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It's great to be here, really is for me, after the last couple of days, maybe I'm just imagining, I imagine this is a relatively friendly audience after the last couple of days.
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I've been here twice before to give what you call this view from the top talk.
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And the first time I was still running HBO and that did feel like the top.
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Second time was at the Time Warner Parent after the AOL merger.
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And I think I was here to tell you about it.
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That was the View from the bottom.
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>> [LAUGH] >> So today I think that Time Warner is getting a little traction.
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So I guess I would call it the View on the Way Back or the Upwardly Mobile View, hopefully not the Status Seeking View.
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So whether it's leading from the top or whatever you call it, it's not an easy thing, and it's a little bit relative what you call the top.
1:07
So you gotta throw in a presidential quote in every address.
1:12
Here's what Harry Truman said about being the president.
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He said, quote, I sit here all day trying to persuade people to do the thing they ought to have a sense enough to do without my persuading. I think it's true. More about that later.
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So today, what I wanted to talk about and the advice I got from the guys that run this about what you want to hear about, rather than the deep strategy of Time Warner or something like that, is the journey of leadership, how to do it, what goes on what do you want to do?
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How do you know what you want to do?
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I think you're all pretty ambitious to be here, but you gotta figure out where to aim that.
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So maybe it sounds a little 1970s, maybe it sounds a little Californian.
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That's how I think of it, because I come to visit here and I think of it such an enlightened place out here.
2:12
But it's a problem that all of us have, figuring that out.
2:16
And I think it's true that those kind of, I wouldn't call them exactly personal questions, but the questions for each of us of when we decide to make a major change, they're usually the more determinative things.
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They're not really going to be a failure of your intelligence or failure of you to do the work.
2:42
You're probably pretty diligent.
2:44
It's going to be a question of if you, those, those hard to assess things, did you choose the right thing?
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The other thing is those kind of decisions come at surprising times.
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Sometimes you can think some of you might be casting around you don't know what to do when you're 25.
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There's plenty of people I know that have that, call it a crisis at 45.
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Try to figure out, all right, I've been doing this so long, now what do I do?
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So, what do you call Stanford Business School?
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Well, I think you call it a good start.
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So you did get here, and that's a good thing.
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So it reminds me, as you try to figure out, and some of you are getting out now, what should you choose?
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There's a story about a guy, let's call him Mr Smith.
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He wanted to win the lottery, and all he thought about was winning the lottery, but nothing happened.
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So after a while, he took up prayer, and he pretty soon was playing three times a day to win the lottery.
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And a week went by, a couple of months went by, nothing happened.
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Finally, he went to a cathedral.
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He walked up to the altar and he put his hand on the big Bible there.
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And there's thunder sounded the roof open and a voice thundered out, smith, buy a ticket.
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>> [LAUGH] >> So that's what we're saying here.
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For you to get to these decision points and make it happen, you're obviously going to have to commit yourselves.
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And as you do it, you'll often have that question, am I making too much of a commitment?
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How long of a commitment?
4:22
What kind of a commitment?
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So going back to Stanford, I mean, where are we if we're sitting here? Well, it's a good start. At least it was for me.
4:31
And just a serious observation that I've seen, because I see a lot of graduates of other schools, I think Stanford really is a bit on the unique side in terms, I mean, you all know, we all talk, as Stanford Business School people, about the smallness and some of the benefits of that.
4:53
But the other one, really, that the balance between the academic and objective base of what you learn, and the case application is pretty good.
5:04
It really does seem to work.
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It's a good way to learn over the years.
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It's not, at least I don't think, what you know as you get out of here.
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It's what you are set up to learn as you go forward.
5:19
So whether you're going into large caps, small caps, venture capital, private equity, manufacturing, service consulting, whatever it is, I know there's a lot of pecking orders that try to establish themselves here about those things, but I'm not preaching any particular course.
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I would say this, and maybe it's obvious to everyone, all of these choices can be unconventional.
5:48
Or conventional, depending on how you look at them and how you do them.
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And all of them can be equally adventurous, even the ones that are not thought to be adventurous. You never know.
6:00
So reminds me, for me, it's a question for you, trying to figure out what fits you.
6:06
I was one who found what seemed to be a pretty conventional choice turn unconventional.
6:13
And so I had kind of, as Bob mentioned, I had a great kind of lucky break when I was here at Stanford studying.
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I got dragooned into working part-time at Sonoma Vineyards, which was up in Healdsburg.
6:27
And my job, which was not anything like as fancy as the things I was learning in the class here.
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My job basically was keeping track of how many gallons of which red or white wine was in which barrel, higher, lower quality, try to figure out how to sell it, what price to put on it.
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And it was a classic case, as I could see, immediately of applying the linear programming that we were learning here.
