EXCLUSIVE: As we watch Rupert Murdoch attempt a colossal Time Warner takeover, who better to evaluate its merit than Jerry Levin. He steered Time Warner as chairman/CEO for many years, adding Ted Turner and AOL along the way. A retired philanthropist and chairman of StartUp Health, Levin is still paying attention and is therefore better suited than most to explain the complexities of Murdoch’s ambitious plan and its far-reaching impact. He was gracious with his time and wasn’t interested in sugarcoating, so buckle up.
DEADLINE: Rupert Murdoch sees a match in Fox and Time Warner. All I see is a collision of duplicative assets, pink slips, two major studios making fewer movies, and nothing here that empowers creativity. Obviously I’m naive. What value do you see in a union between Fox and Time Warner?
JERRY LEVIN: None at all. It provides great theater; everybody gets excited when there are large transactions in the offing with iconic brands. But the fact is, it makes no sense, culturally or creatively. It’s not good for movies, and television, and storytelling. All it is is a financial construct that gets Wall Street going with valuations. It is so disruptive, particularly when you’re talking about two studios with vastly different cultures of their own. When you put these things together, usually there’s a push from Wall Street to cut back and make sure there are the right synergies, which there usually aren’t. It just means a lack of focus and trying to harmonize the cultures, particularly in this case, it doesn’t make any sense to me at all.
DEADLINE: So why is this being regarded by some as an inevitability? Is it just because Murdoch has billions in credit lines to up his bid?
LEVIN: Historically, I go back as far as 1983 when Rupert was not in the movie business. It was the first Allen & Company conference. There were five of us there, and he mosied over to me and said he was really interested in getting into this thing called the movie business. He asked what I thought was the best studio at the time. This preceded Time Warner. I said, well, Warner Bros., in my view. And he actually made a run, unsuccessfully, before he poached Fox. Not that I don’t respect all he’s done, but to put Rupert and his sons in charge of Warner Bros. and HBO, it makes no sense to me.
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DEADLINE: That’s where I was going. Longtime readers say the publication is noticeably different. So even though they say things won’t be different…
LEVIN: It never happens. It never happens. They’re not going to run independently because there’s the pressure to merge and purge.
DEADLINE: Is it inevitable that as an owner, you will impose your sensibilities on your acquisition?
LEVIN: It’s human nature. We forget that these are real people, they have emotional backgrounds. They have inbred perspectives, and even if they dress it up in the form of business strategy or corporate strategy, it’s really coming from a set of human emotions. Everybody’s a different individual, and that has to have an effect on the company.
DEADLINE: There has been such great pressure on Sony since they had some flops last summer that rankled shareholders like Daniel Loeb. The result has been layoffs and defensive moves made out of fear, something that seems to have become more prevalent since conglomerates took ownership of these studios. Patience has gone by the wayside. Back in the day, were there more confident film and TV people willing to make decisions from their gut, and were the overseers more patient and not obsessed with instant results?
LEVIN: Absolutely. This is all about your gut. Even with tracking studies, and research, and financial analysis, no one has ever come up with the magic formula. So it’s all about your gut. It’s all about taking risk, and as a company, you have to stand behind this risk-taking. Sometimes it’s crazy, and that’s the process that results in a great film. If there’s financial pressure because you misfired a couple of times, that pressure is antithetical to a free-form movie business. You just have to have that risk-taking perspective, and that’s why this is interesting. It may be that the conglomeration of studios is very similar to what happened to the legacy companies in other media. They’re going to fall prey not to this kind of consolidation, but to the 21st century companies that have a very different entrepreneurial spirit and actually encourage craziness. They’re non-hierarchical. That’s why I’ve always been fascinated by the massive change that’s coming as a result of these new-age digital companies. If you want to talk about the ability to generate creativity, they may have the better handle on it than some of the traditional companies that are now totally corporatized.
DEADLINE: Are you saying that if you were Jeff Bewkes at Time Warner, your company might be better off making an alliance with the guys who created Google than someone steering an established media company where the innovation is to eliminate duplicative assets and personnel to favor the bottom line?
