Three Blind Mice: How the TV Networks Lost Their Way

INTRODUCTION

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Television has become a basic American utility, like water or electricity. The typical home uses a television more than it does a sink, stove, shower, washer, dryer, or automobile. On average, the TV screen is alive seven hours a day, which means that the typical household viewing week exceeds the typical work week.

While the amount of daily TV viewing has varied little in recent years, what is being viewed has changed dramatically. In the past decade an earthquake that would register a 10 on the Richter scale has struck the television industry. Four facts tell the story:

The Big Three networks—ABC, CBS, and NBC—which fifteen years ago claimed more than nine out of ten viewers nightly, have lost a third of their audience—nearly thirty million viewers.

The average home, which had seven channels to choose from in 1976, now has thirty-three.

The VCR, which was not commercially available as recently as the late seventies, is now present in 70 percent of all homes.

Cumulative profits of $800 million for the networks in 1984 shrank to $400 million by 1988, and will perhaps sink to zero in 1991.

For viewers, more choice has created something like a video democracy. But for once unassailable network empires the result has been shattering, even though the full impact of the transformation wasn’t felt right away. We noticed the collapse of the Soviet empire in Eastern Europe because it came suddenly. In a flash, the Cold War was over, the Warsaw Pact terminated, the Berlin wall gone, the two Germanys reunited, and communist orthodoxy disgraced. The forces that struck the television industry did so less dramatically. Each year Americans received a few more channel options and cable increased its penetration by a small percentage. The upstart Fox network went from programming on only a single night, to two nights, then three, then four, then five. VCRs and video stores proliferated. Occasionally newspaper headlines blared about layoffs or major management changes, but viewers weren’t much affected. They still watched The Cosby Show, the Super Bowl, and the nightly newscasts. This was an earthquake in slow motion.

It wasn’t until the war in the Persian Gulf began in January 1991 that the cable revolution became dramatically apparent. Viewers realized that CNN, not the three networks, was a primary source of up-to-the-minute news. And they were getting the news the way they wanted it—instantly and without interruption from soap operas. For as long as the war held their interest, viewers could choose for themselves when to watch the news as easily as they could flick to an HBO movie, an ESPN basketball game, or a Disney cartoon. Suddenly, nearly everyone who thought about such things seemed to be asking whether network news had a future—indeed, whether the networks themselves had a future. Cable, which was now in 60 percent of all homes (only 15 percent had it as recently as 1976), seemed to have the upper hand.

The Gulf War exposed the frailty of the networks in other ways as well. Advertisers were pulling their ads, not wanting their friendly products juxtaposed with scenes of death. This provided a stark reminder that a network depends on a single source of revenue—advertising—while cable programmers such as CNN not only sell ads but charge a fee to cable subscribers for the use of their product. By 1990, cable had revenues of $17.8 billion, which dwarfed the $9 billion collected by the three networks. And while network ad revenues were relatively flat, cable advertising has more than doubled in the past five years to nearly $3 billion. Ten years ago, the three networks collected six out of every ten advertising dollars; today, less than five out of every ten.

The Gulf War was a vivid reminder of how dependent the networks are on others. A television network is not what many viewers assume. It is not a vast studio that manufactures programs. It is not a national grid of spaghetti wires linking 240 million Americans in more than 90 million households. A network owns few of the stations that distribute programs under the CBS, ABC, or NBC logo. A network is an office building, where executives package programs they do not own and sell them to advertisers and local stations they do not control.

To distribute their programs, the three networks rely on six hundred or so TV stations affiliated with them. Increasingly, these affiliated stations have been bumping their network’s programming. Stations calculate that even after paying for the programs they can earn more money by airing syndicated shows like Wheel of Fortune or Billy Graham specials. Even if the audience is smaller, the affiliated station pockets more money since it gets to sell most of the commercials, whereas when a station runs a network program most of the advertising is sold by the network. In the world of the bottom line, traditions—like the partnership between the network and its affiliates—count for less. Not surprisingly, during the Gulf War, many stations—including KHOU, the Houston station at which Dan Rather got his start—bumped the news offered by the networks and substituted CNN coverage.

To most of us, television has always meant three institutions—CBS, NBC, and ABC. They have been our common church. But by mid 1991, with stations defecting and advertisers and viewers turning elsewhere, with the federal government refusing to significantly relax regulations that might open fresh sources of revenue to the networks or perhaps spur a merger between a network and a Hollywood studio, it was difficult to see how the networks could recapture the good times. Like blind mice, the people running the networks seemed trapped in a maze from which there was no way out. No matter how shrewd or tough the CEO—and the networks are run by able businessmen—as long as the Big Three each offered only one channel choice while viewers had as many as 150 other choices, the future of the networks was problematic.

My interest in this subject was piqued by Arthur Gelb, then managing editor of The New York Times, who suggested that I write a profile of Larry Tisch for the inaugural issue of the Times Business World magazine. The date was October 1985, and that previous summer Tisch and his Loews Corporation had first acquired CBS stock. Just months before, in March of 1985, Capital Cities Communications had taken on ABC. And in December of 1985, GE would announce that it had swallowed NBC. So as I wrote about Tisch, I could feel the ground shift. For the first time in history, the ownership of all three networks had changed hands.