6:59
because other than that, I could not figure out what the hell use linear programming could be.
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[COUGH] So of course I didn't use the linear programming.
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I had a piece of paper and I wrote down where we stashed all this stuff and then we just trial and error how to sell it.
7:18
So the technology for that may not have been very inspiring, but the motto of the company was inspiring, which was we drink all we can and we sell the rest.
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>> [LAUGH] And actually, that's why I was there.
7:38
But when it was time for me to leave, I had to go back to the same question of what to do next.
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And I remember it was, I think it was about this weekend.
7:48
Wasn't this the Kentucky Derby that just happened?
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It was that weekend I had a crisis because I had made a commitment and I tried to, I did actually get out of it, and I was trying to figure out what to do.
7:59
So I had a number of choices.
8:00
And just for me, talking about me, from consulting to consulting, investment banking.
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I had an ad sales job for a TV station which was paying at that time, twice the average Stanford salary, and then there was a job in commercial lending at Citibank.
8:20
But let's make the choice a little starker.
8:22
Back then, the Citibank job, clearly the most conventional, they were taking 250 MBAs, it was paid about half what the consulting and other jobs did.
8:33
I had no intention of going into banking as a career, so of course I took the Citibank job.
8:41
So why, what was I thinking?
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Well, part of it was I didn't know what I wanted to do.
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So I thought that Citibank would be a good grounding in all the different disciplines, particularly for going into corporate life, which I vaguely thought I ought to do.
8:58
But there was an exotic twist to this job, which I'm just saying it so you don't think I was crazy when I took it.
9:05
I was going into the shipping division and they had an international element to that, and so you could move to Hong Kong.
9:12
And I had this plan, which I told all my fellow graduates at Stanford, say, why are you going to Citibank?
9:19
And I defended it by saying, well, I'm going to go to Hong Kong.
9:23
They said, well, that sounds exotic enough, otherwise you're really pretty boring, basically.
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>> [LAUGH] >> Speaker 1: So I went in the shipping department and and we were lending money.
9:36
It wasn't the shipping department, the back office, we were lending money to ships.
9:41
And I was learning all this finance and international accounting and government rules across the planet.
9:48
But what I really learned, it's a kind of little takeaway, I hope for today, is it's not really all about MBA tools and analysis.
9:56
Because one of my clients was the Onassis Group, and one day as I was wearing my suit and tie, because at the Citibank you were fairly well dressed, and I'd like to put that out in my defense.
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>> [LAUGH] >> Speaker 1: I got a call, it was a frantic call from Christina Onassis, this is 1976, no, 78.
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Remember, her father, Aristotle, had just died, she had taken over the company.
10:28
And she was calling from Athens and she was very upset because there was a lot of Cold War tension at that particular month.
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And she was convinced that the Soviets were coming into Athens.
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And so she wanted me to ship $25 million of gold bullion out of Greece into New York so it would be safe, get it out before the Russians get here.
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So this was not my normal business problem.
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>> [LAUGH] >> And it was lunchtime, she wanted to know, she was dinner time for her.
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My boss was off playing squash, his boss was at The Brook Club having lunch, I couldn't figure out what to do.
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She was going to call me back to get confirmation, so I panicked.
11:21
I thought, all right, where do I go?
11:23
I went to the back office where the overworked, overlooked clerical staff was underpaid also they were.
11:32
And there was a woman back there named Mrs.
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who I'm sure had seen her share of clueless MBAs over the years.
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Told her my thing, she was very patient, she kind of smiled at me, and she said, Jeff, you don't ship the gold, you sell it in Athens, you buy it in New York.
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She picked up the phone 20 seconds later, done.
11:58
>> [LAUGH] >> Speaker 1: So I was saved by Mrs.
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from my first high profile client disaster.
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And I learned what would be the best advice that I can give to you.
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Whatever you're going to do, whether it's a small thing, small company, a big company, you're going to need help from everyone that works around you.
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You're going to need help from rivals, superiors, subordinates, however you look at them.
12:31
If you're the CEO, and particularly of a big company, you're going to need even more help because as we all know, CEOs are supposed to tell everybody what to do.
12:45
But a lot of the time what I find is that you have to find out what to tell them from them, because it can't be a surprise to you.
12:56
It's really like a case when you read a case, who wrote the case, right?
13:00
For you, somebody wrote the case.
13:01
If you're in a business, nobody writes the case, the case kind of emerges.
13:07
I'm thinking about the ethics case we had over the last couple of days.
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It comes in from the press, it comes in from your employees, it comes in from all over the place.
13:17
And what you're trying to do is assemble what is the question.
13:21
And in order to get that, you're in an iterative process with all kinds of people at all kinds of levels to try to figure out what is the issue that needs a decision, what level should the decision come at.