LEVIN: That is exactly what I am saying. Everybody says, oh, well, this will be terrible for the market if you get a Google and a Time Warner. But just to use that example; what business is Google in? Google is in the content business with YouTube, and at the same time, it has a culture that says, we’re going to finance anything that’s crazy, anything that looks like a moonshot. There is an algorithm of creativity there. There’s a technical term, massive disintermediation. All that simply means is that you no longer have it the way we used to have it, with production companies, or distribution companies, or exhibition companies. Now you don’t have that anymore.
DEADLINE: What do you have?
LEVIN: With the Internet, you have the immediate ability to produce something and get it out to the world instantly. So you don’t need the normal pipes or the normal distribution. All you need is a platform. Well, who’s got the best platform to get things out? It’s companies like Google. Apple and Amazon are trying as well, and you see what Netflix has done. Where is the next home for the creation of storytelling that gives latitude to insane creativity? Because that’s what this is, an insane business. You have to be a little nuts to do it, and you have to finance this kind of thinking outside the normal brain of programming. Instead of having film one, two, and three in a multiple series, or as you said, a tentpole or something that’s guaranteed to work, why not go for the moonshot in creativity? The business needs to be renovated. It’s not in a great state, and you can see that this year just in terms of performance. Where’s the creativity coming from? It’s coming from everywhere, in all sorts of places. It’s on YouTube. It’s on Netflix, FX, AMC, Showtime and HBO. It can come from anywhere, but is it coming from the six studios in some meaningful way? No. As much as I love the business, it needs to change. It needs to be transformed.
DEADLINE: I’ve covered film for 25 years. When I watched True Detective and the truly disruptive nature of what Matthew McConaughey, Woody Harrelson, Nic Pizzolato and Cary Fukunaga built over eight hours, it made me lament the lack of nimbleness in the feature business. I interviewed McConaughey on a Monday, and so the weekend prior, I watched the entire thing on my iPad. Creatively, they delivered character development impossible for a feature, and then made it easy for me to watch when I wanted to. The film business, by comparison, overspends on P&A, and cannot make the product user friendly because it runs afoul of theater owners. Will this ever change?
LEVIN: The business has to be transformed. What you just described is the split I call not only digital disruption, but massive disintermediation. You were able to watch True Detective and McConaughey in all its glory, in one binge viewing on demand, on a mobile device. That is the future. That’s where the creative storytelling business is going, and that’s why the film studios must come up with something different, not just big action tentpoles. Something different, character driven, maybe a comedy that you haven’t seen in a while, a nice going out experience. The appeal of that going out experience is still there, but the quality of the film has to be substantially improved because we’re in a phase now where there’s subscription on demand, streaming, mobile devices. That’s the business, that’s where people are going. That’s the most natural way to consume the story.
There’s irony here is, that will sound like self-justification though I don’t mean it that way. When we started HBO in 1972, the concept was to have a subscription service, and it was the most primitive on-demand. We just repeated programs so people could find them when they wanted, but we knew it was the end of the network concept, where I could just ladle out programming as I wanted to program it. Now, the consumer is programming. That’s the disintermediation and the studios have to get on board. Rupert’s idea in putting Fox and Time Warner together is an old fashioned idea. It makes no sense in any respect. It’s not forward looking. What you just described is forward looking. It’s getting into the story creation that takes into account this mobile distribution where you can watch everything, all at once, or whenever you want to. It doesn’t have to be some set environment, some tentpole that costs a couple hundred million dollars with marketing expenses that really up the ante so all you’re looking at is for sequels or sure things. There’s no sure thing in storytelling, it’s all about doing something that’s innovative and creative.
DEADLINE: Besides McConaughey, there are guys like Kevin Spacey, who experimented in the multi-platform feature with Margin Call, and then anchored the binge-viewing Netflix extravaganza House Of Cards. He told me his mantra now is, if you give the people what they want when they want it, they will not steal it. If you were running Time Warner now, how would you address this quandary: the current system means those who want to see a movie but won’t go to the theater are forced to wait six months to see it, or else steal it with a few clicks on their computers?
LEVIN: Well, see, that’s why what Kevin did was brilliant, which is to change the whole distribution focus. What happened is, you have the legacy constraint of theater exhibition and then multiple network exhibitions, and that has nothing to do with the way the consumer wants to consume the product. The idea of day-and-date on a mobile device is like what happened in sports. By making all these things available in sports, people still show up to the stadium. It hasn’t taken that away. If you make it accessible, then I think you hit the nail on the head. Forget about piracy. Don’t worry about the live gate. It’ll all take care of itself if you give them the concept of day-and-date. Put it in the home. Put it on a mobile device. That drives the theaters crazy. The current system makes no sense in the 21st century.
