For the non-Australians out there - Channel 9 is the once dominant TV network in Australia with a "galaxy of stars". It had the largest revenue base and the largest profit. It has lost both positions. It was once owned by Kerry Packer. It is now owned by private equity firm CVC.
This is a highly parochial book for me to review – but hey – I do media stocks as well as financials – and Channel 9 is a very salutary lesson. Further Channel 9 is likely to come back to market as the LBO which owns it likely has trouble. When you read this book keep in mind the main commercial difference between print and TV. In print if you do not like what you see you turn the page. In TV you change the channel. In print the media company keeps the customer. On TV they just lost them. It is the fundamental difference in driving programming and management style.
And this book is fundamentally about managing a mass-market TV station – a job which – as a first requirement – ensures that people don’t change channel.
As it about management let me start with a management story. This I think is the key to determining the ultimate success of a big media conglomerate – and it is one of the hardest things for a bean-counting stock analyst (me) to do well.
Steven Spielberg’s flop and some lessons
Once Steven Spielberg made a commercial flop. The film was 1941. The next film he had a constrained budget. It was Raiders of the Lost Ark. When making that film they ran low on money – and they had a scene which was going to cost the then princely sum of $2 million to shoot. Senior cast and crew sat around trying to work out how they could do it for cheaper. The problem was that there was a baddy out there who Indianna Jones just had to get past – and there was going to be (another) over-the-top battle scene.
Harrison Ford suggests “why don’t I just come out and shoot him?” Everyone rubbished the idea – it was going to make the hero (Indianna Jones) look like a callous thug, not a swashbuckling Errol Flynn. But Harrison Ford pulled it off with the appropriate level of disdain – and it is the single funniest moment in the film.
Now this lets you know what Hollywood has known for a while – which is that Harrison Ford really is a genius.
But it tells you a few other things:
- Budget and artistic (and even commercial) relevance are only weakly correlated, and
- Actors, mid ranking staff and all sorts of other people when working collaboratively in an atmosphere of trust can make fabulous decisions which add to the bottom line.
No Taylorist management school or top-down bean counter is going to achieve this. What is required is a fairly hefty level of trust and mutual respect.
Bean counters and the Nine network
The theme of the book is what happens when a Machiavellian bean-counter is put in charge of a creative enterprise. That bean counter is Gerald Stone's anti-hero – one John Alexander. JA runs a minimalist aesthetic lifestye – he is married to a famous photographer and reads high-brow books. He was a successful print executive and never really got the difference between print and screen.
It is not that someone like JA wasn’t needed at Nine. Entertainment figures at a highly profitable enclave (and Nine was such a place) can become ludicrously indulgent. They are amongst the few who can match hedge fund mangers for seeming petty indulgence. And even that is alright whilst everything is going well. But Nine faced the pressure that free-to-air media companies have everywhere – new media and a fracturing audience and advertising market.
The problem is how do you keep camaraderie and appropriate teamwork whilst ripping out costs? In other words how do you get Harrison Ford to just come out and shoot him?
When I put it this way I know why I don’t manage (and never want to manage) a large media company. It is REALLY hard. You need to be a hard bastard who people respect (to keep the costs under control) but you also need to inspire the sort of team loyalty that keeps the creative types (who are peculiarly hard to manage) happy and productive. The people in the industry are paid very well (five to ten times average wages does not appear uncommon) but – except for a few – they are not paid like hedge fund managers.
It is about as far from managing Walmart as it gets. Walmart burns through literally millions of staff members (associates) and has a system which keeps their training and hiring costs low. They would like to build team camaraderie – but not at the expense of paying substantially above minimum wages. (If you are interested compare to Costco.)
A lot of America has a first-in, first-out attitude to hiring and firing so expensive (senior, older) people get fired first. In many industries this is shareholder friendly – but it doesn’t build a sense of lifetime belonging as per Japan. [Sacking older-female on-camera staff however appears as prevalent at Nine as anywhere in the media.]
Australia has produced a fair number of the likeable and inspiring hard bastards required for the job of managing media companies. They are throughout News Corp – and are part of the Rupert Murdoch success story. Rupert himself is one of them – and from what I know the key son (James) has the right stuff. (Lachlan seems more intellectual - and a little less hard - but that is the perception of someone who has met him only twice even though he lives 200 yards away.)
Kerry Packer – who controlled Nine until his bad health caught up with him – was of the same type. Intelligence is not the defining requirement (though it helps). It is about personality. Some of the best media executives (Sam Chisolm springs to mind) keep an office which looks like an extended bar. They drink with the staff – but decisions are made, handshakes are honoured and the staff feel they belong and are valued.