13:34
And, of course, because of everybody's either insecurity or the power struggle that goes on, are you going to get an honest answer from anybody?
13:44
Are you going to get an honest view of what can be done or what is really happening or whatever the lay of the land is?
13:52
And because of these power dynamics and the way people don't want to fall short, there's all kind of reactions we have to this kind of pressure or this kind of aspiration.
14:04
And one of the things that always puzzles me probably in any organization, but it sure is visible in a big organization, is when ambitious and well educated people spend all their energy managing up, trying to figure out how to focus or please upward.
14:25
And it's pretty logically ridiculous to spend your time doing that.
14:30
Because if you actually succeed at what you're doing, you end up in a position where the one thing you practice you can't do, you're now managing the rest of the company.
14:41
There's nobody left to manage up to.
14:45
And so what we all really need to do, and this is certainly true, it's not really just true at the head of a big company, it's also true if you're a division, project head, or anything else.
14:54
I'm sure you see it in your work groups here.
14:57
You need to be able to get information, convey information, make clear what your decision process is, what you're thinking about all the time in real time.
15:09
You need to get in information from them and you need to get it out all the time so people can help you focus.
15:17
It actually helps you to focus to defocus sometimes.
15:21
And if you don't, you can fake that, you can think of it as, I don't know, some kind of political skill, it's not really.
15:31
Everyone always knows what is true and insincere, they really do, they can smell it.
15:37
And so if you don't really believe that it's not going to work.
15:40
And if people don't trust that you sincerely want and will accept their opinion, including their disagreement and their criticism, they're not going to give it to you, they're going to shade it.
15:50
And so then you're not really going to know what is out there and what the problem really is.
15:55
Maybe it's a much bigger problem than you knew, but nobody wants to tell you, so, So I have to throw in somebody else's wisdom on this.
16:04
Casey Stengel managing the Yankees basically said, the key to a successful leader is somebody who can keep the people who hate him away from the undecideds.
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>> [LAUGH] >> So, I know that it may sound that what I'm talking about is popularity or I'm not talking about popularity.
16:24
You're going to have to make hard decisions, you're going to have to make unpopular decisions.
16:29
You're going to have to take initiative.
16:30
You can't do always what comes in from out there.
16:34
But when that happens, and that's not most of the time, but it's some of the time, you're going to need cooperation.
16:41
You're going to need honest relations to find out.
16:44
And the bolder it is what you're doing, the more honesty you need from everybody because they know that you're invested in it.
16:52
So it gets that much more sensitive.
16:55
Well, back to me, because there's an old Hollywood saying, enough about me, let's talk about what you think about me.
17:04
>> [LAUGH] >> Eventually, I realized that I did not come from the right family to go into the shipping business or to prosper in it.
17:13
So I left Citibank in 1979 to join HBO.
17:18
And as my Citibank boss said at the time, when I told him this, he said, are you going to Morgan?
17:23
I said, no, I'm going to HBO. HB, what?
17:27
He said, because back then it was just starting. Bob said it already. So he took my joke.
17:34
We had 200 people working there.
17:37
I took the lowest job at HBO at the pay grade that it was.
17:43
I'm going to throw it out for you.
17:45
I don't want you to disrespect me now.
17:47
>> [LAUGH] >> $20,000, now I know you guys know about inflation and everything.
17:54
>> [LAUGH] >> In those days, you could get $40,000 in investment banking and consulting. I could get that. Didn't do it, take that. So I was number 201.
18:06
I think that was on my door 201.
18:08
And what attracted me to it is that HBO was on a mission, still is, which was to create a new kind of television.
18:17
And as Bob said, it's been around long enough now, as long as most of you have been around.
18:22
It doesn't seem maybe so revolutionary to you now, but back then, the idea that you could create any kind of television network on the premise that you're getting people to pay for the program.
18:38
When all of this high quality program programming was available for free, that was certainly a new idea, pretty big question.
18:45
Nobody knew if it would work, but that was just one of the things we didn't know.
18:49
We didn't know, should you pay by the week or by the month?
18:54
Should you have movies or something else when it was mostly movies?
19:00
If you're going to have movies, should you have all the movies, which is what all the other paid channels that we're building had.
19:07
Should you have exclusive movies?
19:10
For the first ten years at HBO, every movie on HBO was on Showtime and the Movie Channel.
19:17
And yet HBO had a 70% market share, which it still has.
19:23
But the one thing, maybe we didn't know those things.
19:26
There was one thing we knew for sure, and that was and this was biblical for us.
19:33
HBO cannot, should not do television series, can't do it.
19:39
It's hard to believe that maybe now, but back then there was no question in our minds that only the big broadcast networks could do that.
19:46
Because you got to remember what it was like back then.
19:48
It was their exclusive province.
19:50
They had 90% of the audience.