DEADLINE: They ended apartheid and tore down the Berlin Wall. These theater chains poured the brick and mortar, maintain the facilities. They’ve got a lot at risk. Is there any way they can find a formula with the picture makers that protects each side and embraces a more efficient delivery system?
LEVIN: Theaters have been remade for digital presentation with a satellite connection, so that they can stream something live. They have a lot of options now that build on the notion of making it accessible to have a social experience in programmed events and storytelling and motion pictures that give people some kind of extra social experience. They have the digital capability to present live events from London or anywhere else, the opera, and also to have some kind of day-and-date only time only experience. They’ve got to figure that out, but at least they’ve empowered it with the digital capability. It reminds me of the old days when we, in the ‘50s, to try and compete with television, did road show movies and made it a special event reflected in the ticket prices. There were intermissions. What happened to bookstores? How have they adapted to, “I can get anything I want on Amazon?” They’ve made the bookstore an experience. There are cafes. There are presentations. I mean, there are so many parallels now. All the old business formats are going to have to give way to some form of digital presentation.
DEADLINE: You brought up bookstores. Amazon became the largest book distributor. Now they’re starting their own Netflix-type subscription service with books on their Kindle devices, and when publishers aren’t happy with price policy, their books get delivered late. That happened with Hachette. Doesn’t that tell us all we need to know about when companies get too big and have too much power?
LEVIN: Well, that’s why, if you’re a company now, you’ve got to change. Amazon’s starting to make programming. Everybody needs to adjust. I don’t try and justify anything I’ve done, but there was no question in my mind that the Internet was going to change the face of what we used to call media, and unless you figured it out or got on board, you were going to be relegated to being a sideshow. That is precisely what’s happened here. It’s all about digital platforms. It’s not about pipes anymore, and on the one hand, you could say we’ve got more creative programming now than we’ve ever had, but on the other hand, we have a lot of stuff that’s still backward looking.
DEADLINE: There are some who’ll read this and say, wait a minute. Jerry united Time Warner with AOL in a gigantic merger and the stock price went down. When you look back on that, is there something that you thought you saw with AOL that wasn’t really there, that is worth considering as we try to digest the prospect of this massive Fox-Time Warner merger?
LEVIN: It’s an important piece of history. Back then, there was a culture clash that was almost non-resolvable and undermined the merger. So that’s something to keep in mind. The other thing is that the Internet was at an early stage; AOL and all the companies were being substantially overvalued. I thought we could take a media company and give it an injection of the Internet. The Internet wasn’t far enough along at that time. Today, I think it’s very different. We have companies that have substantial distribution and massive worldwide access on the Internet. At the time with AOL, we didn’t have the kind of video distribution that anybody can do. So, part of the lesson is, sometimes you’re a little early, and the timing on that was not good. But it was a people issue, too. So those are the two lessons. A: make sure that there’s some form of cultural compatibility. B: ensure that the digital transformation media parts of the company can take place because you’re far enough advanced to make it happen.
DEADLINE: What is intriguing there is, if you were advising Jeff Bewkes, it sounds like you would tell him to do the same thing you did. Partner with a company in the digital space.
LEVIN: Yes, I would. Everyone will probably say, well, that doesn’t make any sense because AOL and Time Warner didn’t work, but that misses the point. It’s now 14 years later, and companies in the legacy businesses still haven’t figured out how to make it work. By that I mean the publishers, and the media companies, and the communication companies that are wrestling with, how do I either protect myself, or how do I get on board? It’s 14 years later, and they still haven’t figured out what role to play in the digital world. So, my view would be, yes, it would make more sense for Time Warner to be a part of digital platforms. The only reason I keep mentioning Google is I think they have the culture. Just the way they’re organized, they’ll finance within the company what they call moonshots, projects that sound like they have no chance of succeeding. Frankly, that was my own experience. We experimented with Teletext in 1980 before there were computers. We had the first on-demand service in 1993. They all failed, or they were viewed as failures. Yet, in fact, they provided the keys to the future. You have to fail in order to succeed.