From the time I started the Tisch profile, this book has taken nearly six years to write. By way of explaining the changes that transformed the networks, and television in general, I have tried to tell several stories, with an emphasis on the business and the people behind the TV box. I have not probed in depth the television shows themselves or the impact of TV on our lives, though neither subject is neglected. I have written about an industry wracked by change, and of how some of America’s most powerful business leaders have dealt with organizations they often can’t control, try as they will. It is a story of how the Human Factor—insecurity, low morale, high ambition, vanity, pride, and panic—can dominate dollars and cents business logic. Even a titan of industry can be, as Arthur Miller described Willy Loman, just a little boat looking for a harbor. This is a story of how the new owners of three venerable institutions arrived armed with the belief that their mission was what Joseph A. Schumpeter, trying to define the essence of capitalism, once called creative destruction, and of the resulting battle between their devotion to profits versus their responsibility to the public. The book attempts to tell how a network works, how it decides what shows to buy from Hollywood producers, how it distributes its product to local stations, how it sells ads.

While gathering information for this book, I sought to be a fly on the wall, watching as CBS, NBC, and ABC tried to run their businesses while coping with competitors who in many cases did not even exist a few years before. My aspiration in writing was the one Flaubert set for his narrator: to be everywhere present and nowhere visible. To succeed, an author requires the trust of the reader. Writers lose that trust if they conform to Janet Malcolm’s description of a journalist as a confidence man who engages in treachery and betrayal, without remorse. Malcolm’s provocative pieces in The New Yorker seized on half a point—that writers of nonfiction are surprisingly un-reflective, and when they sit down to write their constituency becomes the reader, not the source—and transformed this into a cartoon. A journalist can bring Orwell’s cold eye to a subject without having a cold heart.

I try to avoid a similar pitfall common to network books, that of romanticizing the past in order to sharpen the portrait of current villains. It is an appealing intellectual construct, save that it is too simple. There are villains in this book, but not always the obvious ones. Sometimes the culprit is the new owners and their value systems, and sometimes it is people who believe in a world that doesn’t exist. A preoccupation with costs and ratings did not begin the day the new network owners arrived. Yet I am also aware that in the endless struggle between profit and the public interest, increasingly the public interest cedes ground. In some ways, I believe the networks have cheapened their product. In other ways, I feel that television is better, not worse, than it was in the golden days when the Big Three held a virtual monopoly. It has always been fashionable to sneer at television entertainment. I no longer do that, in part because I watch more television.

A few words about method. Much of the information in this book comes from personal interviews or meetings I attended. A handful of people refused to see me, but no one I really needed to see at any of the networks declined to be interviewed. Most people both inside and outside the networks saw me at regular intervals. I am grateful for this generous access to people who were not required to talk to me. I had nearly fifty interviews with CBS president Larry Tisch, about twenty with NBC president Bob Wright, and a total of nearly twenty with Tom Murphy and Dan Burke of Cap Cities/ABC. I was free to pop in unannounced at ABC’s twice-weekly Sales staff meetings, at CBS’s Affiliates Relations meetings, and at NBC’s Entertainment staff meetings, to watch producers Aaron Spelling and Bruce Paltrow develop their series, and to sit with Brandon Tartikoff and his Hollywood programmers as they listened to pitches and decided which programs might reach thirty million viewers on a given night. Sometimes people who saw me pretended that they hadn’t. At my final interview with Cap Cities/ABC CEO Dan Burke, in February 1991, he said that he hoped I would not be unkind to chairman Tom Murphy because he had refused to talk to me. Burke was stunned to learn that Murphy, who had been reluctant to talk, did let me interview him on seven occasions. Sometimes the cat-and-mouse game was comical. In 1987, for example, the CBS board met and agreed that only CEO Larry Tisch would be authorized to speak to me; by that time I had already interviewed more than half the board. In all, this book contains about 1,500 interviews with 350 people.

The sources for quotes and facts will be found in the chapter notes at the end of the book. Unless otherwise indicated, the quotes from the principals were given to me directly. I use italicized dialogue where the principals or participants do not remember their exact words or where I wish to telegraph to the reader that I have reported what was said but am uncertain of the exact wording. Where I attribute thoughts to someone, I rely upon what my informants told me they had been thinking; in a few instances I rely upon information from someone else with direct knowledge. Principals’ ages, salaries, and job descriptions are as of the time they are mentioned.

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While I have tried to tell this story impartially, readers should know that four people who appear in this book are friends. I have known Howard Stringer for more than twenty years, since he was a researcher for CBS News. Because of this friendship, I probably give Howard less attention than he deserves. I am a friend too of Tom Brokaw and Tim Russert of NBC, and Peter Jennings of ABC. I mention this by way of full disclosure, but also to assure the reader, as I trust will become obvious, that this book is not dependent on information gleaned from them.

I owe much to various people who at one point or another helped with the research on this book, especially Gordon McLeod, Catherine Teehan, Jill Davis, and Clair L. Duffy. Sonia Campos, Kirsten Olsen, and Gail Timmerman also lent a hand. The Daily News, once again, generously granted me an unpaid leave of absence from my weekly column starting in April 1990; I am grateful to James Höge and Michael Packenham. I am also grateful to the Gannett Center for Media Studies, which granted me a fellowship for part of a year, to the other fellows, who were provocative companions, and especially to executive director Ev Dennis. Various friends, including Richard Reeves, Nick Pileggi, Nora Ephron, Delia Ephron, Jerry Kass, John Scanlon, and Tully Plesser, have shared their wisdom and sometimes their living space. My agent, Esther Newburg, has been a valued friend and advisor.