19:52
They had 100 times the money to spend on cirrus.
19:58
And as you probably most of you know, still true today, when you're doing network television series, you remember the fall pilot season and all that.
20:07
Only one out of seven of the new things work.
20:11
The rest of them are pulled.
20:14
So as we thought about doing this, we had enough money for three series.
20:22
So we figured, okay, under the odds, I mean, if you're back in the MBA analysis, one out of seven worked, we got enough for three.
20:30
That means we could go spend all of our money.
20:33
Likelihood we fail on all three, we're dead and we're embarrassed.
20:40
Let's focus on that embarrassment thing, not a small thing.
20:44
Do we really care about business failure or do we just care about personal embarrassment?
20:49
I leave that as an ethical question for you.
20:53
So what we had to do is we had to get kind of used to the idea of courting failure, trial and error.
20:59
At HBO, what we want to do is we said we wanted to revolutionize TV, weren't sure how to do it, but facing that thing where we knew if we trial this stuff, it's going to fail, it kind of liberated us.
21:12
It became a kind of a genetic trait of people that worked there.
21:18
And I throw it out to you because if you've gotten here, it's not probably part of your aspiration to have a lot of failure in your week.
21:30
But it's worth thinking about, a little failure isn't such a bad thing, it can teach you, for one thing, what you don't want to do. Tried that, didn't work.
21:40
Okay, I'm not going to do it.
21:43
So the most important thing really at that company HBO was not something like the Sopranos.
21:49
It was the fact that there were 2,000 people there and they all knew whether it was finance, marketing, higher, lower.
21:56
Everybody knew what the mission was.
21:58
Everybody was focused on the same thing.
22:00
A lot of our creative partners would come to me.
22:03
It was the biggest thing for me, the thing I liked the most about what we accomplished and said, I've never worked for a company where everybody you talk to is thinking about the same thing.
22:14
If you can do that in whatever venture you're in, that's not just a business success.
22:19
It's going to create a very different human environment for what you're trying to do, particularly if you're trying to do something really new.
22:28
So that kind of focus or steadiness at that company is, I kind of throw it out partly to invite questions about it.
22:38
But it is pretty unusual in the media business over the last 25 years to have that much consistency in what your mission is and how you're executing it.
22:48
Think what's happened in that time period.
22:49
All the broadcast networks have changed hands some more than once.
22:55
The audience for broadcasting went from 90%, which it was throughout the lifetime that we had 90% down to less than about 40% today.
23:05
All the movie studios, the seven majors, their names have changed hands and most of them have bought TV networks that they now try to use to supply each other.
23:17
Over in the cable television industry, the one that all of HBO, MTV, CNN were in, we started out with 100 material sized cable companies.
23:28
We're down to really five.
23:30
Some of us would argue it was three.
23:33
In addition to that, we've had the satellite companies coming in.
23:36
Now the second biggest cable equivalent company isn't a cable company, it's DirecTV, a satellite company.
23:45
And now the telephone companies are coming in.
23:47
And then of course, the cable TV business isn't the cable TV business anymore.
23:52
It's the video, voice, data, phone and certain wireless business.
23:57
That means if you're one of the, We do at Time Warner, trying to manage our cable company.
24:03
We're in the telephone business as much as we are in the television business.
24:11
So, I like to tell this, I have to, it's just fun for me.
24:16
Talk about failure, maybe, or luck, not sure which it is.
24:22
I think they go together in some ways.
24:25
We did a lot of things we weren't allowed to do at HBO for obvious reasons.
24:29
And so we did the thing that we knew you couldn't do, we decided we have to go into series programming.
24:36
With the movies, we know what's happening to that, we're going to have to do series. So, what do we do?
24:43
Well, not only do we have that cost problem, we had no schedule to launch the series in.
24:47
But the first big gamble, as you all, I think, know, was the Sopranos.
24:53
And I remember it like it was yesterday, the day I met the man who brought the Sopranos to HBO.
25:01
I walked out on my driveway on a Sunday morning to get the paper, and this guy stepped out of a late model sedan parked in front of my house.
25:13
He told me that he had an idea for a television show and he wanted to come in.
25:23
>> Speaker 1: [LAUGH] >> I was reluctant, to say the least.
25:27
And I asked him who he was, he said, never mind.
25:31
And then he said something that I will never forget, he said that it would be in my personal best interest to put this show on the air.
25:43
And he had done his homework, he knew what was important to me.
25:47
He knew the names of all my kids and where they went to school. So, I was touched.
25:57
>> [LAUGH] >> [LAUGH] Clearly, he cared about me. So, we did the show.
26:05
Along the way, we made a lot of mistakes.
26:06
Well, that was Sopranos, Sex and The City, another one you've heard about.
