Fools Rush In

Nina Munk

• Publisher: HarperCollins e-books
• Year: 2009
• ISBN:
  9780061743740
• Topic: Business
• Subtopic: Storia aziendale
• Index: Business

Every era has its merger; every era has its story. For the New Media age it was an even bigger disaster: the AOL-Time Warner deal.

At the time AOL and Time Warner were considered a matchless combination of old media content and new media distribution. But very soon after the deal was announced things started to go bad—and then from bad to worse. Less than four years after the deal was announced, every significant figure in the deal -save the politically astute Richard Parsons—has left the company, along with scores of others. Nearly a $100 billion was written off and a stock that once traded at $100 now trades near $10.

What happened? Where did it all go wrong? In this deeply sourced and deftly written book, Nina Munk gives us a window into the minds of two of the oddest men to ever run billion-dollar empires. Steve Case, the boy wonder who built AOL one free floppy disk at a time, was searching for a way out of the New Economy. Meanwhile Jerry Levin, who'd made his reputation as a visionary when he put HBO on satellite distribution, was searching for a monumental deal. These two men, more interested in their place in history than their personal fortunes, each thought they were out-smarting the other.

PART ONE

“Resident Genius”

From Time Inc. to
Time Warner, 1923–1998

ONE

BY ALL ACCOUNTS, HENRY ROBINSON LUCE WAS ENDOWED WITH moral certainty at birth. Born in 1898 to American missionaries in Tengchow, China, Harry, as he was known, was a precocious and serious-minded child. At the age of five, as a diversion, he delivered religious sermons to his playmates. Later, turning to journalism, which he referred to as a “calling,” he wrote: “I believe that I can be of greatest service in journalistic work and can by that way come nearest to the heart of the world.” His father had devoted his life to proselytizing; likewise, Harry Luce would set people on the highway to truth. Making money was not his goal, as the terms of Luce’s will would later make clear: “Time Incorporated is now, and is expected to continue to be, principally a journalistic enterprise and, as such, an enterprise operated in the public interest as well as in the interest of its stockholders.”

When he was fifteen Luce arrived in America to attend Hotchkiss School. From there he went on to Yale. He was an exceptionally gifted student: he wrote poetry; he became assistant managing editor of the Yale Daily News; he graduated summa cum laude; he was admitted to Phi Beta Kappa; and he was voted “Most Brilliant” in his class. Harry Luce was most likely to succeed.

In the early 1920s, while he was working as a reporter at the Baltimore News, Luce, together with a former classmate from Yale, Briton Hadden, decided to start a weekly magazine called Time. A summary of the world’s most important news, it would run articles of no more than four hundred words, or seven inches of type; it would also deal “briefly with EVERY HAPPENING OF IMPORTANCE,” as Luce and Hadden explained in their prospectus. Unlike the Literary Digest, an existing summary of the news, Time would have a clearly defined point of view: “The Digest, in giving both sides of a question, gives little or no hint as to which side it considers to be right. Time gives both sides, but clearly indicates which side it believes to have the stronger position.”

In early 1923, having raised $85,675 from seventy-two investors, Luce and Hadden published their first issue of Time. Only twenty-eight pages long, the entire issue of volume 1, number 1, dated March 3, 1923, could be swallowed and digested in thirty minutes or less. “It was of course not for people who really wanted to be informed,” sniffed W. A. Swanberg in his definitive 1972 biography of Luce. “It was for people willing to spend a half-hour to avoid being entirely uninformed.”

Those who worked for Time were rewrite men whose job was to shrink and condense articles from The New York Times and New York World, transforming them into “Timestyle,” the quirky prose for which Time became famous (or infamous). Together the men invented neologisms—telescoped words like “socialite,” “cinemaddict,” and “guesstimate,” for example. They also revived arcane terms such as “tycoon” (Japanese for “great ruler”) and “pundit” (Hindi for “learned man”). Deeply in love with adjectival phrases (“To Swanscott came a lank, stern Senator, grey-haired, level-browed”), Luce and Hadden claimed they’d been influenced by Homer’s Iliad with its inverted syntax and double-barreled epithets (“white-armed Hera” and “grey-eyed Athena” and “horse-breaking Trojans”).