This is the fifth book of mine Jason Epstein has edited. During the editing process, there were times I wanted to strangle him. Good sense prevailed, as did Jason’s deft pencil and brains. My agent has never shopped around for a better price because I don’t think there is a better editor. Jason’s assistant, Maryam Mohit, is as well organized as any general, and less gruff. Sharon DeLano lent her skill and helped me pare the manuscript. Margaret Wimberger copy-edited this book as if it were her child, and when nature intervened and she had a baby, her task was completed by John McGhee and Chris Stamey. Their efforts were diligently choreographed by Beth Pearson. This book has enjoyed three Random House publishers—Howard Kaminsky, Joni Evans, and now Harold Evans. I am grateful to each. Thanks as well to Peter Osnos, Rochelle Udell, Mary Beth Murphy, Dona Chernoff, Carol Schneider, Mitchell Ivers, Steve Mentz, Eve Adams, Dennis Ambrose, and Oksana Kushnir.

Finally, a special word of thanks to the two women who put up with and sustain me—my daughter, Kate, and my wife, Amanda, who is one of the smartest editors I have ever known.

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1

A FATEFUL DINNER PARTY, OCTOBER 25, 1986

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Tom Brokaw knew the evening was going to be a disaster long before anyone sat down to eat. He knew it during cocktails, when he and the other male guests ignored the elaborate hors d’oeuvres and, half-crazed, grimly cased the house in search of a television set. He knew it when he heard his boss, Bob Wright, instruct Bryant Gumbel, NBC’s Today show host, You look in the kitchen. He knew it when Gumbel returned empty-handed and huddled in a corner of the living room with Wright, Brokaw, and their ultimate boss, Jack Welch. The four men giggled like coconspirators, but they were plainly upset. They don’t even have a television set downstairs, Wright moaned.

Jack Welch, chairman and CEO of General Electric, the new owner of NBC, had dreaded this dinner. Now here he was, imprisoned in a big old colonial house in Westport, Connecticut, on a springlike Saturday in October, the twenty-fifth to be exact, thinking only of baseball. The Boston Red Sox and the New York Mets were poised to play the potentially pivotal sixth game of the 1986 World Series, and Welch knew he could have had a choice seat at Shea Stadium in Queens. Hell, he could have had any seat in the stadium, since John F. Welch, Jr.’s company, NBC, was televising the games exclusively. Okay. At least we can watch the game! he had said to his wife as they drove to Westport from their New Canaan home.

But there didn’t seem to be a damn television set. This mattered a lot, because the host was Lawrence K. Grossman, president of NBC News, and the purpose of Grossman’s dinner was to impress Welch and Robert C. Wright, the forty-three-year-old executive Welch had plucked from GE and installed as NBC president in September. It mattered because the Red Sox, who were up three games to two over the Mets in the best-of-seven series, were on the cusp of capturing their first championship in sixty-eight years. And it mattered because Welch and Wright were Red Sox fans.

Actually, Welch was a Red Sox fanatic. He had been a fan from the time he was an altar boy in Salem, Massachusetts. His mother, Grace, the wife of a Boston & Maine train conductor and union leader, would take her only son by the hand to Fenway Park, where they sat in the bleachers. The day before this Westport dinner, the GE helicopter had whisked him to game five at Fenway Park, where he had season box seats. The Red Sox won, and Welch arrived at his office the next morning hoarse from cheering. The Red Sox were as much an obsession to Jack Welch as was getting rid of corporate waste. Who played second base for the 1946 Red Sox? was the first question he had asked Joyce Hergenhan, Con Edison’s senior vice president for Public Affairs, over dinner when they met. The headhunter’s report had told him Hergenhan was a sports trivia expert, and Welch was going to test her.

Bobby Doerr, she answered.

Yeah, but who held the ball? asked Welch.

Oh, you mean when Enos Slaughter scored from first base on a single?

What else would I mean? growled Welch, his laser-blue eyes locked on her.

Johnny Pesky! shot back Hergenhan, who won a smile from the chairman and, eventually, the job as GE’s vice president of Corporate Public Relations.

Larry Grossman didn’t know his dinner was a disaster. It was a perfectly decent social night, he revealed later, although he did notice a locker room quality to it. Anchorman Tom Brokaw remembers asking Grossman the day before, Do you really want to go forward with this? Brokaw was aware that the News chief often displayed the distracted air of a college professor, habitually donning a white cardigan with two red stripes on its right sleeve as soon as he entered the office, silently pulling at his trim, mostly white beard, which traveled in a thin line along the bottom of his jaw and blossomed at his chin, leaning back in his swivel chair and belching huge clouds of cigar smoke. Behind the boyishly handsome mask, Brokaw was as attuned to office politics as he was to Washington politics. He had done his homework, and warned Grossman that Welch and Wright were Red Sox fans.

Grossman telephoned his wife. It was too late, he reported back to Brokaw.* The food and flowers were ordered, the caterer retained. What Grossman didn’t say was that Alberta Boots Grossman, a Ph.D. candidate in learning disabilities at New York University, thought it silly that grown-ups should go ga-ga over a sporting event. Besides, there was a television set upstairs. Grossman reassured Brokaw they could all check in on the game at some point after dinner. Moreover, Grossman was intent on luring Welch and Wright into News’s orbit.

