A Passion to Win

By Sumner Redstone with Peter Knobler Published by Simon & Schuster, 2001 ISBN 0684862247

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CONTENTS Introduction .......................................................................... 2 Getting Started ..................................................................... 2 The Movie Content Business .................................................. 3 Understanding the Other Side ............................................... 5 Buying a Studio .................................................................... 6

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A Passion to Win

By Sumner Redstone with Peter Knobler

Introduction
Viacom is me, Sumner Redstone likes to say. His passion has built the company from a small, family-owned firm operating a few drive-in movie theaters into a global entertainment empire, which includes MTV, Nickelodeon, CBS, Simon & Schuster, Paramount Pictures, Showtime, Blockbuster and Comedy Central. He has bet his life on his company and succeeded. Redstone not only has a passion to win, he has an ability to grow his company through the right acquisitions and then make those acquisitions work. A former lawyer, he also has a willingness to litigate when he feels wronged.

Getting Started
Redstone was making a lot of money in 1954 as a lawyer about $100,000 a year, or over $1 million in todays terms when he decided to go into business for himself. He joined his fathers firm, Northeast Theater Corp., for an initial salary of $5,000 a year. He expanded the company immediately. He would fly into a new city, get into a car and look for a new site, alone, confident in his instinct. He would then act as his own lawyer to make the deal. In this way, he built the chain up to 40 or 50 drive-ins, turning it into the industry leader on the east coast.
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It was an early lesson in the power of content. He would be in the office at 6 a.m., getting the grosses from the night before, knowing he had to be on top of the figures to be on top of the business. The rest of his day was spent negotiating to get the best movies at the best prices. That meant convincing the studios that he was on the cutting edge of the future. It was a tough, adversarial business and he learned that making a deal depended not only on the merits of his arguments but also on developing personal relationships with the people he met daily. But for all his efforts, he was having trouble getting first-run movies into his drive-ins, which prevented him from showing the biggest moneymakers at their peak. He pleaded with the studios, insisting they were hurting their own revenues, but they refused to change the way they did business. So in 1958 he sued his suppliers. The trial was held before a jury of Virginians, where his low-key, local lawyer argued that drive-ins should be entitled to play the same movies as the firstrun theaters. The case went so well that the jury never got a chance to decide. The studios settled, giving Redstone nearly everything he wanted.

The Movie Content Business

By the early 1960s, with suburbs growing rapidly, he began to convert his drive-ins into indoor theaters. Profits soared, as he
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was now able to play five movies at a site where hed previously played only one. But in the 70s and 80s, growth began to slow. Although he continued to find good locations and build state-ofthe-art theaters, ticket sales were flat. Cable television was beginning to change the entertainment landscape, and he worried about the future of movie theaters. Redstone saw content as the growth industry. Since he knew movies, he began to invest his profits in motion-picture companies, making substantial investments in Warner Communications, Disney, Loews and, ultimately, Fox and Columbia. Among the companies he invested in was Viacom

International. In 1985, that media firm had gone on an acquisition binge, picking up full interest in the premium cable TV network Showtime/The Movie Channel, cable systems in Washington state and St. Louis, and MTV Networks, which operated MTV, VH1, Nickelodeon and Nick at Nite. Viacom was the flip side of the movie exhibition industry, a highly diversified entertainment company that owned various other cable TV systems, five TV stations and eight radio stations. As well, through its syndication arm, it produced or had rights to favorites such as The Cosby Show and Matlock. Redstone had described Viacom as a sleeping giant about to explode. He bought Viacom stock, not expansively but increasingly, from $26 to $34.50 a share. Then, on Sept. 17, 1986, he awoke to
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find that an investment group, led by CEO Terence Elkes and including some directors, was trying to buy the company for $37 in cash and $3.50 in preferred stock, for a total of $2.7 billion too little in Sumners mind. That stimulated his competitive instincts. He bought more stock, disclosed that hed raised his stake to just under 10%, and began to look at a buyout. The first step was to buy some of the stock owned by Conniston Partners, which controlled 12.4% of Viacom. He couldnt take it all, because that would push him over the 20% level at which a poison pill would be triggered, giving every shareholder extra shares and diluting his interest.

Understanding the Other Side

In every negotiation, Redstone stresses, its vital to understand the other sides goals. Paul Tierney, one of Connistons partners, was clear: Sumner, youre in this thing for the company, were in it for the money. We ought to be able to make a deal. They negotiated for an evening, and Redstone raised his stake to 18.3% of Viacom, buying 2.9 million shares for $43 apiece. But his efforts to make a deal with the insiders failed. It was clear Elkes wanted the company for himself. Although Redstone could have backed off and made good money, this was no longer a question of money. It was about the desire to be the best and to win to have power.
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Redstone was also convinced that the company had a glorious future. To understand the value of a business, in his view, its necessary to be able to anticipate success, not just evaluate current assets. Experience was telling him that entertainment was the name of the game. He was particularly taken with MTVs potential, even though he had no particular affinity for the music it played. He sensed that MTV could be a cultural force in America and ultimately a global brand. So he went for it, and after a prolonged battle in which some of the directors and CEO tried to ignore the bids he made, trumping them with their own, he won, paying $3.4 billion for Viacom.

Buying a Studio
Everyone said hed overpaid. Hed certainly bet all his assets on Viacom. But his vision proved correct. He grew the company and again fought for his interests in the courts, suing Time Inc., which was refusing to show Showtime and The Movie Channel in order to protect its own channels, HBO and Cinemax. The risks were great his other channels might face retribution but he won the lawsuit in the discovery phase, where Viacom found ample documentary proof of Times monopolistic attitude. Now his vision was to turn Viacom into the number one software-driven media company in the world. That meant getting control of a movie studio. The one he had his eye on was

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Paramount Pictures. He was convinced that he could grow Paramount as hed grown Viacom. The problem was that every time he edged close to a deal with CEO Martin Davis, Davis would back off he didnt seem to want to sell. When he finally did, it was to Barry Diller of QVC Network Inc. and cable baron John Malone of Liberty Media. Again, that led to the courts, as Redstone wrote a complaint that began: In the American cable industry, one man has, over the last several years, seized monopoly power. Using bully-boy tactics and strong-arming of competitors, suppliers and customers, that man has inflicted antitrust injury on Viacom and virtually every American consumer of cable services and technologies. That man is John C. Malone. Once more, he was suing somebody who controlled the vital access his channels needed to the public. It turned the battle for Paramount into open warfare which he was to win, after making another deal: buying Blockbuster Entertainment Corp. This gave him access to the video chains large cash flow, and therefore the resources to take over Paramount. As it turned out, however, those resources were wobbly. Blockbuster wasnt well run, and Redstone eventually had to go in personally and straighten it out. He found the economics of the industry ludicrous, with stores unable to afford enough new releases and resorting instead to managed dissatisfaction

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renting customers their second or third choices. That led him back to negotiations with the studios and the development of a breakthrough revenue-sharing format the studios took a percentage of the video rental revenue rather than selling the videos to Blockbuster at $65 apiece. That led to an increase in just-released videos, since the studios had a stake in renting them out. Redstone needed one more deal to complete his empire: CBS. Unknown to him, its CEO, Mel Karmazin, had identified Viacom as a candidate for a merger. He made an approach, even offering Redstone ultimate control. Together, without investment bankers, they negotiated the deal, with Redstone ending up CEO. The owner of a couple of drive-ins now had the content colossus hed dreamed about.

ABOUT

THE

AUTHOR: Sumner Redstone is chairman and CEO of

Viacom. Peter Knobler is co-author of numerous bestsellers.

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