Time was pilloried by intellectuals. Parodying Timestyle for a 1936 profile in The New Yorker, Wolcott Gibbs wrote: “Backwards ran sentences until reeled the mind…. Where it will all end, knows God!”

In 1929, just as Time was becoming successful, Hadden died of a streptococcus infection, and Luce took over, borrowing money to buy Hadden’s share of their company. He was thirty-one years old. Before long, Hadden would be a footnote in the history of Time Inc.

With a circulation approaching three hundred thousand, Time was now sufficiently profitable that Luce could afford to expand. Determined to spread his “fantastic faith in the industrial and commercial future of this country,” Luce launched Fortune in 1930. Six years later, in late 1936, he introduced his most spectacular success, Life magazine. Its purpose: “To see life; to see the world; to eyewitness great events; to watch the faces of the poor and the gestures of the proud.”

Within hours of its arrival at newsstands, Life was sold out all over the country. Struggling to find enough coated paper to meet the demand, Luce couldn’t publish enough copies. Even he had never imagined Life would be so popular. After just four weeks, Life’s circulation was 533,000; no magazine in American history had passed the half-million mark so quickly.

Sports Illustrated would come next. In contrast with Life, however, Sports Illustrated was not an immediate success. Launched in 1954, when spectator sports were looked down on as fodder for the working classes, Sports Illustrated was ahead of its time. But Luce was fully committed to his new magazine. Before long Sports Illustrated would broaden the appeal of spectator sports and change the way they were covered.

LONG BEFORE SPORTS ILLUSTRATED HAD BECOME PROFITABLE—even before it was launched—Luce had become a media baron. By the early 1940s, one in every five Americans was reading a Luce publication. Company revenues were $45 million. Emboldened by the success of his publications, Luce increasingly turned them into vehicles of political and moral propaganda. Money had never motivated Luce, but power did.

In 1941, decrying isolationism, Luce argued that it was time for America, the world’s most powerful nation, to fulfill its duty to humanity. The twentieth century, he stated famously in an editorial written for Life, was “the American Century.” Americans had to “accept wholeheartedly our duty and our opportunity as the most powerful and vital nation in the world and in consequence to exert upon the world the full impact of our influence, for such purposes as we see fit and by such means as we see fit.”

Luce’s magazines promoted interventionism. They also attacked the New Deal, defended Chiang Kai-shek, advocated an aggressive attack on godless communism worldwide, and encouraged Americans to vote Republican. Luce’s strident voice and his partisanship enraged critics; some people said that he was single-handedly responsible for the cold war. Even his correspondents complained that their reporting was skewed to fit Luce’s worldview, his agenda. Theodore White, Time’s correspondent in China during the 1940s, protested that his dispatches were being willfully ignored. When White reported that Chiang Kai-shek had become a corrupt dictator, Time’s rewrite men and censors in New York had him glorifying Chiang and the Kuomintang. “Any similarity between this correspondent’s dispatches and what appears in Time is purely coincidental,” read a sign posted on White’s office door. T. S. Matthews, an editor at Time from 1929 to 1953 (and managing editor from 1949 to 1953), left after falling out with Luce. Luce, he wrote, “began to entertain the delusion common among press lords: that he could control and direct the enormous influence his magazines exerted on public taste.”

Utterly convinced of the “righteousness” (a word he used often) of his causes, Luce dismissed his critics. “I am a Protestant, a Republican and a free enterpriser,” he declared. “I am biased in favor of God, Eisenhower and the stockholders of Time Inc.—and if anybody who objects doesn’t know this by now, why the hell are they still spending 35 cents for the magazine?”