DEADLINE: I remember when people thought it an inevitability that Ted Turner would fall on his face when he leveraged himself to get broadcast rights of the MGM films which enabled him to launch cable channels. He launched CNN, which was revolutionary in its time, and all of which Time Warner acquired. Where are those guts at traditional companies, the notion of building something new? Has that ambition stopped?
LEVIN: Just look at the record. Where’s the innovation coming from? It’s not coming from the media companies that we know. It’s coming from these start-ups and the digital companies. There’s more activity. I happen to be involved now in health care because it’s a passion of mine. There’s so much excitement happening. These young digital entrepreneurs who want to change the world; nothing will stop them. They’ll just keep using the technology until they figure it out. The corporate environment does not reward that kind of failed experimentation. It is quite the opposite, and what is the creative process? It’s all about probing, failing, experimenting until you hit the right chemistry. That’s what entrepreneurship is. So, to me, those are the watchwords for where the great companies of the future are going to be.
DEADLINE: So little is now spent by studios on feature development and producer overhead deals compared to when you ran Time Warner that agencies routinely put together all these movies with elements and scripts and funding, and studios bid to put them on their release slates. That happened the other day when TriStar won the auction for the Jodie Foster-directed George Clooney film Money Monster. The R&D just isn’t the priority at studios anymore. Long term, what does that do to a company like Warner Bros. which had a reputation of being a place where there was always going to be the next Harry Potter?
LEVIN: Again, you put your finger on it. A studio is not about having sets to make movies on. The studio is a home on the lot for as many producers, as many guys and women as you can handle, not looking for some kind of metric for their output, but letting them percolate and marinate ideas. When it becomes about spending all the money on tentpoles, and cutting back on your producer deals, you destroy the concept. Any conventional financial analyst will say, why are you spending on that? Look at the track record. They haven’t come up with anything big in the last year. But if you’re loyal to those producers, through thick and thin, someone somewhere is going to come up with an idea that’s going to make it big. The only way that happens is just to let a thousand flowers bloom. Let as many producing companies as possible flourish. That’s why you do need financial capacity, and some of these digital companies have that. If you look at the market cap of Apple and Google or the amount of cash they have, they have the financial capacity. If you just combine that with what we’re describing now, which is to support creative process by just putting the money there and not expecting an immediate return, letting as many ideas float as possible, well that’s the creative process. You don’t see that in financially-driven, Wall Street-pushing conservatism.
DEADLINE: What you just said reminded me that IFC chief Jonathan Sehring told me that every year in annual meetings, he was asked why he was spending money on some Richard Linklater project, and when would it be done. He would shrug his shoulders and say, I don’t know. So 12 years later, Sehring empowered Linklater to make Boyhood, this time-lapse narrative movie where we see a family age in real time, and it has gotten the best reviews of anything in 2014 and has Oscar potential. Is there something in your own experience where you or one of your underlings followed their gut and allowed something to flower that resulted in something great that went against the zero patience mindset we see today?
LEVIN: Well, in the ’90s, we shot Lord Of The Rings, three films at once. Even though there was a book, the research suggested that that was a huge gamble, and to put the money up front and shoot three films at once, that had not been done before. We let it happen even though it was beyond any financial parameter because you knew what you’d have to spend to distribute it. But it worked because they were actually very good films that won Academy Awards.
DEADLINE: Ted Turner used to warn that Rupert Murdoch didn’t really value the public’s need for fair and diverse journalism. We saw the whole mess with the UK hacking scandal at Murdoch-owned publications, and the subjective tone of Fox News. Time Warner still has CNN. Should the public fear not just that Time Warner might be sold, but that it might be sold to Rupert who has a competing 24-hour news network?
LEVIN: Absolutely. I had a lot to do with bringing CNN onboard, because I thought it should be in the hands of Time Warner. There was a time when Rupert, and GE, were circling around trying to go after CNN. I think it would be a disaster in terms of information for the public if that ever happened. Now, apparently, what Rupert has said in the proposal is that they would spin off CNN because there’s no way the government would permit otherwise. But it goes deeper. You make a distinction between CNN and HBO, and if you look at Bill Maher, and John Oliver, what’s the distinction between news and comedy and news and satire? Do you want the Murdoch philosophy superimposed on Bill Maher? Give me a break. You would not have his voice. Whatever you think of him, it’s important for him to have expression.
