by Kara Swisher
In 1975, for the first time, commercial enterprises were offered the chance to rent space on a communications satellite about to be sent into orbit. Levin, intrigued by the possibilities, had spent some time talking with various satellite entrepreneurs. “I had satellite in my head from that moment on,” he recalled.
Levin proposed that Time rent satellite time in order to beam HBO to cable providers across the country. This would, he argued, make HBO a truly national service—at a cost to the company of more than $6 million. Was this space-age genius, or madness? More than a few of Levin’s colleagues thought the latter, but he eventually pushed the idea through. “Making it a national service, I thought, would also be good for psychological reasons,” said Levin. “It would get a lot more respect around the company.” The satellite move did in fact turn around the HBO division, and it would later be hailed as Levin’s first brilliant technological gamble.
This pattern of making risky technological bets, followed by derision, followed by success, would increasingly be part of the Levin playbook, and it fueled an ever-growing ego. It was a characteristic he would share with another high-tech dreamer—Steve Case, who was still a teenager when Levin was making his satellite bet. And it was a quality that would eventually cause both great problems when they united their companies.
But, back in the mid-1970s, by rescuing then-struggling HBO with this move, Levin solidified his position at Time Inc. and began his rise. Despite his reticent, sometimes awkward manner, he displayed a potent combination of ambition and managerial skill that some would later perceive as conniving.
Emboldened by his successful satellite gamble, in the late 1970s and early 1980s, Levin began urging Time to explore new means of interactivity with its subscribers. Earlier than most other American media executives, he foresaw the approaching boom in what would come to be called the Information Superhighway. But these moves would fritter away the gains he had made at HBO. Most damning were a new subscription television project he spearheaded as well as a groundbreaking teletext service—both of which lost tens of millions of dollars. But Levin was unbowed. He hadn’t found the secret recipe yet, but he was sure it was out there.
Others at the company were not so sure, and Levin’s career would take a hit as a result. His failed forays into new technology and other deals led to his removal from overseeing Time Inc.’s video business in the mid-1980s. Nicholas Nicholas, a longtime rival of Levin’s, replaced him. By 1986, Nicholas had been elevated to president of Time Inc., and Levin, his satellite victory a distant memory, had been stuck with the mushy title “chief strategist” of the company.
Some thought Levin might leave, having been outmaneuvered by Nicholas. But he stayed and threw himself into creating a forward-looking plan for the company. Only now, instead of pushing the latest technological gambit, he focused on something new—a blockbuster merger. Or two.
In 1987, Levin wrote a memo that would chart the future for Time Inc., in a way few in the company could have foreseen. Based in part on notes taken during a conversation with Nick Nicholas (the pair would later disagree vehemently on who was the strategic genius), the memo urged the company to pursue two mergers: one with entertainment behemoth Warner Communications; and one with Ted Turner’s upstart radio, television, and cable empire, Turner Broadcasting System (TBS).
Merging with these companies would, Levin posited, create an “entertainment-oriented communications company”—a brand-new kind of entity that would be able to tell stories in all possible forms. “News is a form of storytelling, and I thought we should get even broader to become a truly creative company,” Levin explained. “And the growth level in the entertainment industry was also important for a publishing company that did not have that.”
Levin knew this would be a tough sell to the conservative Time Inc. board. But as he later told Connie Bruck, author of the superb Master of the Game, the biography of legendary Warner CEO Steve Ross, “I had thought for a long time that we needed what I always referred to as a ‘transforming transaction,’ because I didn’t think we could build ourselves into this new world.”
A decade later, this exact same phrase and sentiment—which he would repeat to me and many others—would lead Jerry Levin into the biggest business blunder of his life.
Revenge of the Nerd
It’s the late 20th century. A group of powerful executives has just announced a megamerger between America’s most influential media company and another, more fast-moving and sexy company, one in a completely different kind of business.
