if we had stayed
an independent company, we would have continued to use that
enormous cash flow and that huge leadership position we had
(29:07):
and continue to uh, you know, grow and evolve and
buy new companies, add companies, As a matter of fact,
right before the merging with Time Warner, we had a
handshake with the eBay people to buy eBay, and so
we were just gobbling up these companies and adding it
to the to o L. So I think it was
probably that more than anything else. I think once it
(29:29):
became part of a big company and was no longer
the priority it suffered, that is interesting. Now you also
owned a big, a big slice of Google. Right. Well,
the last deal I did, the board asked me Dick
Parsons to make the decision. Is we decided we were
going to let a search engine take the traffic from
(29:52):
a o L, which at that time I think fifty
of the traffic Internet traffic of the U S went
through a o L at that time, and we were
going to sell it and Google did a deal. We
actually had another bidder we had between two. We decided
to go with Google and we gave them the search
traffic for at that time an enormous amount of money,
(30:13):
and they gave us I can't remember it was five
or of Google. Now, someone after my time, Jeff, I'm
not going to say it was. You sold that stake
in Google for billions of dollars, not hundreds of billions.
It was billions. That was when Time Warner was shedding
debt because we had a debt problem. I just think
we should sell it, but we did, and there you go.
(30:34):
I mean the irony is that would probably worth a
couple of hundred billion today when you look at stuff
in hindsights, it's really interesting. So let me jump to
you built. HBO is one of the core team shaped
Time Warner, what roll this corporate culture play and something
like that significant amount, But it depends on which company.
(30:57):
The Time Warner company, as we've been saying, it came
about by a series of mergers. So the Time merger
with Warner that was the biggest merger in media when
it happened, and it was not like to like merge.
It was industry leaders in studio production of film, studio
(31:18):
production of TV series, music, Warner Brothers merging with a
big magazine company, an HBO, and a cable company. Those
are six different industries. That's a little different than when
people merge things that are in a shared industry. Then
after that you had the Turner merger, which added a
lot more scale to the network side, but it tied
(31:40):
the whole company more to the basic cable bundle, which
is having a hell of a time right now coming
out in the internet streaming world, because it's hard to
shrink four or five basic channels like t NT, TBS,
Cartoon Network, CNN into a singular or one or two
(32:01):
streaming services. So that set of mergers then a o
L the biggest Internet at that point, and a portal company.
If you think about that, that's an unwieldy group of
conglomerated industries put together. And if you then say, well,
(32:22):
what's the right carbon culture for that? And it's a
different answer than if you're the Disney company and you
can bolt on Pixar, Lucasfilm, Marvel into the Disney flywheel
of Family I P. That's been going on for fifty years.
So for us, and you know this from all the
(32:45):
culture and the core capabilities of the warners, we're very
different than the network people at HBO on pay TV,
which has no ad support versus the little closer to
the cable cousins that turn had down in Atlanta, and
then the magazine PEP, which are different yet again and
(33:06):
a whole different trajectory. So you're saying, what to do
with those corporate cultures. How much do you mail them?
What kind of culture do you have? You need a
certain amount of decentralization if you're an Unlike businesses, they
need to be separated at some point, not integrated in
a top down thing. So you really looked at corporate
culture by sort of operating group and looked at it
(33:28):
more of handling a portfolio of companies. Then you did
one overarching corporate culture which affected all of these operating businesses. Well,
there were some core businesses Turner Warner, HBO. They clearly
could and should be operated together strategically. That's why we
made them the core of the company. You couldn't keep
(33:50):
the cable company in that because the cable company was
too small and we needed to double the size of
it for its own efficiency. But you couldn't get that
through any trub them, So we had to spin it
off so it could merge and become charter. The result
was it became ten times more valuable. The magazine company
was irrelevant to any of this and needed to be
(34:11):
separated and merged for scale with another magazine company. You
could make an argument that the music company could stay
in the gena Warner HBO thing. I am not saying
that you don't have a unified corporate culture. I'm just
saying you have to do it carefully when you have
so many pieces of the giant numprodre that we had
(34:33):
to spin off. And you know, if you asked, you
didn't not to say it because what other thinking about,
and that's what our saolders were pressing about. We had
to streamline the thing where there was no way we're
going to be able to stay together. And people sometimes say, well,
you could have invested in this or that or defied
(34:55):
the shareholders to a point. We couldn't because it would
be easy to break it up. I can't. Tried to
do it in oh five, we beat him out of it.
Murdoch tried to do it in fourteen. We beat him
out of it. It was a pretty easy pitch for
the owners to say, hey, I'll take it and break
(35:15):
it up and we can get all this unlock value
when merge of the magazines are publishing, or the music
with a like thing and make it a scale play.
So those are just inevitable facts that time. Warner, let's say,
was there when you inherited it in two thousand. That
was not a sustainable collection of assets over time. The
(35:39):
lesson you had a like a blocking shareholder who could
turn down hostile offers because it's too easy to make
more money separating them. And the proof of it is frankly,
when I got it in a eight it was worth
in equity terms, Time Warner about but if you had
to share, oh wait, we had nine or ten times
(36:02):
your money through all of these spins and the increase
in the Time Warner core value at HBO Warner and Turner.
