by Connie Bruck
Michael Fuchs, an HBO executive who became its CEO in 1984, recalled that MCA and Paramount were the leaders of the Premiere initiative. “MCA, especially, was very eager to go to war with us,” Fuchs said. “They had been hostile from the beginning. They were so angry that this WASP company had come into their business and built something the movie business should have built.” Through the eighties, Fuchs dealt with MCA a great deal. Universal licensed its movies to HBO. And, also, in 1981, MCA did finally enter the pay-TV programming business, as a partner with Time, Inc. and Paramount in a cable TV service, USA Network. But, whether he was dealing with MCA as a partner or as a supplier, Fuchs said, it was never easy. “They were infused with the idea that they were leaders of the industry. Sometimes they didn’t even have to get the best deal—as long as they were the acknowledged leader. They were the most arrogant studio to deal with, by far. And they were so rooted in the past. Everything was precedent-oriented. This was the entertainment business—and Lew was in his seventies!” Fuchs exclaimed. When he would visit MCA’s Black Tower and see Jules Stein’s antique furniture, he added, “that always symbolized to me where they were.”
Universal Television was no longer invincible, but it did continue through the mid-eighties to be MCA’s most lucrative division. A large proportion of its steady flow of earnings came from syndicating hit series to independent TV stations; and as the number of these stations grew in the eighties, so did the demand for reruns. It was of the greatest moment to Wasserman, therefore, when the Federal Communications Commission in 1983 proposed changing its rules governing the ownership and syndication of TV programs—rules that had restricted the networks and, conversely, empowered the motion picture studios for the past thirteen years. And when it came to waging this critical battle in Washington, the other studio heads put aside past resentments and were only too glad for Wasserman to try to work his political legerdemain.
In 1970, the three main networks—ABC, CBS, and NBC—were capturing about 90 percent of the television audience, and the FCC wanted to curb their control over the distribution of programming, here and overseas. It instituted the financial interest and syndication rules, quickly known as “fin-syn”; among other things, these rules prevented the networks from selling their programming to independent stations in this country, or syndicating them, and also from acquiring a financial interest in programming they had not produced themselves. Fin-syn was a boon to the Hollywood studios; it gave them carte blanche to increase their TV production and strengthen their distribution, here and abroad. It also encouraged the growth of diversified entertainment conglomerates—like MCA—with interests in movies, television, music, and other media. Before, the studios and the networks had been contenders; now, the networks had one hand tied behind their back. Not surprisingly, Wasserman had been a progenitor of these rules. Leonard Goldenson, the longtime chairman of ABC, later said that Wasserman “was in the forefront of those who, in the late sixties, pressured the FCC into barring networks from syndication and from more than token production of programming.”
By the early eighties, the balance had shifted dramatically. The networks were weakened, facing increased competition from new technologies, including cable television. Indeed, an FCC study of the situation, completed in the late seventies, concluded that the fin-syn rules should be abolished. And in early August 1983, the FCC proposed gutting much of its fin-syn rules. “I was in Hawaii when Lew, Sid Sheinberg, and Barry Diller called me,” Valenti recalled. “ ‘We have a big problem. We want to go to war, and you are our commander-in-chief.’ ” Soon, the Commerce and Justice departments filed a series of comments with the FCC supporting the repeal. Valenti was orchestrating furious machinations in Congress—the Senate Appropriations Committee attached an amendment to a bill prohibiting the FCC from spending any funds on repeal of the fin-syn rules. And a group of independent producers testified in Washington about how the repeal of fin-syn would mean far less diversity in TV fare, and likely put them out of business—an argument with considerable merit, though these independents’ effort was quietly organized and financed by the major studios, which stayed in the background. But the most meaningful action took place elsewhere. Larry Levinson, then Paramount’s Washington representative, recalled that the studios were deathly afraid the networks were about to be unbound. “The studios developed a huge war chest—it was the most important of Hollywood issues, ever. But Mark Fowler [chairman of the FCC] was saying, ‘Nuts to Hollywood! We have to have a free market for TV programs.’ Now, Jack Valenti, a Democrat, didn’t really have the access to the Reagan White House—he’d go over there and see Ed Meese [counselor to the president], bring him videotapes—but he wasn’t really getting anywhere. The only way was to have Ronnie contacted (Lew referred to Reagan not as ‘Mr. President,’ but ‘Ronnie’). So there was this conversation between Lew and Reagan. Suddenly, the chairman of the FCC was summoned to the White House, lectured by Ed Meese . . . and the rule was put back. But to give us cover—it couldn’t be that transparent—Jack worked out this prohibition against the FCC using any funds to rescind the fin-syn rules.”
