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Mega-managing

The announcements and rumors flying ’round Viacom-Paramount, Sony and Time Warner this week remind us that this is a seminal moment for the worldwide info-entertainment industry. Clearly the future of mass entertainment is being reshaped by these vast new media conglomerates. Yet the entities themselves are still very much in their formative stages — indeed in their infancy in the case of Viacom-Paramount.

Companies on the scale of Rupert Murdoch’s News Corp., MCA-Matsushita or Sony were unimaginable only a few years ago. Though Time Warner officially came together five years ago, the disruptive run on the company made by Martin Davis and the illness of Steven Ross effectively stalled implementation of the megamerger for two years.

Hencethe Sturm und Drang of the moment is an inevitable byproduct as the leaders of these new entities grapple with pivotal questions involving management, financial structure and operating philosophy. A period of great volatility lies ahead.

If one looks at the record to date, it is possible to signal some intriguing trends and portents about the new companies and about the impact they may have on the economics of entertainment.

For one thing, while entities on this scale may prove essentially unmanageable, two structural models seem to be emerging. There is the Time Warner model, wherein Gerald Levin presides over a decentralized confederation of feudal fiefdoms. And there is the News Corp. model, wherein the vision and iron will of one individual — Murdoch — governs the conduct of a vast empire.

Both of these megacompanies have demonstrated that they can grow without smothering the creative energies of their constituencies. There are turf wars, ego clashes, redundancies and false steps, but nonetheless both companies seem to be functioning successfully in an increasingly competitive environment.

Viacom-Paramount must now decide which model it wishes to pursue. Sumner Redstone has always been a man who likes to run the show, working through a superbly skilled administrator in Frank Biondi. The hiring of Jonathan Dolgen, a ferocious negotiator and numbers cruncher, may signal that a more centralized management model will be adopted.

Which brings us to the second portent: synergy. Whatever structures the new megacompanies may have adopted, the notion that remarkable synergies and huge economies of scale may result has proven illusory. Indeed, there’s not a single CEO in the entertainment business who doesn’t register disdain when you even mention “synergy.” The lesson is that it is one thing to construct vast new mechanisms to market and distribute a broad array of products, but quite another to elicit creative cooperation from the entities contributing to that product flow.

The new companies, in short, have proven skillful in mobilizing economic might. Forget synergy.

Portent Three deals with wealth. Though the moguls don’t like to talk about it, the bringing together of vast economic resources has in turn hiked the level of greed in an already greedy industry. A decade ago the agents, lawyers and other power players exercised a certain restraint in their demands when dealing with relatively small, single-product companies such as the old movie studios or TV factories. Today it’s go-for-broke time — a trend that’s exacerbated by the astronomical compensation packages offered to leaders of the media companies themselves. When top-level managers are making $ 20 million and more a year (including bonuses), why shouldn’t a star or a star director come into a negotiation loaded for bear?

The result: an unexpectedly sharp escalation of costs.

All of which fuels Portent Four: power.

Exercising control over empires of such wealth and scope entails more in the way of Machiavellian savvy than old-fashioned management skills. A man like Levin becomes a quasi-political figure, interacting with institutional investors or functionaries of foreign governments.

Some critics assert that the Time Warner hierarchy has exhibited a certain paranoia-laden anxiety in dealing with the encroachment of Seagram’s Edgar Bronfman Jr., who now owns a 13.1% stake in the company. Indeed, the response was more political than corporate, as though a prime minister were being challenged for control of his party machinery. Why not invite Bronfman to the table?, critics ask. Welcome to the ’90s, folks. We’re not talking about mere companies anymore, but rather nation states, and the political struggles for control will be of epic proportions.

Which leads us finally to Portent Five: management style. As the megacompanies of the future become increasingly politicized, figures like Dolgen will assume an ever-greater degree of power — hence the singular move last week of Viacom-Paramount pirating him away from Sony.

No-holds barred

The movie and TV companies of former years were led mainly by production types, who gave orders to their business affairs minions. Today we are seeing the emergence of a new school of Dolgen-style numbers crunchers — no-holds-barred negotiators and cost cutters with fiercely aggressive styles and highly independent ways.

As the megacompanies become increasingly politicized and costs continue to skyrocket, the tyranny of the crunchers will mount. The degree to which this trend may ultimately inhibit the ability of companies to mobilize the energies of the creative community will be carefully watched in coming years.

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