From Grossman’s point of view, the evening was part of a campaign. GE, America’s third most valued corporation after IBM and Exxon, had officially taken over the network only months before, and Grossman didn’t want to see the budget of the News division cut. Now that NBC was in first place in the nightly entertainment ratings, and News was poised to knock Dan Rather from his number-one perch, and Today had roared ahead of ABC’s Good Morning America, Grossman wanted to spend more, not the 5 percent less Wright was asking each NBC division to accept as an exercise. Rich in resources, NBC should open second fronts, Grossman argued—new bureaus, new equipment—and should aggressively recruit stars like Diane Sawyer, expand its celebrated investigative team, and aim for a knockout strategy to achieve the kind of dominance in news once enjoyed by CBS.

Grossman had so far failed to persuade Wright, but he was determined. His mission, as he saw it, was to teach his new corporate masters that News could not be judged solely on whether it made money. News had a public responsibility—to cover events everywhere in the world, to interrupt entertainment programs with momentous announcements, to take over the network after the polls closed on Election Day, to provide documentaries and gavel-to-gavel coverage of political conventions, to provide a place where Americans could repair in times of crisis. Larry Grossman—not unlike executives at the other two networks, which had also acquired new owners in 1986—worried that the goal of the new owners was not to educate, not to make television better, but to better control costs and maximize profits.

More than once Tom Brokaw warned Grossman, Hey, Larry, they’re not tenants. They own the place! Like a man possessed, Grossman was undeterred. He had a mission, and on the night of October 25, 1986, it was to convert Welch and Wright to his religion. To help, thought Grossman, he would sprinkle a little Stardust on Carolyn and Jack Welch and Suzanne and Bob Wright by inviting Tom Brokaw and his wife, Meredith, Bryant Gumbel and his wife, June, and Today show cohost Jane Pauley and her husband, Doones-bury creator Garry Trudeau.

The Red Sox game was well under way by the time the two waiters finally began serving the four-course dinner to the guests seated in heavy French chairs around a rectangular walnut table. All the men save Grossman, who had an uncomfortable look plastered on his face, were deep in conversation about batting averages and ERA’s. Only two women were faintly interested in The Game—Meredith Brokaw and Jane Pauley. Only one woman seemed passionate about it—Boots Grossman, who hated the idea of talking about baseball at her dinner table. She had absolutely zero interest in the game, said Welch, who was seated beside her. Boots was so upset, remembers Wright. Her dinner party is literally being interrupted by people who are talking in Yugoslavian. She invited people and wound up with these Yugoslavs at her table. And they’re all giving sign language and talking baseball and she was just fit to be tied.

During dinner a quiet struggle ensued, as five of the six men inquired about the whereabouts of a TV, about the score, while Boots Grossman tried to steer the conversation to weightier topics. For a while, they did discuss the differences between TV and print journalism. Bryant Gumbel, who had been singed by critics, argued that there was no reason for the network to cooperate by offering screenings to magazine and newspaper writers; Welch and Wright insisted that any press was good press. Briefly, Garry Trudeau, who sat across from Welch, poked fun at GE’s Star Wars anti-missile defense-system contracts, dismissing it as science fiction; Welch shot back good-natured put-downs. And at one point the chairman, who was seated beside Boots Grossman at one end of the table, brought up a recent New York Times story which said that Grossman resisted Bob Wright’s request that all departments pare their budgets by 5 percent. The Times quoted Grossman as saying, I anticipate that we’ll get what we need. Wright was quoted as saying he expected everyone, including News, to undergo this exercise.

Hey, Tom, yelled Welch, looking directly across the table at Brokaw. "I read this account in the Times that the budget differences between Larry and Bob is just jockeying. And then I read your view that it will all work out. Who’s right here?"

Brokaw smoothly fielded the question, saying that when he talked to reporters he told them the dispute was not a serious one. Welch knew better, as did Grossman. But in this exchange, as in the others, Grossman did not join in. Grossman wanted to duck the issue, wanted to allow the passage of time and the exposure to his NBC guests to wear down Welch and Wright. To them, however, NBC’s News president seemed paralyzed, his awkward smile suspended like a pose. This was a loud, bang-around crowd and Larry’s not a loud, bang-around guy, recalled Wright. Brokaw remembers Welch rolling his eyes, surprised that Grossman seemed frozen in place. Gumbel, Pauley, and the others exchanged nervous glances.

Okay, Grossman. Where you hiding the TV? Gumbel jokingly inquired.

Boots Grossman scowled. After a moment of pained silence, she turned to Welch, who complained later to friends that she talked to him about how important Larry’s job was, how awed her N.Y.U. classmates were by Larry’s position, of how Grossman had engendered esteem on the many overseas and domestic trips he had made on behalf of NBC. I was probably trying to sell Larry, she conceded later. Part of the dinner was to introduce Welch and Wright to the News organization so they wouldn’t think it was some alien organization. If I was tense it was because I was aware Larry was in trouble with the organization.

The GE chairman might have accepted a wife’s tribute from Jane Pauley or Meredith Brokaw, for he was susceptible to the warmth of these children of the Midwest, with their wholesome peach-pink skin. But Alberta Grossman was the kind of woman Welch found annoying. Like his, her roots were working class. She was from Swampscott, Massachusetts, not far from Welch’s hometown of Salem. But she had gone on to Radcliffe, and now at dinner her dark eyes moved about like sentries. She had short, fuzzy dark hair and looked to Welch like a middle-aged hippie. Despite her nickname, Boots Grossman was a serious person. She enjoyed entertaining, and was devoted to her husband. So devoted that when he had headed the Public Broadcasting System she spent eight dreary years by his side in Washington. To want to talk only baseball was, to her, as bad as the Washington custom of exiling women after dinner while the men sipped brandy and smoked cigars.

