On the entertainment side, a network combined with the SuperStation could do a better job of maximizing the value of its prime-time entertainment programming. The networks had been so dominant that antitrust rules were created to prohibit them from being vertically integrated and producing this programming themselves. Instead, they licensed the shows from the Hollywood studios and generally paid for the rights to air each one just twice a year. A network like CBS would lease a show like
M*A*S*H
and spend money to build it into a hit, only to have the show’s owner—in this case, 20th Century Fox—sell its reruns to local stations or cable channels. CBS didn’t make a dime from this “off-network” syndication and in some cases the shows were sold to local affiliates of rival networks.
But if CBS and the SuperStation were part of the same company, we could negotiate a comprehensive corporate deal with Fox. After CBS built a show into a hit, TBS would have the option to air the syndicated episodes. By participating in both stages we could reap more value. Our leverage with Hollywood would be improved, and with the same sales force selling shows like
M*A*S*H
on the network and the cable channel, we could strike better deals with advertisers. As a bigger, more efficient company than our network rivals, we could channel our higher profits into bigger bids on high-profile sports rights like the NFL and the Olympics. The list of advantages was long and I was eager to explain my vision to the networks. I was confident that at least one might want to do a deal and join us.
But in the early 1980s, the Big Three networks were insular and didn’t welcome an outsider trying to crash their party. In many ways, they behaved like a cartel. The headquarters of ABC, NBC, and CBS were all within two blocks of each other in midtown Manhattan. All three were profitable. They paid their executives well and when one of them was fired he was usually picked up by one of the competitors. The networks all signed the same contracts with their technical unions, and each one paid roughly the same prices to Hollywood studios for programming.
Relative to Turner Broadcasting, the networks were huge. In 1984, our revenues were just over $280 million while CBS’s were nearly $5
billion
. We managed to turn a profit of just $10 million that year. (CNN and Headline News were growing but still losing a little money—the SuperStation was driving our results with $177 million in revenue and $66 million in profits.) Wall Street recognized that we were improving and now that we were turning the corner to profitability our stock often traded at high multiples. Still, our market capitalization was in the range of several hundred million dollars, while the networks were all worth several billion.
Each of my meetings with the networks took place in their large, well-appointed offices in Manhattan. These were a far cry from what we were used to in Atlanta. At ABC, I met with Fred Pierce, who had recently been made that company’s president. He told me that he had worked his way up through the ranks for twenty-five years and he wouldn’t take a chance on losing control. His opposition wasn’t based on whether it made sense for his company or its shareholders but rather because it might have a negative impact on himself.
I had hoped to speak with RCA’s chairman, Thornton Bradshaw, regarding NBC but I was instead handed off to Robert Mulholland, the network’s chief operating officer. He understood the synergies I outlined and to illustrate one of my points, described NBC’s deal for the hit miniseries
Shogun
. He said that they purchased the right for three airings but only had time in their schedule for two. I said, “That’s a perfect example, Bob. If we were part of the same company, we’d take that third run on the SuperStation and generate another million dollars in ad revenue without spending a penny more for the program!” As obvious as these opportunities were, Mulholland still told me to forget it. “RCA will never go for a merger with you,” he confided. “They just don’t take those kinds of risks.”
That left CBS, whose president was Tom Wyman. He was a likable guy and our discussions were cordial. He said he admired what we were doing with CNN and the SuperStation and he seemed to be enthusiastic about the benefits of a combination between our two companies—enough so that he said he would discuss the idea with his executive committee.
I left Tom’s office feeling upbeat but a few weeks later he called to let me know that the CBS executive committee had rejected the idea. I was never told exactly what their concerns were but I’m sure my case wasn’t helped when
The New York Times
quoted me saying some things about William Paley, CBS’s highly respected founder. They ran a piece in which I took the networks to task for all the sleazy programming and I specifically condemned Paley for letting the “Tiffany Network’s” standards drop so far. Unfortunately, I accentuated my point by saying that Paley had turned CBS into a “whorehouse.” I still tend to speak my mind, but back then I really used to get carried away, and I’m sure this exaggerated analogy didn’t help my chances with CBS’s executive committee.
For their various reasons, all three networks turned me down. But I refused to let the idea of a network-Turner merger die. If they wouldn’t entertain a friendly deal, I’d have to find another way. I’d been an operator my entire career and didn’t know much about unfriendly takeovers but during that time—it was now the fall of 1984—they were happening left and right. I always try to learn from the best, and the most prominent guy in the world of takeovers then was T. Boone Pickens. We hadn’t met but when I called him he appreciated my vision, and agreed to a meeting.
My corporate financial people and I flew to New York to meet secretly with Pickens at a suite in the Helmsley Hotel. He was tall and thin with bright eyes. He was also very smart and engaging and we got along quite well. His experience was largely in the oil business but he grasped the potential of our plan right away. He said he’d think about it and get back to me.
About a week later Pickens called and said he wanted to move forward and that RCA should be our primary target. He asked me to fly down to his winter vacation home in Florida for another private meeting to work through the details. During these discussions, Pickens explained his belief that RCA’s assets were significantly undervalued, and that after an acquisition he could make money selling their nonbroadcast assets (they still owned Hertz Rent A Car, for example) at a profit. Turner Broadcasting would end up with the NBC network, their owned-and-operated stations, and RCA’s satellite business. (Given my history of struggles with transponder access, I really liked the idea of owning my own satellite company.)
Pickens and I agreed that we would work out the mechanics of our takeover strategy and line up the money. He had connections with Drexel Burnham, one of Wall Street’s top investment banks at that time, Carl Icahn, and others, and in those days these guys would get together and go after companies aggressively. My role would be to help him put a value on the television properties and to use my experience and contacts in Washington to sort out the broadcast regulatory issues that this deal would present. It was a promising start but, unfortunately, after a handful of discussions over the course of the next few weeks, Pickens got tied up in a takeover bid for Unocal and told me that he just didn’t have the time or resources to simultaneously pursue RCA. I was disappointed, but I learned a lot from the process and remained determined to keep trying.