26:12
I admit it, I almost canceled Sex and The City, I did.
26:17
I know that, but think about it, you might think this way.
26:21
If you looked at the first three episodes, you might have actually thought this yourself.
26:24
I mean, just think about the premise of this show, four beautiful, attractive young women trying to have sex in the city, where's the tension?
26:38
>> Speaker 1: [LAUGH] >> [COUGH] So, even with the Sopranos, even with the Sopranos, which we could louse up anything.
26:48
We tried to change the name of the Sopranos.
26:50
I said to David Chase, Sopranos, do you think people would think it might be like a music show?
27:00
It's really about family, how about Family Guy, Family Thing, The Family?
27:06
Thankfully, David Chase stuck to his guns, so to speak.
27:11
So, [COUGH] my point in all this is you gotta be saved from yourself.
27:17
And that brings us, there's no escaping it, to AOL.
27:23
Just as we had to shift course at HBO, we obviously got this huge juggernaut at AOL right when the dynamics were heading the other way.
27:34
It was despite the fact that it probably doesn't carry the repute here now that it might have.
27:40
In 2000, it had created this huge, biggest in the world subscription base, had 25 million subscribers, it was $8 billion in revenue.
27:51
I mean, this was a big thing.
27:54
But as you know, what was happening is everyone was going to broadband, the whole thing where AOL was mixing connection ISP with the walled garden wasn't working anymore.
28:05
But remember greed and arrogance because, and the two together are a potent combination in order for AOL to change course.
28:16
It was valued at $160 billion when it came in to merge with our company.
28:22
And in order to, because it was, had this $2 billion of earnings based on $8 billion subscription revenue, all supposed to go like this.
28:31
And if you read not just inside our management, but any analyst reports, really a lesson everybody here, no analyst report at that time said that this was a bad idea.
28:44
There were some that had some questions about it, but more than half of the reviews on this said it was brilliant, that Time Warner had just leapfrogged everybody.
28:53
And there was this vague premise that everybody bought into, it's kind of shocking that putting the quote content together with the quote subscriber traffic tool at AOL was going to be the big advantage.
29:06
Even though if anybody had looked, they would have seen that the things people were interested in using AOL, Yahoo, or other online services for had nothing to do with content or exclusive content, which became clear as time went on.
29:21
So as everybody moved over to broadband and that dynamic became clear, AOL's fortune started to head south pretty dramatically.
29:30
It's what got AOL Time Warner the quantitatively deserved name as the worst merger in history.
29:38
It's actually mathematically, it was worth 160 and after the dust settled, depending which analyst you believe, that part of the company was worth 10 or 20, so it's a pretty big drop in value.
29:57
It's maybe a little misleading to look at it that way and to call it that because many of the companies that were in the Silicon Valley or the Internet business went down by a similar 90% and a lot of others went down by amounts close to that.
30:14
So it's not unique to AOL, but it certainly was a big one and then attached to a very big company, Time Warner.
30:21
So what did we have to do? We had to change course.
30:25
And last summer we did that, we finally got it together where we moved off of this subscription business, which even now is $6 billion at AOL, and offered AOL for free to anybody with a connection, which it is today.
30:40
It's been a huge success.
30:43
AOL had $2 billion of earnings roughly before we did it.
30:48
And we gambled that we could, by doing that change, get rid of hundreds of millions of dollars of marketing and connection costs.
30:57
Well over a billion dollars of cost, that has been accomplished as a very difficult execution task.
31:04
And it was accomplished fairly quickly in a matter of three to four months, so a huge transformation.
31:10
And we just did our earnings release last week and AOL's ad growth at 40% plus for the last three, I'm trying to, three quarters, maybe it's four, three, is higher than anyone else in the industry except for Google.
31:28
Now, admittedly it's off a lower base because AOL's advertising had fallen into some disrepute.
31:33
But it's a big success at this stage and now the company is moving forward.
31:39
And that important thing that I'm trying to connect for the mission of clarity at HBO to the mission of clarity at AOL, now there's something that the people at AOL can focus on and believe in and really take a long run view of.
31:58
So, it just feels- Different, when you go talk to AOL people, they are really thinking positively, taking risks, focusing on the quality of the product that they're doing.
32:12
So just to finish, you mentioned Dick Parsons, who was on CNBC, extremely well dressed for that interview, I would say.
32:23
And he was talking about AOL and how it's worked well at this stage.
32:27
And he happened to mention that private equity comes in and offers because people ask this do somebody want to do something structural with AOL?
32:35
But truthfully, we in all of our media companies, and I throw this for Q and A, whether it's GE or Viacom, Disney, Time Warner, News Corp.
32:44
We get questions all the time about whether any one of the pieces would be more valuable combined with something else sold into private equity with very high leverage.