There’s some initial confusion over who has acquired whom, and many observers find themselves surprised at who’s in charge in the new management structure. Employees in the media company end up losing scads of money due to the structure of the deal, and they look enviously upon their counterparts in the flashy company, who’d cashed out handsomely.
Sound like the AOL Time Warner deal? It’s not. It’s the merger between Time and Warner that closed in early January—exactly a decade before the AOL Time Warner merger announcement. By all accounts, many considered it one of the worst mergers ever consummated. Before the AOL Time Warner merger, Time and Warner would play out a dress rehearsal of sorts for that deal.
It was certainly a lively one, even in the wrangling leading up to it. Initially, the deal was proposed as a basic merger and was announced in 1989. Both the Time and Warner sides would be in seemingly equal control of the company in a complex power-sharing management structure. But before the deal could be done, Paramount Communications mogul Martin Davis offered a hostile $200-a-share bid for Time Inc. itself. This was a huge premium over its share price, which hovered in the $125 range.
But rather than taking the money and running, Time executives were horrified over Davis’s unsolicited bid, mostly because the upstart billionaire was not the kind of owner they envisioned for their conservative and respectable selves. Instead, they initiated a costly takeover struggle to thwart Davis by making a counterproposal to buy Warner in cash. The problem was that the move added onerous debt to the deal, turning the merger into an outright purchase of Warner.
Despite its cost, the Time-Warner marriage did produce the raw material for a powerhouse. The $14 billion deal created the world’s biggest media and entertainment behemoth, putting Time’s vast array of magazine and television properties under the same roof as Warner’s music and film divisions. From HBO to Sports Illustrated to Warner Brothers Studios to Atlantic Records, the merged Time Warner now ruled the entertainment world like a king.
Warner executives certainly got a royal payout in the deal, since they were able to cash out their shares immediately. Time Inc. executives, on the other hand, could not. Worse still, they did not have full control over the company either and were forced to share power with those they considered somewhat vulgar. “From the standpoint of the Time executives—who, even decades after [Time Inc. founder Henry] Luce, still inhabited a remarkably genteel, upper-class kind of world—it was one thing to have to merge for compelling business reasons with people whom they found rather déclassé,” wrote Connie Bruck in Master of the Game. “But it was quite another to recognize that those people—after having been acquired, at full price—had the upper hand in terms of both money and power. It was the kind of recognition that tended to inflame already existing prejudices.”
The differences were immediately highlighted at the management’s first off-site meeting after the merger, at Lyford Cay in the Bahamas, an event that would morph over the years into a potent symbol of the dreadful mismatch. “Here was Time with those Oxford shirts and blue blazers, high-WASP and Manhattan,” one high-ranking Warner executive in attendance recalled. “And there was us in pedal pushers and colorful shirts, very Hollywood, very Jewish—even if not every one of us was.”
Or, as another former Warner exec told me, “The Time guys were all interested in lineage—what school did you go to, where were you from? And the Warner guys all wanted to know, what deals have you done? An
d how much did you make on them?”
The problems were, in fact, much deeper than that and longer lasting. A decade later, as I interviewed them about the AOL Time Warner deal, many Time Warner executives spoke of the difficulty of that earlier merger as if it had just happened. They sounded as if the pain of it would never be assuaged—with Time executives still angry at being fleeced, and Warner executives much annoyed at having been painted as gauche and money grubbing.
Perhaps that is because, as many noted, there was never a basic agreement on the culture and attitude of the company from the start. “At Warner, if you didn’t make mistakes, you’d be fired because you weren’t taking enough chances,” another executive said. “At Time, the attitude was, don’t make mistakes.”
It was definitely a rocky beginning, made even worse by the lack of clarity about who was really in charge. While there were all sorts of agreements in place, in practice, the arrangement proved impossible. Jerry Levin was named vice chairman of the new company, while his old rival Nick Nicholas was named co-CEO with Warner’s Steve Ross, a gregarious, energetic businessman who’d transformed himself from a funeral director to the head of one of the country’s biggest entertainment companies in just 15 years.