The dinner crawled—the hors d’oeuvres of mushroom philo tied with leeks were followed by salmon quenelles, which were followed by veal chops served with confit of onion, sautéed mushrooms, herb-broiled tomatoes, baby carrots with lemon butter, and herbed Basmati rice, which was followed by a salad of endive, watercress, and limestone lettuce bathed in lemon-walnut dressing, which was followed by black-currant, apricot, and strawberry sorbet in tulip-almond cups, which was followed by coffee. All the while, Jack Welch was going stir-crazy. Roger Clemens of the Sox and Bob Ojeda of the Mets were pitching against each other and here he was stuck at a table hearing how great Larry Grossman was! Throughout the first and second courses, Welch and Bryant Gumbel, a former sportscaster and also a rabid fan, kept interrupting the two catering-company waiters with pleas for the score of the game.

Boston is up one to nothing in the first, one reported.

Two to nothing in the second.

Clemens is pitching a no-hitter through the fourth!

Tied 2–2 in the fifth.

Gumbel sneaked off to Grossman’s tiny upstairs den, where the TV was located, at least twice. Once he ran into Welch, and they stayed for an inning, though Grossman later said, I didn’t notice. By the sixth inning, Welch and Gumbel had abandoned everyone at the table and repaired upstairs. With Welch gone, Brokaw whispered to Grossman, How do you think it’s going?

I don’t know, said Grossman.

By the seventh—the inning the Sox went ahead 3–2—Jane Pauley and Meredith Brokaw and all the men but Grossman were packed into the upstairs den. Although it meant an extra $5 to $7 million in profits to NBC if the Series went to a seventh game, Welch rooted for the Sox to win it in six. The game was an emotional roller coaster for Welch. He frowned as the Mets tied the game in the ninth; he was giddy with joy as his Sox pulled ahead by two in the tenth; he slumped as the Mets staged a two-out rally in the tenth to triumph, as Boston first baseman Bill Buckner let Mookie Wilson’s squibble roll under his glove and Ray Knight scored all the way from second.

It was a significant victory. The Mets tied the Series and entered the decisive seventh game with a psychological edge. The dinner, said one guest, was also significant because Welch and Wright made up their minds about Larry that night. They decided he was not one of their guys. He was not … in the traffic pattern of the evening. Welch was turned off by the serious Boots and Larry Grossman, admits Wright. Welch told friends he found the Grossmans too swollen with importance, too haughty.

Larry Grossman was a serious man. While he was growing up in Brooklyn, his mother the teacher and his father the lawyer drummed into their son the notion of social responsibility, a belief nurtured later by his liberal arts education at Columbia University. Grossman’s first job in television, at age twenty-four, was as a copywriter in the advertising/promotion department of CBS in 1956. Edward R. Murrow, the spiritual father of TV network news, was, he would recall, a godlike figure to me, a tall, lithe presence passing by in his British cut trousers, wide ties, and crisp white shirts. Grossman’s dream was to escape advertising and join Murrow’s news division, but he was told he was more important writing promotion copy for CBS News. Soon he drifted to the advertising department at NBC, where he met Grant Tinker, vice president for Programming. Four years later, Grossman launched his own advertising and public relations firm. Always, however, he thought of how close he had come to becoming part of News, one of Murrow’s boys. He came closer in the eight years between 1976 and 1984, when he served as president of PBS, where neither ratings numbers nor profits were central concerns. What was central, certainly in dealing with a Congress that helped fund PBS, was communicating a sense that public television was doing something special, as indeed it was. With an assist from Grossman, PBS launched the massive Vietnam: A Television History and such series as Frontline and Inside Story, and expanded the MacNeil/Lehrer news program to an hour. When Grant Tinker, by then chairman of NBC, offered him the News presidency in 1984, Grossman felt he had been entrusted with both power and privilege.

Yet now, two years later, Jack Welch sensed that Larry Grossman lacked support from his own people, who had also seemed uncomfortable at dinner. Welch arrived at dinner already suspicious of Grossman. Welch thought Grossman was being underhanded when he didn’t confront the issue raised in the Times story. He suspected that Grossman or someone in News had leaked the story to the press to embarrass GE, to warn them not to desecrate the news priesthood. Larry Grossman, he sensed, didn’t understand the new order.

Welch hadn’t wanted to go to dinner, but how could he have refused? He knew that folks in the news division were concerned about their new corporate owners, as were employees at ABC and CBS. For the first time in history, each of the three networks was officially taken over in the blink of an eye in 1986—starting in January when Capital Cities Communications officially acquired ABC, followed in June by government approval of GE’s acquisition of RCA and NBC, and ending in September 1986, when Laurence Tisch and the Loews Corporation ousted Thomas Wyman, assuming effective control of CBS.