Michael Deaver, deputy chief of staff to President Reagan, confirmed that Wasserman had come to see Reagan to ask that the rules not be repealed, and Reagan had done as he asked. Explaining Reagan’s willingness, Deaver pointed out that Wasserman had been Reagan’s agent, starting in the late thirties, so it was a relationship with a history. “They were friendly, and Lew was very powerful, and he spoke for the industry. And Reagan loved that industry,” Deaver emphasized. “He would talk about it, much more than about the presidency.” Deaver also confirmed that it was Meese who delivered the message to Fowler about “what Reagan wanted.” (Fowler denied that he had acted under orders.)
Asked about his having persuaded Reagan, Wasserman replied, not so obliquely, “Most things in Washington that are done are done quietly—because if you do it publicly, in the House or in the Senate, it can be very difficult.”
The Justice and Commerce departments reversed their positions, to favor the retention of the rules; this was done, admittedly, at Reagan’s instruction. It was, of course, one thing for Reagan to order his cabinet appointments at Justice and Commerce to reverse themselves; and another to interfere with an independent agency. Charles Ferris, the FCC chairman who preceded Fowler, said, “Reagan took Mark to the woodshed, and that was that. It was improper—the FCC is an independent regulatory agency, a creature of Congress.” About Reagan, Ferris commented, “I’m sure he was as casual as could be. He didn’t have distinct boundaries. He probably thought it was okay. Mark Fowler had worked on his campaign in 1976 and in 1980, so he had a preexisting relationship with Reagan.”
Hollywood had averted disaster. It would only be a matter of time before the rules were abolished, but time was money. The FCC was persuaded that the movie studios and the television networks should settle the matter themselves, as Valenti had argued. Bob Daly, then co-head of Warner Bros., who became Hollywood’s chief negotiator in these settlement talks, recalled that the status quo was so favorable to Hollywood that “the object was delay, delay, delay, never make a deal.” Eventually, in 1994, the rules were repealed. “The relationship between Lew and Reagan was really the thing,” Daly commented. “I remember this meeting,” he continued, pointing to a framed photograph of President Reagan with Wasserman, Valenti, Daly himself, and three other studio heads. “It wasn’t to discuss the issue of the financial interest-syndication rules, it was to bless it. And Reagan had a great line. He said, ‘If I had this much attention from so many studio heads, I never would have run for office!’ ”
It must have been a particularly satisfying coup for Wasserman. His world was changing in ways he had not chosen, and some of his industry colleagues had balked at his dominance in the labor arena. But this had been a hard test of his political prowess, and he had passed it brilliantly—for which those colleagues would owe him a debt of gratitude. Moreover, he had secured an enormous, continu
ing advantage in television production, his medium, which had enabled him to control so much of his destiny from the start. That had been possible, thanks to Reagan—as this was now. But even the far-seeing Wasserman could not have imagined, back in 1952, that the complaisant Screen Actors Guild president who was doing his bidding would one day be president of the United States, and doing it again.