Unlike Levin, whose blood ran hot at the thought of cables, satellites, and set-top boxes, Ross loved the glitter and gloss of the entertainment world. He counted Hollywood royalty among his friends—including Steven Spielberg and Barbra Streisand, with whom he had very close relationships. He’d invited opera diva Beverly Sills to serve on Warner’s board and moved easily in circles of wealth and glamour.
Ross also was a boss everyone seemed to love, with his junior executives—including the young Bob Pittman—becoming lifelong acolytes. “Steve Ross was my hero,” Pittman has told me many times over the years. Pittman was a Ross favorite, but his sentiment was one repeated by almost everyone who ever worked for Ross, who would often grab different executives and fly off to some glamorous destination for the weekend. He set a tone of a freewheeling culture, where the fun never seemed to stop.
Levin acknowledged Ross’s iconic status, his charisma, and his considerable business talents, but he clearly didn’t worship at the altar of Steve Ross the way others did. “He was someone who had that ‘big man’ syndrome of needing to be bigger than life and wanting to be loved by all,” Levin told me. “Still, as different as we were, I think we understood each other.” Despite their differences, Ross and Levin, the schmoozer and the loner, would end up forming an unlikely bond. It was one that Nick Nicholas apparently didn’t notice until it was far too late.
As the two companies struggled to digest the merger, Levin quickly angled his way into the position of chief operating officer. Over the course of 1991 and 1992, he worked behind the scenes, setting a strategic course for the company and quietly continuing to woo Ross and also his closest adviser and personal friend Oded “Ed” Aboodi. Luckily for Levin, Ross would also soon become disenchanted with co-CEO Nicholas and, according to many sources, would engineer his ouster—from his hospital bed where he was attempting to recover from prostate cancer in the early winter of 1992.
While many believe Levin was the principal driver of that corporate move, most agree that Ross and his lieutenants were behind Nicholas’s ouster for a number of reasons. They felt that Nicholas was attempting to grab power when Ross was ill and cringed at his suggestions to cut costs and also sell off pieces of the company, particularly the music division. Warner was a growth culture, inspired by Ross’s serial deal making and not interested in using cost-cutting and strict management to force change. But Levin helped them actively, lobbying many important figures on the Time side and being the main instigator of what amounted to a palace coup. Soon enough, with board power on the Warner side, Nicholas had angered enough of the power structure that he was pushed aside. (Interestingly, Nicholas’s interest in selling the music business, for example, would have in hindsight been an excellent move at the time.)
Levin—who sounded more amenable to Warner’s dreams and had the support of its powerful division heads—was quickly pushed to the forefront, soon to be named Ross’s new co-CEO. It was from this incident that the quiet Levin emerged with a reputation as a corporate opportunist. Today, Levin readily acknowledges his own ambition in the matter, although in a less vicious light. “I realized I could really run this company, and that something was going to give if Nicholas was running it,” he said.
Two decades after he’d started working at Time Inc., Jerry Levin had made it to the top. And though he was sharing the pinnacle of power with Ross, he would soon have it to himself. By November of 1992, Ross was undergoing chemotherapy treatment and was expected to recover sufficiently to come back to work on a part-time basis in 1993. Yet it was not to be.
At around the same time, Levin had launched an effort to restructure the Time Warner board. As it stood, there were 12 board members from the Warner side, and just nine from Time. With deft maneuvering, Levin managed in just a few months to force through a new, more equal board. It was an impressive display of political power. But quite by chance, it would become public at a high price.
The crucial vote on the new board came on December 19, 1992. Unfortunately for Levin, Steve Ross died unexpectedly the very next day. Levin was forced to release the company’s statement about the board reshuffling—essentially, what appeared to be a minicoup against Ross—on the same day news of Ross’s death hit the wires. Levin insisted to me that Ross knew of his efforts and supported them, although it is not clear Ross had an ability to fight back by then. Levin admitted the move made him look bad nonetheless. “It was unfortunate,” he said.