32:56
And it's become a real factor in the business, the entry of essentially leveraged financial players rather than just for big companies, the old strategic players that used to be the most likely choices.
33:12
And then complicating it is the currency of Internet stocks.
33:15
I'm sure you study it all the time in different cases.
33:17
You had the case of YouTube where Google paid a certain amount.
33:22
But which the currency they used and the ability that they had to utilize what YouTube does is probably quite a bit different than what some other buyer.
33:32
And maybe considerably more than what some other buyer could do with it.
33:37
That was a billion six in nominal terms.
33:41
DoubleClick was over three billion again in nominal terms.
33:46
So it's getting pretty interesting and there's kind of more considerations now in the deal determinations than the old straight financial analysis would give you.
34:02
So there couldn't be a given all this.
34:05
I wanted to throw a lot out so that it might excite some questions.
34:08
It's a pretty exciting time to be in the quote media business, media Internet infrastructure.
34:14
And your challenge just on the personal level is obviously going to be whatever you're in.
34:21
Whether it is or isn't the media business is to find out whether is to make it.
34:25
So that whether the people that you're working with are going to tell you what they really see or whether they're going to tell you what they think you want to hear.
34:35
And if you're trying to exercise some initiative and do take risks or go out into unknown ventures.
34:42
You're going to have people tell you honestly what they can do, but you also want them to tell you honestly what they can't do.
34:53
And it's hard for people to say that because there's that can do thing which is good.
34:59
But there's a part of can do that could be not good if it's not honest as to what's really possible.
35:07
That's true in a small organization for an individual person.
35:09
It's true in a giant organization of what can be digested and executed.
35:15
So on that sober note, I'd like to end and open it up to questions.
35:32
Did you have one talk a little.
35:34
>> Speaker 2: Bit about use score paradaudions?
35:40
>> Speaker 1: Yeah, I don't know how it might impact.
35:44
There's been some pretty complete perspectives written about it and since it came out, one of which is that Rupert Murdoch.
35:54
And his management there's some that say it would be interfere with the tradition of independent journalism at the Wall Street Journal.
36:05
There are others that say no, it would be actually inappropriate or to some extent not so discontinuous management of the Wall Street Journal.
36:16
I don't know the answer to that.
36:19
Obviously just from a pure practical standpoint, the ownership structure of the Wall Street Journal of Dow Jones is a family controlled thing.
36:28
So that's kind of maybe along the little different than the high prices at the Google transactions.
36:38
News Corp put in a very high price in order to try to get over that family hurdle and really go to that point of indifference that some of the family members might have.
36:49
And exploit some of the dissatisfaction that some of them have reportedly acted on in the past.
36:55
I don't know what's going to happen to >> Speaker 2: And Kenny, do you mind just standing up saying your name? Is that okay folks? That's what I said.
37:05
>> Speaker 1: He's going to kill all the questions, I'm sorry.
37:08
>> [LAUGH] >> I'm Kenny Garner.
37:09
You talked a lot in your speech about in HBO Hyder was consistency in what people saw as a vision and everyone kind of driving towards the same thing.
37:18
I wanted to hear you talk a little bit more about how you actually developed that vision and what it is as a leader that you can do to create that type of consistency.
37:29
>> Speaker 1: Yeah, all right, I'm trying to think what is the answer to that?
37:33
Well, first of all I didn't do got created by a lot of people and I could see it when I joined HBO.
37:41
And so I guess the answer is if I remember it, we had a culture of debate.
37:47
We had a fairly non hierarchical culture.
37:52
I tried to make it as non hierarchical as possible.
37:56
And that doesn't mean not taking responsibility and not exercising authority.
38:02
It just means you're trying to get the best answer.
38:06
And so since we had a lot of unknown and controversial steps that we were thinking of taking.
38:14
We basically had a free for all on how would this work and who's going to shoot it down and give angles of what could go wrong in execution.
38:27
And the process after we'd have that debate, we'd end up having to make a decision and say, okay, we don't have the luxury now.
38:35
Think we had to make movie deals out 10 years and commit four or five billion dollars under contract to buy movies.
38:42
We didn't know if they were going to be any good or how much money we'd have to pay for them.
38:46
But when we made those kind of choices, we were very clear with each other on what the assumptions were.
38:55
So that because you do this all the time and then you go out and try to execute it, and the assumptions for sure turn out to be wrong.
39:03
I mean, some of them are.
39:05
And what you want is for everyone to understand where the assumptions fit in the decision that you're currently executing.
39:12
So they can come back and say this one is now changed enough that the actual decision probably ought to be reviewed.
39:19
Maybe we ought to change course.
39:21
So we essentially had a culture of course correction, of constant debate.
39:27
When you do that, you're courting dissension all the time.