Now that Reagan was president, Wasserman seemed to find it a little dislocating; he knew his old client too well. Harry McPherson, who had become friendly with Wasserman when he was an aide in the Johnson White House, recalled an evening at the Reagan White House in early December 1983, at a reception for the Kennedy Center Honors. “Lew and I were standing in the back of the East Room—there weren’t enough seats for everybody. And Reagan started talking in his genial way, reading what had been written for him about the performing arts. I whispered to Lew, ‘I have a feeling this guy isn’t going to run again.’ He said, ‘What makes you say that?’ ‘He doesn’t belong here—look at him! He shouldn’t be president. And I think he’s done the things that are fun for him—he cut taxes, built up the Defense Department, what else is he going to do? I think he’s going to give it up.’ Lew said, ‘You don’t understand anything. This guy’s an actor! This is the best role he’s ever had! He’s not walking off this stage—he’d have to be carried off.’ ”
Several years later, Wasserman had the opportunity to do a favor for Reagan, continuing the pattern of reciprocity that had served both men so well over decades. The Reagan presidential library was to be built at Stanford University, but, after continuing student protests and faculty opposition (on the grounds that the library, dedicated to this arch-conservative president, would compromise the university’s independence), the Reagans in 1987 decided to look for a new site. According to Wasserman, he and Walter Annenberg managed to find a new location, in Simi Valley, north of Los Angeles. When the Reagan Library opened in 1991, it was the largest and most expensive of presidential libraries, and Wasserman was a generous contributor.
Edie and Lew Wasserman in 1986—the year that marked their fiftieth wedding anniversary. Ron Galella/Gamma Presse
By the mid-eighties, on Wall Street and in Hollywood, speculation about the future of MCA was rampant. It was not only that Wasserman was in his seventies, and that the merger-and-acquisition boom was at its height, but, also, that there was a distinct fin de siècle air at the company. It was still powerful, still reaping occasional bonanzas from Spielberg’s films (in 1985, Back to the Future, which Spielberg produced, was the year’s top box office hit). But at a time when the media entertainment business was increasingly turbulent, reconfigur-ing for the future at an ever more rapid pace, MCA seemed to be missing the beat. For some time, Wall Street analysts had been contrasting MCA with Warner Communications, which had of course invested in cable systems in the early seventies, and, also, the video game business, in Atari (that eventually turned out much less well). Then there was Rupert Murdoch, who had acquired Twentieth Century-Fox and started the Fox network, and who—with publications all over the world and direct broadcast satellite services—was attempting to build a global communications giant. While Murdoch was building an empire and Warner diversified adventurously, MCA stuck to its knitting. Wasserman would respond to this criticism (occasionally voiced even by one of his own executives) by saying, “I subscribe to the Rothschild theory. There is nothing wrong with keeping your eggs in one basket, providing you watch that basket like hell.”
MCA did make some effort to diversify—it acquired Putnam Books, the publishing company, for about $13 million in 1976—but its more major initiatives were unsuccessful. Frank Price, who after heading Columbia Pictures returned as the president of the motion picture division at Universal in 1984, echoed Wall Street’s comparison of MCA and Warner Communications. “MCA’s approach was, what can we get at a bargain-basement sale? Rather than saying, the way Steve Ross did, this is our future, we will get it!” In 1976, for example, MCA had set its sights on SeaWorld, Inc., the owner of three marine parks. Adding SeaWorld to the Universal Tour (which was eventually transformed from an industrial tour to movie-theme attractions) would have established MCA as a major force in the theme park business. After MCA made a hostile bid for SeaWorld in October 1976, Harcourt Brace made a slightly higher offer. Mel Ziontz, who represented MCA in its acquisition efforts through the seventies and eighties, beginning with this deal, recalled the debate at MCA about whether to top the Harcourt bid. “When some of Lew’s people said MCA should make a higher offer, Lew started screaming! He said he wasn’t going to get in a bidding war and be made to look like a fool and pay more than the company was worth. His view was that we had to go significantly higher than Harcourt Brace had.” MCA dropped out, and Harcourt Brace acquired SeaWorld. Ziontz said he later ascertained from the SeaWorld side that if MCA had raised its bid slightly, it would have won the company. Jay Stein, the head of MCA’s theme park division during this period, had argued strongly that MCA should raise its bid. Wasserman, of course, was famous for not acknowledging mistakes. Stein commented, “I only knew Lew to indirectly acknowledge a mistake one time, ten years after the fact—but it was huge. He said, ‘Maybe we should have bought SeaWorld.’ ”
In 1977, MCA had tried to buy Coca-Cola Bottling Co. of Los Angeles. MCA made a low offer—$140 million—that was topped by one from Northwest Industries for $200 million. Four years later, Northwest sold Coca-Cola of L.A. to Beatrice Foods for $600 million. In this instance, Arthur MacDonald, the chairman of the bottling company, was offended not only by MCA’s low-ball offer, but also by the phone call he received, in which an imperious Wasserman announced his intention to take over his company. MacDonald and his board fought MCA, and encouraged Northwest.