I think you did, and I think everyone would agree,
a spectacular job creating value for shareholders at Time Warner.
And I think even the eventual sale to A T
(36:22):
and T made an enormous amount of sense at the
time too, and for the shareholders was a spectacular deal. Well,
thank you for saying that all of us thought, not
just me alone, that we knew we couldn't stay turn
our HBO Warner with Netflix coming. It was just impossible.
So we needed more scale to invest in the streaming thing.
(36:44):
Because if we took it, the Time Warner earnings from
the BILLI into four, which would have still left us
at a quarter of the Netflix program. But that's just
not gonna work. We'd have been bought by you know,
hostile offers, and A would have been sliced. So when
we found a T and T. One thing is yet
(37:05):
they can write the check and they've got a big
enough scale with a three billion dollar company, they can
take those losses and not have a suffering of the
stock rush. They could finance it. They had a lot
of cash dollars, a lot of free cash. Though. We
never thought that they would go and try to replace
(37:25):
the management at Warner Turner and HBO. I don't mean
just the top people. You can know that, you'd always
see that, But they went down and really lost a
great deal of expertise in the top fifty ranks. And
each of those Warner, HBO, Turners and all those people
were highly capable. They knew how to pivot into the
(37:47):
new streaming world, and they knew how to keep the
maximization of the old cable wholesale world that you know
and I know. And it's not one versus the other.
It's basically, how did you do this smoothly and maintain
maximum resources all the way along? And you're seeing it
(38:08):
now because I was just out of sun Valley talking everybody.
The streamers are five. People always ask who's gonna win
the streaming war, probably Netflix, Disney, Amazon, and HBO. But
when they win, what are they gonna what's their economics
going to be? It may not be anything close to
what it was. You sat at the top of the
(38:31):
pyramid for a long time HBO, then eventually Time Warner.
What is surprised you most after leaving the CEO role?
It's really gonna sound crusty, and it reminds me of
something Walter Riston said. He was the famous head of
City Bank back in the seventies. When I was recruited
(38:53):
there for my short time, he said to the train
and look, you think that all your fancy analysis and
all the modern skills, that those are the things that
are going to protect and lead to the most success
for this massive worldwide institution. But no, it's actually the
(39:14):
character of whoever you're dealing with, whoever is leading the institution.
If you make a tightly structured we will be able
to bad person, You're gonna have a bad outcome. If
you make a loosely structured, sloppy deal with a good person,
you're gonna have a good outcome. You need to know
the character of the person. And that's what surprised me
(39:35):
the most is it really makes a difference who's doing it.
And I don't mean by that just the quote CEO.
It's the people and the culture that are dominant in
the company. I mean, if you ask me, what's the
one thing I remember about HBO, the singular thing is
(39:56):
people could trust us. If we said we're going to
do this, we would do it. Didn't really matter it
was informal. We owe that to Jerry Levine, Michael Fuchs,
Nick Nicholas Tony Cox. People stood by their work. It
was the most important thing and I still think it's
the most important thing. So this leads us to how
(40:16):
we end each episode. We give a shout out to
the stars of the math side of the business, those
analytics folks who sort of run businesses through the numbers,
and those from the magic side, the promoters, the people
who see and feel and touch and have these incredible ideas.
Can you give us your nod, your shout out? Want
(40:38):
you to pick the best mathematician, the best magician, so
to speak, Well, these days I'm worried about the country,
So for me in math Alexander Hamilton's in Magic, I
gotta go with the Ministry of Magic, Joe rolland runner
up Michael Fix. That's very nice, Jeff, you have an
amazing legacy. As you built your career, are you have
(41:00):
lifted so many others up with you. You talked about
your days at HBO. There was that great sense of
camaraderie and collaboration. You also developed and executed some of
the most impressive strategies and media and entertainment. Congrats and
thanks for sharing with us today on Mathew Magic. Hey Rob,
thanks for having me. Here are a few things I've
(41:21):
picked up in my conversation with Jeff. One retire the
advice fake it till you make it. For young people
starting their careers, Jeff says, you'll have an easier time
finding the right gig if you're honest about what you
know and what you don't to Character matters when making
a deal, As Jeff says, good deals are made by
good people, So the first step and every budding deal
(41:43):
should be getting to know the people you're doing business with.
And three decentralization Foster's specialization. During the time Inc and
Warner merger, Jeff learned that while you need some elements
of overarching culture, specialized team should maintain the operating systems
they've fine tune for success. Parent companies need to play
by the golden rule. If it ain't broke, don't fix it.
(42:07):
I'm Bob Pittman. Thanks for listening. That's it for today's episode.
Thanks so much for listening to Math and Magic, a
production of I Heart Radio. The show is hosted by
Bob Pittman. Special thanks to Susan Ward for booking and
wrangling our wonderful talent, which is no small feat Marissa
Brown for pulling research, our editors Derek Clements, Mary Dow
and Ryan Murdoch, our producer Morgan Levoy, our executive producer
(42:28):
Nikki Eator, and of course Gayle Roel, Eric Angel Noel,
and everyone who helped bring this show to your ears.
Until next time,
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