39:33
And then you've got all the interests, the parochial interests in any effort where somebody can come in and using that as can try to get it back their way, whatever their way was.
39:45
And then you have to be able to distinguish and say, no, we heard from you.
39:50
And you're not raising a legitimate new piece of info.
39:56
You're trying to retry the case and you shouldn't. Couldn't do that.
40:00
Now all you have to do is those kind of things a few times, and once everybody sees, because most people know what kind of games and politics are being played, then it stops. So it's easy [LAUGH].
40:20
>> [LAUGH] >> Speaker 2: How difficult was it for you to pull the plug on the subscription model?
40:29
The numbers were probably part of it, but how much of it was your own gut feel that it couldn't go on any longer and you were going to have to take that risk and then stick with it?
40:41
>> Speaker 1: Well, I'd love to be able to say that it was me and I figured this all out, but it wasn't.
40:48
Basically it was a combination, it wasn't it actually wasn't hard at all, oddly enough, because with some key colleagues, some of whom are now in key positions running AOL, here's what we did.
41:04
We did a Stanford thing we just went out and said, all right, this is not work, so let's look at what the competition's doing, what we're doing.
41:11
We know that you can get the same things that we were currently selling for 20, 25, 15 to 25 bucks a month.
41:18
You can get them from this, that or the other source with equal speed and quality for free so that's your marketing analysis right now.
41:28
If that's your marketing, you know what's going to happen, say, okay, so we obviously can't compete doing that, so we have to go free.
41:34
And we approached it was going in, including to our board, and just saying this, you have to do whether that results in the profits going here, down 500 million, a billion, whatever it is, it is what it is.
41:52
It's reality, so let's accept that, then let's start working on what should.
41:57
Now we have to realign the company it's going to be a different company.
41:59
It's going to be selling ads and working on these services, not those, so what activities can we stop?
42:05
And it wasn't cost cutting it wasn't the old slice it 10 or 20, 30%, it was as it should always mostly be.
42:14
What things should we not do that we are doing?
42:19
And then basically we cut, as I said, a billion dollars the first year.
42:24
We'll be cutting more than that if you look at it on a running 12 month basis, so it wasn't hard for us, it was hard for the people at AOL.
42:35
Very hard to go through that change because they had to completely restructure the aim of the company and downsize.
42:43
And a lot of people lost their Jobs that was very hard for everybody obviously we have one in the back.
42:53
>> Speaker 2: Can you talk about how you manage creatives that you think are going down a bad path?
42:58
>> Speaker 1: Yeah, see, I didn't [LAUGH] I thought I covered that in all my mistakes.
43:07
Seriously, it's a good question it's a very good question, actually, because if you're trying to take Time Warner today.
43:15
And the assessment of whether the content part is going to grow and whether, as investors, you can put a decent multiple on it because it's erratic.
43:26
It's pretty cliche to say that Hollywood's a hit business, you put out the movie 300, and it does $400 million who knew?
43:36
You put out Poseidon, and it sinks, of course we knew that. >> [LAUGH].
43:43
>> Speaker 1: But how, first of all, I didn't manage creatives that much in my general management job, and not now, but for the way the company in total manages creatives.
43:58
In some ways it's not that dissimilar to the way that we manage regular business, quantitative relationships, but because it's very important in managing the creative business.
44:10
Let's say Warner's or HBO, it's who you're in business with, so Warner's is the biggest producer of TV series in the United States.
44:18
And it's an interesting point because all of the studio, a lot of the studios, bought networks, NBC Universal, ABC, Disney, Fox to Fox Studio, CBS at Viacom.
44:31
The most successful producer and seller of TV shows in the United States is Warner Brothers.
44:36
We sell more shows to all six broadcast networks than anybody else does.
44:41
And the reason is that we don't own one of those networks so that we can be basically the second supplier to all six of them, one of them we own.
44:53
But how do you then take that and systematize it, which I'm turning your question into, that you need to be able to be good institutionally at knowing who to be in business with.
45:03
And what Warner's did in the TV side is essentially as we got to that scale of that many series, we built or created contractual relationships with key producing groups.
45:15
So that we have the best producers and showrunners and writers on a kind of they're not all on overall deals, but they're in some kind of more than one shot relationship at Warner Brothers.
45:30
And the reason they are, this is a bit of a chicken and an egg thing, and it works similarly at HBO.
45:35
Is that they know if they work with Warner's, that Warner scale and relations at NBC, CBS, and ABC, everything else equal, can get that show a better shot to be picked up and placed in the right place on a schedule.
45:49
And then nursed, nourished, watered, so that it gets through that first season when it's even a show like Seinfeld that was a hit was very shaky in the first season.
46:00
So it matters how they're developed over time, and you basically use those kind of relationships to build.
46:09
It takes what you think of as this unpredictable, who can know kind of business and makes it pretty rational.