To some, the timing of the board reshuffling was another callous, nakedly aggressive move on Levin’s part—just the latest feint-and-strike of a corporate shark. But no matter what people thought of his ethics, they had to acknowledge one thing: Jerry Levin, who at first had seemed like little more than a technogeek strategist, was a master of corporate political manipulation.
Or, perhaps, as some think, it may have just been due to a little bit of luck. “If Steve Ross hadn’t died, Jerry would have been gone,” Joe Ripp, who served as controller and later chief financial officer of Time Warner, told me in 2003. Others close to Ross concur, noting that Levin and Ross would inevitably have had a falling out, and that it was likely Ross would have won any battle between them.
But Ross died, and Levin became the leader of Time Warner. While he would never gain strong control over the company, he was its leader and was ready to resume the march to the future he’d been dreaming of ever since his first satellite victory back in 1975. He’d have to fight off one last incursion into his power—beating back a potential takeover attempt by Seagram’s in 1993 and 1994—but this time Levin had no one to stop him.
And as he soon demonstrated, he was ready to move forward quickly with his own agenda—one that would, he hoped, put Time Warner at the forefront of the coming revolution in interactive communications. With AOL, Prodigy, and CompuServe jockeying for position and MSN not yet a gleam in Bill Gates’s eye, the online playing field was wide open. While it had gone public, AOL was still struggling to attract consumers and stay afloat—which might have been a perfect moment for a powerhouse like Time Warner to step in and buy it. But Levin, who never seriously considered AOL as an acquisition target, chose at first to go in another direction.
Full Splat Network
One month after Ross’s death, in his first major presentation as Time Warner’s sole CEO, Levin described the future as he saw it. Time Warner was, he announced, planning a product that would “change the way people use television.” What sounded like a radical idea stood in stark contrast to its desperately dull name: The Full Service Network, or FSN.
FSN was an experimental two-way cable system scheduled for testing in Orlando, Florida, at the end of 1993 (though its launch ended up being postponed a year, to December of 1994). With a specially designed cable box and a subscrip
tion, FSN users would be able to shop, get movies on demand, and play interactive games on their TV sets. And this, Levin believed, was only the beginning. To him, it was the start of Time Warner’s transformation from staid old-guard company into the vanguard of the future. He established an online committee to help guide the company through the FSN launch, other online opportunities in cable, and also the launch of Pathfinder, which would become the most-visited site on the new World Wide Web.
The future appeared to sprawl ahead of him like a limitless plain and Levin finally had the means to make his dreams come true. “He staked out his vision rather boldly,” observed Walter Isaacson, who would lead many of Time Warner’s early online efforts. “I think he was always looking for new ways to deliver information . . . and he had a real sense that the future lay in giving people control of their information.”
Henry Luce III, the son of Time’s cofounder, told me such dreaming took its toll. “Levin put a lot of energy and commitment into the automation of the media and of advances through technology, as well as company money,” said Luce, who served on the Time Warner board until the mid-1990s. “It was almost always a big miss, but he always believed in it.”
Thus, Levin made sure that he’d have the ability—meaning, the cash—to do what he wished by inking a huge deal with the telecom and cable company U.S. West in the summer of 1993. For $2.5 billion, U.S. West acquired a 25 percent stake in Time Warner Entertainment, a division formed earlier from pieces of various Time Warner assets, including its cable and entertainment assets. Announced in May of 1993, the deal was greeted optimistically by Wall Street, boosting Time Warner’s stock by 4 percent.
“The partnership between U.S. West and Time Warner Entertainment,” Levin told the Wall Street Journal, “means the future is here now.” And he even took it an unusual step further. “I’ve staked my career on it,” Levin said about FSN. With plans to invest $1 billion of U.S. West’s money and up to $5 billion of Time Warner’s, FSN would be the biggest risk Levin had ever taken.