Welch knew that people in News—indeed, employees throughout the network—were nervous about Bob Wright, the protégé he had chosen to succeed Grant Tinker. He knew they were anxious about the departure of Tinker, who in five years as chairman had led NBC from third to first place among the networks, and had instilled employees with pride. Their programs—Hill Street Blues, Cheers, St. Elsewhere, The Cosby Show—had brought them Emmys and applause as the quality network, as well as ever-expanding profits. And Tinker had done this with a soothing managerial style, without talk of profit centers and downsizing or delayering, without arousing insecurity or insisting, as Welch did, that NBC grow its profits each and every year, even though under Tinker profits climbed annually. People in NBC News were particularly anxious, so Welch felt compelled to accept Grossman’s dinner invitation. We were new to the business, he explained later. And the last thing you want to be is arrogant. Nor was he one to shun a confrontation.

Jack Welch was a lithe, five-foot eight-inch former hockey brawler with a love of conflict undeterred by a slight stutter. He was an only child, and his mother always praised my Jack, to the point, recalls Welch, that I never thought I stammered. His father, the union leader, was always working and probably had no room to get between the two of us. They could afford a summer house and a new car because the railroad allowed his father to featherbed, a practice the boy grew to detest. The spiritual force in the boy’s life, however, was Grace Welch, who bore my Jack when she was forty. To hear the son speak of her is to hear a description of himself: If you came to her house and said you liked her glasses, she gave them to you. She did taxes for people in the neighborhood. She was very quick with numbers. If somebody crossed her, I remember her remembering that. She was loyal to friends, and strong against those she felt wronged her.

At age fifty-one, Jack Welch had a stomach that was still firm, a chin that was still taut, and eyes like pale blue moons in a clear sky. Jack Welch believed the GE culture thrived on friction, on challenges. To him corporate competition was just another form of combat, like hockey or golf. As he played to win in sports, so now he competed to make GE the most valued company in the world. Since becoming chairman and CEO of GE in 1981, this Ph.D. in chemical engineering had shaken the foundations of the staid, 109-year-old industrial giant, shedding businesses and one out of four—one hundred thousand—GE workers. Welch questioned everything. A pet peeve of his was the belief, embraced by Grossman and others at the networks, that those engaged in national television had a unique public trust. Welch saw no difference between the public trust of his aircraft engines division and that of News. In fact, the public trust required in the consumer business was often greater, he thought. What if his refrigerators blew up? Every GE engine attached to a plane, he said, people bet their lives with. That’s a public trust that’s greater in many ways than a network.

The combative Welch saw Larry Grossman’s dinner party as an opportunity to press home another point. He would demonstrate to the people in News that he knew their game, knew the positions of the political players, watched all the Sunday morning interview shows and the MacNeil/Lehrer Newshour, often preferring these to the clipped, abbreviated reports he got on Brokaw’s Nightly News or Today. Jack Welch saw himself as a news junkie—It’s why I watch television, he said. That and sports. The chairman of GE and NBC ceded no moral high ground to those in News.

In contrast to the emotive, confrontational Welch, Bob Wright approached the dinner and the issues that provoked it in a more but-toned-down manner. He believed—as did Welch and the new owners of ABC and CBS—that the networks had become like the Big Three automobile companies in the seventies: fat and lethargic after years of enjoying a near monopoly. Wright had interrupted his GE career to spend a few years running Cox Cable Communications, and had been made aware of a world no longer dominated by three networks. He knew that cable TV, which began as an effort to deliver a better picture, had blossomed into a Goliath. A decade before, cable television reached a paltry 15 percent of American households. By 1985, almost forty million Americans were cable subscribers and 46.2 percent of all American homes could have a cable hookup if they wished. A viewer at home could choose from as many as fifty-five cable channels, ten pay-cable services, or a variety of independent television stations which offered movies and syndicated reruns of such popular network shows as Cheers. In the fall of 1986 Rupert Murdoch would launch the Fox network, which he vowed would become the fourth network. VCR movie-rental outlets or pay-per-view events like championship prizefights offered customers the movie or event they wanted when they wanted it. That the networks would lose viewers was, no doubt, inevitable. What wasn’t inevitable, thought Wright and Welch, was the sloth, the complacency with which the networks faced this challenge. They believed the networks, like much of corporate America, had grown flabby.

In some ways, Bob Wright was like Jack Welch. Both were relatively short, lean, balding men. Both attended non-Ivy League colleges. Both had spent most of their adult lives working for GE. But Wright lacked Welch’s electricity. He didn’t figuratively grab you by the lapels; often he didn’t look you in the eye but instead cast his hazel eyes elsewhere. He was a laid-back man, whose large, square eyeglasses and subdued paisley ties were the uniform of the corporate lawyer or credit manager. Wright had performed as both for GE, where he had held eleven jobs in twelve years.

When Larry Grossman or Grant Tinker heard the word network, they thought of NBC, CBS, or ABC; Bob Wright thought of a twelve-network universe, composed of HBO, CNN, ESPN, and other cable-programming services, many of which made more money in 1986 than the CBS or ABC networks. When Grossman or Tinker thought of the word network they thought also of the half-dozen or so network-owned TV stations in large metropolitan centers, stations which benefited from free network programming and were always awash in cash; Wright’s calculus did not include the hundreds of millions in profits these stations delivered to NBC, CBS, and ABC. Looking only at the networks, Bob Wright knew that the Big Three, which only ten years before had monopolized 92 percent of all evening viewers, now claimed just 75 percent, and their share of the TV audience was heading south. As happened on the world stage, where powerful nation-states such as Japan, Germany, and South Korea had become economic forces the two superpowers were compelled to contend with, so Wright believed the cable sun was rising.