DEADLINE: You watched Jeff Bewkes grow up. He seems the reverse of you, who acquired companies. He has sold spun off some that didn’t quite fit, and now his company is vulnerable. When we look at your strategy and the Bewkes strategy, what does Murdoch’s aggressive takeover offer tell us about which is the right one?
LEVIN: First of all, Jeff worked for me early on and came on board in the video group, which was the precursor to the management of Time Warner. He then spent his career at HBO, where he was perfect in all respects. We identified him as a future CEO because he had financial skills, and the right personal sense of values. But he has…actually, no buts about it. He is exactly what I think the Street would be very happy with, and that’s what he’s done. He’s pared either those assets that were non-performing or that didn’t fit with the core mission as he was describing it. As a result of that philosophy, the company is of a size now that is potentially a takeover target. Whether that’s good or not from a shareholder point of view, he’s been very good to shareholders.
What this suggests is, you’ve got to look at the personalities of the CEOs. They’re human beings. They have emotional backgrounds. Jeff was an extremely bright, financially astute executive. My view was to build not the largest company, but the most impactful company in storytelling because I thought we could operate in what I would call the public interest through stories and all media forms. We could help change the world. That was my view. We started by putting Time and Warner together and then Turner together, AOL, and that was the concept. We were in all the media businesses, and that’s a reflection of individuals. That was me, and this is Jeff. There are also cycles to this. There is de-conglomerization, where things are spun off, and then there’s a return to size and conglomeration. The one thing I would say, and I hope I can say this understandably is, it doesn’t make any difference anymore. What business a company is in has no relevance anymore because of digital capacity. Everybody can be in every business. Those ones and zeros don’t know whether they’re carrying a telephone conversation or a movie, and so, if you’re in the new-age business, you’re already a media company. So the definition of what the core business is, and the stripping away of non-performing assets doesn’t make as much sense anymore. It’s so hard for me to get this idea out, because it doesn’t seem to have a kernel of essence to it. In fact, what business is Twitter in? It’s actually as much in the news business as a news network, because a tweet can deliver a piece of news, around the world instantly. Well, that’s what we wanted to do with CNN. What business is Facebook in? I’ll stop pontificating, but…
DEADLINE: Say we are all playing on the same playing field in this digital age. If you still had the keys to the camper, where would you steer this company, and what would be the future that would allow you to win if basically everyone can be viable no matter how big or small they are and you’ve got a huge infrastructure?
LEVIN: Spend, spend, spend on development. Try and find as many what we’ll call, idea-generating production units, producing units, young people. It doesn’t matter the age, background, sexual orientation. I would finance as much of that as possible without regard to some kind of financial stricture that prevents that. That’s what I do because, ultimately, let’s assume I’m running a company that has the digital platform. It then becomes all about programming. You always get back to storytelling, and how you finance it, and how receptive you are to as much experimentation as possible. So, it’s no longer the case where I have a big library and I’m one of the six companies that has been there since 100 years ago. That’s not going to make the difference anymore. The difference is going to be putting your money into non-traditional forms of creation of programming.
DEADLINE: If you were going to drop a wager on what will happen, is Fox going to pull off its Time Warner takeover?
LEVIN: I don’t think so. I think there are too many impediments, even though Rupert usually gets what he wants. I do think there is another shoe to drop. At this point, because of the Wall Street dynamics, Time Warner is in play. The logic would suggest that something is going to happen. It’s not going to remain as is, and there’ll be a shareholder desire to want to cash in to the maximum feasible extent. Something else is going to happen, another transaction that’s going to change the profile of the business. I don’t think Fox will be successful, and I think it would be unfortunate if that ever occurred.
DEADLINE: What should Time Warner do to leave itself less vulnerable down the road? We didn’t hear this talk when they had the traditional magazine publishing arm, even though many saw that as a dinosaur business…
LEVIN: I’m not sure that Time Warner should do anything other than what Time Warner’s doing; the board is pointing out exactly why the Fox approach does not make the financial or cultural sense. There’s also the valuation issue. If you said, what are the crown jewels of Time Warner, you look at HBO, you’d have to give it the same valuation that Netflix has. Then you would get a much higher valuation than anything that Rupert is talking about.
This interview originally posted on Friday, August 1 at 11:37 AM.
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