By the 1960s, Time Inc. had reached its glorious peak. Time had become a staple of the (not entirely uninformed) American middle class. Tall, slender, blue-eyed, gray-haired, thick-browed, Luce (a heavy smoker) influenced every aspect of American life. As his obituary in The New York Times would later confirm, Luce “helped shape the reading habits, political attitudes, and cultural tastes of millions.” At the beginning of the decade, the company moved into the new Time-Life Building at Rockefeller Center, an awesome $83 million, forty-eight-story steel-and-glass skyscraper that reflected the empire Luce had built. The building’s lobby featured shimmering brushed-steel wall panels, an undulating gray-and-white terrazzo floor modeled after Copacabana paving in Rio de Janeiro, and two immense abstract murals, one by Josef Albers, the other by Fritz Glarner. The ground-floor restaurant was designed by Alexander Girard. The eighth-floor auditorium was designed by Gio Ponti. As for the executive floor, where Henry Luce’s office was located, it “proclaims the presence of powers,” a critic remarked at the time: “Sleek, sharp and obviously expensive, these offices achieve the impossible: overstyled understatement.”

Of every advertising dollar spent on consumer magazines in the 1960s, thirty-three cents went to Time Inc. publications. Life, which by that time had a circulation of seven million, accounted for seventeen of those thirty-three cents. In all the American corridors of power, Time was required reading: every Sunday night in the early 1960s, at the personal request of President John F. Kennedy, an early copy of the magazine was delivered by special messenger directly from the printing plant to the White House.

Radiating the confidence of an enterprise that knows its place at the heart of the world, Time Inc.’s culture was based on entitlement and old school ties. Back then, virtually all Time Inc.’ers were male Ivy League graduates; most of them were WASPs. On closing nights at Time magazine, bow-tied waiters served beef Wellington (filet of beef covered with foie gras and wrapped in puff pastry) and chicken divan (sliced chicken breast and spears of broccoli covered with sauce Mornay and baked until golden brown). A well-stocked drinks cart was pushed through the offices, with highballs (whiskey and soda) and French wine for Time’s gentlemen writers and editors, until reeled the mind. On the street, chauffeurs in Carey Cadillacs were waiting to take them home.

Outsiders rarely gained access to Time Inc.’s exclusive club. John Gregory Dunne, who worked at Time from 1959 to 1964, explained how the system worked: “I was twenty-seven when I was hired, and an ignoramus, vintage Princeton ’54,” he wrote in overstyled understatement:

I got my job because a woman I was seeing on the sly, Vassar ’57, was also seeing George J. W. Goodman, Harvard ’52, a writer in Time’s business section…. Goodman, I was informed by Vassar ’57, was leaving Time for Fortune, which meant that if I moved fast there was probably a job open. I applied to Time’s personnel man, a friend, Yale ’49, and was in due course interviewed by Otto Fuerbringer, Harvard ’32, and Time’s managing editor. The cut of my orange and black jib seemed to satisfy him, and the $7,700 a year I was offered more than satisfied me, and so a few weeks later I went to work as a writer in the business section, although I was not altogether certain of the difference between a stock and a bond, and had no idea what “over the counter” meant.

Here and there on the editorial staff you’d find the odd Jew or African American. (Not on the business side, though.) One black writer felt so vulnerable at Time Inc. that he carried a knife to work. The most senior Jew at Time was Henry Anatole Grunwald, an extraordinarily talented editor who’d escaped from Austria in 1938 when it was annexed by the Nazis. Asked whether Grunwald would ever be promoted to the top job, a colleague remarked: “He’s short; let’s face it, he’s fat; and he’s Jewish. Can you see him as a boss of all those WASPs at Time?”

There was really only one boss, one editor, at Time Inc., and it was Luce. Refusing to take the title of “chairman,” “president,” or “publisher,” Luce referred to himself as “editor in chief” of Time Inc. (The editors of the individual magazines were known as “managing editors.”) Luce’s first responsibility was not to his shareholders; his title made that clear. His company’s mandate was to educate and serve the public—the millions of readers who were being shown life and the world and great events through Luce’s eyes.

To make ends meet, someone had to sell advertising, of course; but moneymaking was undignified. In the words of one executive, the people working on the business side of Time Inc. were “galley slaves.” Control was in the immaculate hands of editors, who were all-powerful and infallible. In Lucean terms, they represented “the Church,” to which “the State” (the publishing or business side) deferred. “The managing editor of a Time Inc. magazine,” Luce once remarked, “comes as close as anything in America to being a czar.”