Wright was equally skeptical about network news. He believed people no longer automatically waited to watch the evening news at 6:30 or 7:00 P.M. They got their fix earlier from expanded local news, with free footage supplied by the networks or other pay services, from Ted Turner’s Cable News Network, from all-news radio, from their computer terminals. Like a lawyer presenting his brief, Wright could recite the numbers: Just five years before, 72 percent of the audience watched one of three evening network newscasts; by 1986, only 63 percent did. Where Welch instinctively rejected the argument that News had a unique public trust, Wright relied on numbers. With less and less of the public watching, Wright wasn’t certain that News qualified as a public trust. It vexed him that NBC News had not earned a direct profit since 1979, when its costs were only $100 million. Now it was spending $275 million. It troubled him that CNN, which was on twenty-four hours a day, had a budget only one-third that size. CNN was earning a profit, and Wright thought he knew why. CNN wasn’t unionized, wasn’t encrusted with strict work rules, wasn’t burdened with an extra layer of field producers, wasn’t bashful about using pictures provided by non-CNN sources. While the networks paid star salaries to its anchors and reporters—Brokaw was earning $1.8 million and most correspondents received six-figure salaries—at CNN no correspondent then earned more than $90,000 and no anchor topped $500,000. Wright was pained to note that the NBC News budget had ballooned at a compound annual growth rate of 14 percent between 1980 and 1984, and that in 1986 News would spend $64 million more than it collected in revenues. The new president of NBC thought all this, but like Welch he was wary of a public squabble with News.

Larry Grossman operated on a different set of assumptions. He believed the networks themselves were a public trust. The average American household watched television seven hours daily, and six out of ten owned at least two TV sets. On Sundays, the most watched night of the week, 100 million viewers gathered in front of their TV sets as if before a shrine, and the networks used this night to launch their miniseries; the early evenings, when the kids were still awake, were devoted to half-hour comedies; from 9:00 to 11:00, when adults were the dominant audience, the networks programmed more serious fare, including news specials and one-hour dramas. Not since the automobile had a new technology altered behavior as television had, thought Grossman. Television shrunk the world, made possible the global village Marshall McLuhan had prophesied. The Berlin wall could keep out people but not ideas. Grossman could remember the piece that ran on NBC Nightly News from tiny Belize, near Guatemala, in which correspondent Garrick Utley wandered about a Third World village which had no plumbing or electricity or metal television wires, but had plenty of battery-operated TV sets and backyard dishes receiving American TV shows from satellites whirling in space.

To Jack Welch or Bob Wright, Belize was a business opportunity; to Larry Grossman, it was an opportunity to advance a sense of community, the exchange of information that Third World nations might denounce as cultural imperialism but Grossman believed would one day infect nations with the spirit of freedom. Grossman rejected Jack Welch’s notion that the same public trust applied to making an airplane engine. Relatively few people flew airplanes, and anyone could build them. Besides, the very reason television had more government imposed regulations was that frequencies were relatively scarce and had to be rationed.

The public owned the airwaves, Grossman believed, and it was to them that a network owed responsibility to provide news, as well as to offer occasional evenings of dramas or symphonies. If political leaders shied from issues, he believed the press had a responsibility to highlight them. This was Larry Grossman’s religion, one shared by many others at the network, even those who jumped aboard when an action-adventure series, The A-Team, helped pull NBC out of third place. To them the thought of requiring News to earn a profit or even to break even was a sacrilege. Before GE bought the network from RCA in 1986, Grant Tinker kept hands off News, respecting an invisible wall between it and business.

In the GE culture, on the other hand, nothing was sacred; the thought of accepting losses as normal was sacrilege. The primary responsibility was to GE shareholders, not to some romanticized notion of a public that was abandoning the networks anyway. To Larry Grossman, this was alien. For each of the two years Grossman had run the news division, he had spent up to $275 million, and each year lost money. Grossman was, of course, asked to justify expenses, but he did not feel the hot breath of accountants. Nor were news specials expected to match the ratings of entertainment programs. When he put Today on the road—sending it to Rome to interview the pope or to Moscow to interview Mikhail Gorbachev—the extra money spent on what he called event television translated into enhanced stature for Bryant Gumbel and a return to first place in the morning ratings. Larry Grossman believed in the virtue and power of liberal government—The problems of poverty and inner city decay, he would say, of education and pollution, of crime and drugs, of racism and discrimination, are well within our capacity to resolve. And Grant Tinker had supported Grossman’s calling, which was to educate the public, to do good.

Grossman had known Tinker since the early sixties, and when Tinker retired as chairman and CEO of NBC during the summer of 1986, Grossman was deeply distressed. This was not just because Tinker treated News as sacrosanct. Larry Grossman carried a secret: Before departing, Tinker had recommended to Welch that Grossman be anointed his successor as head of NBC. Although he had not campaigned for the job, as others did, Grossman lived with the knowledge that he had been passed over in favor of Bob Wright. This might have been less of a burden had Bob Wright shared Larry Grossman’s assumptions—his religion. He did not.