It was odd, in a way, that the man who had built MCA through his aggressive acquisitions of other agencies should prove to be such an inept acquirer. But MCA had been a private company, making cash deals for other private companies; Wasserman had been able to strike those deals quickly and quietly, making offers that—with the force of MCA behind him—some small companies felt they could not refuse. Now, there were myriad disclosure requirements, and strict protocols for the very public process of making a bid—which generally provoked other bids. For the intensely secretive Wasserman, it was like trying to operate in a fishbowl, and it must have brought back to mind the reasons he had not wanted to take MCA public many years before. “Lew Wasserman did not like tender offers,” Ziontz stated, flatly. “He liked to negotiate in a controlled environment.”
It was partly because of MCA’s failure to make any major acquisitions that it became a more tempting target itself. Hollywood’s largest movie and television production company, MCA also had interests in music, theme parks, publishing, extensive real estate, and a valuable film library; and it was cash-rich and debt-free. Moreover, the company’s breakup value was close to double the price of its shares (at least in part because of the market’s perception that MCA was not being aggressively managed). Jay Stein recalled the first appearance of a predator. MCA planned to build a $175 million theme park in Orlando, Florida, which would replicate its studio tour at Universal. In 1984, Stein recalled, “I made a big presentation to Michael Milken—with all the numbers and concepts. It was one of those early morning meetings with Milken, who was then the prince of princes, and attended by Lew and Sid. Milken was going to give us the money to do the Florida park.” Not long after, Wasserman learned that Steve Wynn, the chairman and CEO of Golden Nugget, had acquired over 5 percent of MCA stock. Milken, the wizard of Drexel Burnham Lambert, who orchestrated and financed with junk bonds many of the takeovers of the eighties, was a close friend of Wynn’s. He had financed Wynn’s acquisition of Golden Nugget, and Wynn was a big buyer of Milken’s junk bonds. “Lew was furious! We had turned over confidential information to Milken,” Stein said, adding that Wasserman believed Milken had activated Wynn.
MCA hired investigators to prepare a dossier on Wynn, and a
lerted its lawyers to prepare to sue him. But those were evidently only backup defenses in case Wasserman’s own rather idiosyncratic approach failed. “Lew called up Steve Wynn,” said Dan Slusser, who worked closely with Wasserman for many years, and said he was present for Wasserman’s call. “Lew said, ‘If you’re buying the stock because you think this is a good company, welcome. If you’re buying it for any other reason—I wouldn’t.’ ”
And that was all it took?
“He stopped buying the stock,” Slusser replied. And, a short time later, Wynn sold it.
An unfriendly takeover of MCA would not be simple, because Wasserman owned about 7 percent of the stock, and he was a trustee of various company trusts established by Stein, which held close to 13 percent; but it was still possible. And Wasserman was worrying, as Stein had before him, about what would befall the company when he became ill or died. While Stein had entertained doubts about Wasserman’s aegis back in 1969, he seemed to feel by the time of his death that he was leaving the company in capable hands. It was clear that Wasserman meant Sheinberg to be his successor, and wanted to protect his ability to carry out that role. What was less clear was whether he felt Sheinberg would be able to keep the company intact on his own.
In 1984, MCA held talks about acquiring Walt Disney Studios when that company was trying to repel the advances of investor Saul Steinberg. “All the terms were done,” said Barry Diller, who had learned what happened from one of the principals. “But the Disney family said that Ron Miller [a Disney executive] had to be president. Sid [Sheinberg] said to Lew, ‘It’s fine.’ Felix [Rohatyn, the investment banker advising MCA] said to Lew, ‘Do it—a year from now, you’ll get rid of Miller, and make Sid president.’ But Lew said, ‘No. Sidney is president.’
“It was Lew’s inflexibility that caused him to blow deals he should not have blown,” Diller added. “He and Jules had built the best company—they should have owned the world. And had they made this deal with Disney, everything would have been different.”