46:17
Because you know the schedule, the network people know you, they'd say, I want this kind of a show for this time slot next year.
46:25
And you can aim your producing partners at certain more fruitful areas, similar thing with films, really?
46:36
Yeah, so long answer, but that's how you do it.
46:41
>> Speaker 1: Can you talk about your vision of the online video market and how that impacts your company?
46:48
>> Speaker 1: Yes, clearly, online is increasingly going to be an equal way that everyone gets video.
46:59
And we think at Time Warner, from the perch where we have a cable company, we have networks, we have AOL, we have Warner Brothers, so we can see all the aspects of it.
47:13
We think that brands like CNN, MTV, HBO matter, NBC, they matter because there are ways, and it picks up on the last question to introduce new product and have people find it.
47:27
If you just put everything out, hunt thousands of shows in a big bin, it's very hard to sort through and get critical mass audiences for things.
47:37
So, if a show's coming on FX, that it's got this kind of focus, you know, if it's on HBO, it may have these kind of focuses of authenticity.
47:47
So those brands really work, and if you take that and if you imagine putting all of those brands, here's ones, we don't have NBC on demand, so you Watch what you want when you want, and you can do it over the Internet on a PC screen or mobile screen.
48:07
But you could also do it because there's no difference on a television screen in your home, high def big screen, using the VOD capability of your cable box.
48:18
That's how we think it will happen.
48:20
And if so, there's no reason why all of the giant audience flow at TNT and CNN for news and HBO can't be on every screen, including on the Internet.
48:35
And that leads to the question, well, are you charging for that or not?
48:39
Most of the things on the Internet and most of the things on television are ad supported.
48:44
And there's no reason why they can't be ad supported in this new on demand unscheduled way.
48:52
And we just had the National Cable Convention yesterday.
48:55
I came from there to here and we all set it out there, which is the big thing for the video industry and the cable television.
49:05
And telco infrastructure is to put all the networks that we all know on demand so that you can go you can think of it as getting any show you want, but it's really any network you want.
49:15
And there is an example of it. It's there right now. It's HBO.
49:21
We built HBO so that you would think of it not as one channel, but it's 10 multiplex channels and the whole thing is on demand.
49:30
So if you want to see Rome, you know where to find it and you can see any episode you want.
49:35
It's a little different because that's subscription based, but there's no reason you couldn't have the same thing with TNT or Adult Swim or any of the other networks.
49:45
And so that's probably the next move on all the platforms. One more question. One here.
49:54
Can you describe what was it about the HBO business model that gave it the market power it had vis a vis the studios?
50:03
Yeah, basically we made them an offer they couldn't refuse.
50:07
Seriously, what we did, we had no money, but we had pens so we could go write promissory notes.
50:21
And so we'd go to the studios and say, we promise to pay you in average terms 100 million to 150 million.
50:29
Now it's 300 a year for your slate of movies that you're currently just going in the theater with.
50:35
You have all the problems of up and down this whole uncertainty of hits.
50:40
We'll give you a baseline of money written on HBO IOUs and they couldn't not do that.
50:49
Now we had to take a risk contractually to commit to that.
50:52
But we did one thing that wasn't stupid, which was we made it variable to their box office performance and we made it in the early days variable to our subscriber growth.
51:03
So then we took that paper and we went over to the cable companies, Cox TCI and we said.
51:11
We'd like to sign up for you to at X dollars a month per subscriber variable, you pay us and we'll give you this great program.
51:24
And they kind of said no.
51:27
So we said, all right, but we have a deal for you.
51:29
What we'll do is if you get to a certain big volume, we're going to give you 25% off.
51:35
So you'll have an advantage over this other cable operator you're competing with if you.
51:40
And we'll advance you the discount, that was the little thing.
51:44
So if you get to volume, you got a deal advantage on the other cable company.
51:48
Well, what happened, what that was in the early days of cable was HBO arbitraging the consolidation and acquisition of one cable company over another.
51:58
Because we knew you could use TCI, it's now Liberty, as a key example.
52:03
They wanted to go out and borrow money at 7, 8 times earnings to buy Joe Blow Cable.
52:10
And so when they did that and they had an HBO contract, all of a sudden their programming costs dropped 25%.
52:17
So now they weren't paying eight times earnings.
52:20
Right after they closed, they're down to five times earnings.
52:23
A huge immediate funding device for them and for which we did not put up money. We just put up.
52:30
So we were essentially using industry wave dynamics to ride in and out of that between the studios and the cable people on both sides.
52:41
We created a company in the middle, which I'm happy to say is still there today, and makes more money by itself than all the networks combined, if you don't count their station groups.
52:54
They got that going for them. So thanks for having me.
52:59
It was been a great pleasure. Thank you.