The book contains a number of Kerry Packer anecdotes. Anyone who dealt with the (truly frightening) man has them. Here is an oft told story about Kerry Packer which is the sort of stuff that produces both the requisite fear, loyalty and creative inspiration needed to run a media company. I quote:
Channel Nine's brilliant head of entertainment, Peter Faiman, remembered that the hardest thing he ever did in his career was to try to tell Kerry he intended to resign to work for Rupert Murdoch. Packer kept demanding to know what Murdoch at Channel Ten could do for him that Channel Nine couldn't.At every excuse - more money, wanting to do something new, establishing his own business - Packer kept hammering away with just one powerful line: "I can fix it."Faiman felt more and more desperate until Packer, the master negotiator, finally brought the tense confrontation to a head."So son, what do you want to do now?""Oh, Kerry, please, I feel like shooting myself."Faiman will never forget the next moment. Packer reached into a drawer, pulled out a huge western-style six-shooter and slammed it down on the desk in front of him."Well, I can fix that, too," he smiled.
Well JA might have been the bean-counter that Nine needed – but in Stone’s view he was the Machiavalian anti-hero – the guy who dismantled the culture that made Nine great.
Its hard to see who Packer (probably the younger James who ran it whenever Kerry’s health packed up) should have appointed to do the bean-counter job – the guy that could keep the creative baby whilst throwing out the expensive bathwater. One executive I can think of is David Hill – then a Nine sports executive – now running Fox Sport for News Corp after a stint as head of programming for DirecTV. That job requires a lot of negotiating with over-priced sports content providers. Still whatever – JA had only half the skills required for the job in Stone’s view. Peter Faiman (The guy who did not shoot himself) should also have been a candidate. Faiman runs FX for Rupert these days.
Handshakes and stock analysis
Gerard Stone makes the point that once upon a time a handshake was the bond of Nine. A deal was negotiated with talent (a small production company for a TV special for instance – of with key staff) and cemented with a handshake. Contract details were drawn up later – but always reflected the handshake deal. As the internal politics of Nine became worse the handshake became less and less honoured to the point of full dishonour. In individual deals (screw-overs really) this deal saved Nine money – and added to the bottom line. But over time it increased the cost of negotiating and (more importantly) created an us-versus-them culture between creative staff and management. The loss of the handshake as deal was symbolic of the control of the legalistic rather than creative bean-counters and the symbol of the demise of the Nine dream machine.
Staff turnover is common enough at media companies. Creative types get fired. Programs get axed. Its not a good sign – it pleases me that Jim Gianopoulos – the key executive at Fox Studios – has been there so long – especially as his touch looks so golden. But firing and change is not necessarily bad. It leads to renewal.
If the media types who read this blog – and I know there are a few – could tell me which execs do not honour handshakes – it would be much appreciated. It would help with the stock anlaysis.
Bean counters and private equity
Now having read a book which was really a few hundred pages of well argued diatribe against John Alexander I have to leap to JA’s defence.
Packer junior sold Nine to private equity. He did it with indecent haste after daddy died.
He got a fantastic price – and CVC who run the place have probably done their dough.
JA still works for James Packer – and remains highly respected – albeit disliked by many.
If the goal was to keep as much of the super-profitability of Nine throughout the next twenty years of fracturing media audiences then JA almost certainly was the wrong man to do the job. But if the job was to strip costs, keep the contract negotiations in check – that is to promote the bottom line above audience and by implication the bottom line over production values – then there is little evidence that JA failed.
And the billions that young James received for the network is proof of that.
So maybe private equity more generally could be Gerald Stone’s anti-hero. The desire to flick Nine for lots of money to dumb buyers might be the ultimate answer to Gerald Stone’s whodunit.
Some hope for the future
Nine – at least the CVC buyout version – has some financial difficulties. They may or may not be terminal. But now David Gyngell – a true media creative exec – is back as CEO. Gyngell may have been best man at James Packer’s wedding – but I think he was probably as close to Kerry as James. He certainly shared Kerry’s love of TV. Whether he is the fully fledged inspirational hard-assed bastard required for this job – well I will leave that to people closer to the situation.
The appointment of Gyngell reflects well on CVC. So I probably am over-stretching to paint private equity as the villain. In the intersection of finance and media remains more complex than that. And that is why media stocks are such fun.
Post script: boning Jessica Rowe
I can’t review this book without mentioning the single most famous incident in the demise of Nine. Mark Llewellyn was demoted as head of news and current affairs and told to eat a “shit sandwich” by management. He left for a competitor and was sued for breach of contract.
His sworn affidavit included all sorts of juicy bits including editorial interference in news by JA. In Australia that could cost the TV station its license.
But the most famous bit of the affidavit was the instruction to sack Jessica Rowe – the attractive – but no longer in her 20s host of a fading morning show. The phrasing: “what are we going to do about Jessica? When should we bone her? I reckon it should be next week.”
The expression to bone someone has become so widespread since in Australia that it rates a mention in the Macquarie Dictionary of Australian English.
If you really want to amuse yourself – and you are seriously interesting in media – the Llewellyn affidavit is here.
Jessica Rowe and Eddie McGuire later made up for the cameras.