Around this time a nonprofit organization called Fairness in Media announced its intention to try an unfriendly acquisition of CBS. The group included North Carolina senator Jesse Helms and they said they were frustrated with what they felt was a liberal bias at CBS News. They encouraged all their members, as well as other conservatives around the country, to purchase CBS stock with the goal of building a large enough ownership stake to dictate policy. (At one point, when asked why he wanted control of CBS, Helms responded simply, “So I can be Dan Rather’s boss.”)
I had met Senator Helms before and he was happy to see me again to explore the possibility of working together. At CNN we were trying to air the news in an unbiased fashion and develop a good reputation with people on both sides of the aisle. (Incidentally, I must really have kept people guessing about my political views in those days. The Fairness in Media discussions coincided with the planning stages for the first Goodwill Games, and on one of my trips to Washington I went straight from Jesse Helms’s office to the Soviet embassy!)
While Helms was most concerned about network news content, I told him that I really wanted to do something about all the sleazy, violent entertainment programming that they ran. These shows drew a large audience and that’s all they cared about. (I remember saying in a speech one time that 70 percent of network programming was trash, and at the cocktail party afterward, a network programming person confronted me about it. I asked him what percentage he would put on it and he said 50 percent. I said, “Well, when I went to school, 50 percent was a failing grade, so based on even your own estimates, you guys get an F.” Another network person once said to me, “You know, Turner, you’ve criticized us network executives for our sleazy programming but I want you to know that in our personal lives, most of us are very upstanding, fine family people.” I told him, “That’s what the Nazis said at Nuremburg!”)
I explained to Helms that it would be impractical to walk in and cancel all these shows of questionable taste. Instead, my idea was to keep the shows, but change their tone. One of CBS’s big hits back then was
The Dukes of Hazzard,
a show in which the Duke brothers were always driving their cars like maniacs and walking away from crashes like nothing happened. My idea was to have an episode where one of the guys hits a telephone pole and is almost killed, and when he’s in the hospital he decides it’s time to make a change. Instead of driving the sheriff and the mayor crazy, he and his brother decide to run for mayor and sheriff and turn the town around. I’d have all the bad guys and negative role models in all the shows change their ways and become good guys!
On
Dallas,
another popular CBS show, the lead character, JR, was a conniving, womanizing oil tycoon. I was tired of seeing businesspeople portrayed as evil money-grubbers and thought it would be great if JR woke up one morning and decided to turn his life around—to become an honest business owner and a faithful family man. To some, my stance may have been surprising coming from someone who was himself struggling in a second marriage, but I always believed that television is such a powerful medium that broadcasters have a responsibility to air programs that featured positive role models.
I think Senator Helms liked what I had to say but after a couple of meetings I decided a partnership with him wouldn’t work. Friends of mine in Washington, including Senator Tim Wirth, cautioned me against becoming too closely aligned with someone as controversial and polarizing as Helms, especially given my involvement with CNN. CBS eventually sued Fairness in Media, claiming that their activities in pursuit of CBS were in violation of laws restricting the political and business activities of nonprofit organizations. While I didn’t follow through with Helms, our discussions only heightened my interest in CBS, and I concentrated on figuring out a way to pursue the network on my own.
In the midst of this activity—March of 1985—came the surprising announcement that ABC was being acquired by Capital Cities Communications. This was big news. At $3.5 billion it was the largest non-oil merger in U.S. history and the deal marked the first time that ownership of a major broadcast network had changed hands. Capital Cities was a much smaller company than ABC and unlike the deals I was contemplating, this merger was friendly. Several important ABC affiliates were owned by Capital Cities and the companies were longtime partners. Also, rather than having to resort to any exotic financing, Capital Cities’ management secured $500 million of the cash that they needed to complete the deal from investor Warren Buffett. (Incidentally, Fred Pierce, the executive with concerns about losing his position after a merger with Turner, was removed from his post after their deal with Capital Cities closed.)
I needed to act quickly. ABC was off the market and speculation was rampant that NBC, a subsidiary of RCA, and CBS were prime targets for takeovers. RCA was too big for me to take on and it’s practically impossible to make a hostile bid for a subsidiary. That left CBS but I was in a tough spot—on my own without big money behind me. I went to Hope Plantation to take some long walks and formulate a plan. I had come to know Drexel Burnham’s Michael Milken and months before he had spoken to me about using high-yield “junk” bonds to raise money for a run at a network. On one of my walks, a new thought occurred to me—what if we offered the junk bonds directly to CBS shareholders? These instruments were very much in fashion but no one had ever tried swapping them directly to shareholders. This would definitely be a unique approach but I thought it might work.
I would need an investment bank to put this all together so I met with the management at Robinson-Humphrey in Atlanta, the same firm that represented Jack Rice when I bought Channel 17. They were also a subsidiary of American Express and I knew the company’s CEO, Jim Robinson, when he lived in Atlanta and I used to try and sell him billboard space. This would be a major acquisition—probably in the $5–$6 billion dollar range, and the bank fees would be substantial.
When the Robinson-Humphrey people presented the proposal to Shearson Lehman, the division of American Express in New York that was best suited for a deal of this magnitude, they were interested. We paid them a million-dollar retainer and after an intense few weeks working on a plan they invited me down to their executive committee meeting in Boca Raton, Florida. I had hoped that we would use these meetings to map out our strategy and the next steps, but instead I was kept waiting outside the discussions, only to be told they had ultimately decided to pass on working with us. At least they returned our million-dollar check.