When Harry Luce died on February 28, 1967, just short of his sixty-ninth birthday, Time Inc.’s revenues were $600 million. At his death, he beneficially owned 1,012,575 shares of Time Inc. Representing 15 percent of the shares outstanding, Luce’s stake was worth $109 million and paid an annual dividend of $2.4 million.

Luce’s funeral was held on March 3 at the Madison Avenue Presbyterian Church, where he had worshipped since 1924. Among the eight-hundred people present that day were former vice president Richard Nixon, New York governor Nelson Rockefeller, and Barry Goldwater, the former senator and presidential candidate. The church was filled with 140 floral arrangements; a cross of white flowers was sent by General and Mrs. Dwight D. Eisenhower. In a public statement, President Lyndon B. Johnson declared: “Henry Luce was a pioneer of American journalism.” To commemorate his death, Luce’s photograph appeared on the covers of both Time and Newsweek.

FOR A FEW YEARS AFTER HIS DEATH, THE COMPANY HENRY LUCE had built remained unmistakably his. It was high-minded, self-righteous, and Protestant; it was also insular.

Imitating the gestures of the proud, Time Inc.’s editors still took it upon themselves to dictate the course of national affairs. Here’s a telling anecdote. During the 1972 presidential campaign, editorials in Time and Life suggested that Richard Nixon’s vice president, Spiro Agnew, was not fit to be president. In response, Agnew invited Hedley Donovan, Time Inc.’s editor in chief, and Henry Grunwald (who after Luce’s death had, after all, been named managing editor of Time) to the Executive Office Building for lunch. The editorials had been unfair, Agnew objected. Why, Life had said he was not intellectually qualified to be president! “My I.Q. happens to be 130,” Agnew asserted. “And in any case, is it for Time to decide who is qualified to be President?”

Donovan, looking Agnew in the eye, replied matter-of-factly: “First of all, Mr. Vice President, you work for us. You’re a public servant. The reason we say these things about you is that we believe they are true. You are not qualified to be President, and we have a responsibility to tell our readers.”

Time Inc.’s editors had always been arrogant, but now they were increasingly out of touch. By the early 1970s, fewer and fewer people cared what Time had to say about anything. The magazine had grown stale. Comparing Time to its biggest competitor, an advertising executive told The Wall Street Journal in 1969, “Newsweek has a fresher feel to it; Time seems rather tired.” Fortune, meanwhile, was losing readers to Business Week, to Forbes, and to The Wall Street Journal. As for Life magazine, it was shut down in 1972, having accumulated $47 million of losses in the previous two years alone. To the horror of Time Inc.’s Brahmins, their once noble company was increasingly being defined by supermarket magazines. Insiders referred to Sports Illustrated, with its annual swimsuit issue, as Muscles or Jock, just as they referred to the company’s new Money magazine as Greed. People magazine was launched in early 1974—“A cross between Women’s Wear Daily and Silver Screen,” observed one insider. Someone else added: “It violates everything Luce stood for. It has no redeeming social or educational qualities whatsoever.”

JERRY LEVIN MADE HIS WAY INTO TIME INC.’S PATRICIAN ENCLAVE almost by accident. Time might have reported it this way: To Time Inc. in the early 1970s a clever, ambitious, slight, slope-shouldered, mustached, son of a butter-and-eggs man from South Philadelphia, a Jew, came. “You’ll never make it there,” his father, David Levin, predicted. “Everyone knows they’re anti-Semitic.” But his son Jerry had arrived at just the right moment: Time Inc. had been in decline since 1967, the year of Harry Luce’s death.

Television, not print, had become the great mass medium. An entire generation was being raised on The Brady Bunch, Hawaii Five-O, and Swanson TV dinners with their little compartments. As fate would have it, Jerry Levin wound up in a small, overlooked corner of the Time Inc. empire devoted to television.

In the 1970s, Time Inc. was saved by a minor, almost casual investment in a New York City cable television company—Sterling Communications, founded by Charles (“Chuck”) Dolan. At a time when cable TV was almost unheard of, Dolan had come up with the crazy idea of wiring Manhattan for cable. Because its densely packed skyscrapers interfered with television signals, Manhattan had some of the worst TV reception in the country. It was the perfect market for cable, but still, wiring the city for cable was a huge job. In remote ...