Being a man of reason and genuine sweetness, Larry Grossman did not let his wound fester, and early on he did what any former public relations executive might: He launched an offensive aimed at winning over the new corporate parent. The dinner at his Westport home was part of that offensive. He thought it would work, although Tom Brokaw was dubious. I think they’ll see it as a conspiracy, he remembers saying four days before the event.*

The event backfired. You certainly didn’t leave that dinner feeling close to Larry, said Welch. You left feeling closer to Brokaw and Bryant. Because Welch feels that judging people and placing them in the right slots is his number-one task as chairman of GE, and because he liked Brokaw and was a news junkie, he soon developed an easy rapport with the anchor, calling him, seeking him out at the annual NBC Christmas party, inviting him to lunch or breakfast.

Grossman was another story. A month after the dinner, at an annual budget review at GE’s campus headquarters in Fairfield, Connecticut, NBC, like the other thirteen divisions of the corporation, was expected to make a case for the resources they require from us, said Welch. Grossman came proposing not the 5 percent cut Bob Wright requested but an increase for News.

How dare you come in at 4 percent above 1986 when the word is out that you have to keep below the current budget? Welch bellowed.

That’s what we need, said Grossman, who stammered as he tried to explain why. Welch sat across from Grossman and the other NBC executives at a large oval table in the GE boardroom on the third floor.

You guys spend more money! My kids could do better! Welch exclaimed to Grossman. He then followed with a barrage of questions: How much does it cost NBC News per story covered? How many stories that are covered actually get on the air? How often is each correspondent on? Why can’t we save money by allowing some of the two hundred or so NBC affiliated stations to cover stories?

Grossman was stunned, and hemmed and hawed, remembers Wright. What Jack Welch saw when he looked across the table was Larry Grossman pouting. He was sullen. I had a sense he was not buying in.

Grossman did not know the answers to many of Welch’s questions about the news budget. But this was usually the case with network News presidents. With rare exceptions, they did not view themselves as cost-control experts. The tradition at all three networks had been that the news division president protected News from the corporation, kept the efficiency experts with their flow charts and operating statements at a distance. Not having come from the world of journalism, Grossman was also anxious to demonstrate his news credentials. Like his colleagues, Grossman thought News was home for independent-minded, creative people, who operated best when they felt free. He was like a union leader representing News, struggling to keep the GE bosses at bay.

Welch glowered and recalls: I was shocked. Shocked! Welch didn’t actually order Grossman to cut the budget, but he expected him to toe the line. He was appalled by what he took to be Grossman’s stubborn, almost mulish resistance. Privately he railed, Grossman is a damn socialist! He doesn’t believe in profits!

The next day, Wright telephoned Welch and said Grossman wanted to revisit the subject. The GE helicopter was in midair, ferrying former RCA chairman and new GE board member Thornton Bradshaw and his wife, Pat, to Martha’s Vineyard, when Welch, without explanation, ordered the chopper to return to NBC to pick up Wright and Grossman and drop them off in Fairfield first. The former RCA chairman had no idea of the confrontation awaiting Grossman. The Fairfield encounter with Grossman, Welch and Wright turned into a two-hour summit. The first words out of Jack Welch’s mouth when I walked in, recalls Grossman, were, This is the greatest day of my life!

Grossman wondered whether one of Welch’s children had just done something wonderful, whether he had become a grandfather or acquired a masterpiece.

Our stock just hit a new high, explained Welch.

Grossman was stunned. I couldn’t comprehend his values, he recalls.

The three men sat on a sofa in Welch’s giant modern office, facing the pictures of Welch’s four children which flanked his glass-topped desk.

I don’t like the way the meeting went yesterday, Grossman began. What didn’t you like? asked the GE chairman.

Look, I don’t like this whole cost detail, said Grossman.

They went over and around the subject of the budget, and after a while, Welch remembers, Grossman looked at his watch and said, I’ve got to get this over with. I have to get back to New York because I have dinner with Chief Justice Burger.

Welch was livid. I was ready to fire him right there. That afternoon, recalls Welch. Not only had Grossman been remarkably self-important, he thought, he was also obstinate. If you don’t get your costs in line you won’t be having dinners with Justice Burger! Welch roared, pointing a finger at Grossman’s chest.*

Welch did not let up: You’re going to do this stuff. You’re going to follow our procedures. And if you like seeing Justice Burger you get this thing right. I want it clear that you cannot refuse to cut five percent. You work for Bob Wright! You work for GE!

To Larry Grossman this encounter was like a nightmare, a scene right out of Paddy Chayefsky’s prophetic 1976 movie, Network, in which the new network owner bellows to his anchorman: You will atone! Am I getting through to you, Mr. Beale?

Jack Welch got through to Larry Grossman. The News budget was pared 5 percent, although Grossman chose not to acknowledge the cut. Even so, Larry Grossman, like his counterparts at ABC and CBS, was compelled to recognize that a new order had replaced the old.

*Grossman doesn’t remember Brokaw’s words, but confirms it was too late to cancel dinner.

*Grossman docs not recall the warning.

*Grossman does not remember that Welch had said this but adds, If I mentioned Burger it was only to show off that I was having dinner with him.

—

2

A LITTLE SHIRTTAIL COMPANY

TAKES OVER ABC, 1984–1985

—

A decade earlier, in the midseventies, the old order at the Big Three networks had been a comfortable cocoon, shielding those who worked there from bad news. Job security was a given. Hostile takeovers were unheard of. Like the Big Three American auto companies, the networks crushed all would-be competitors. The networks had paid little notice when Home Box Office, in 1975, requested permission to bounce its signal off a satellite. When the Federal Communications Commission held public hearings and invited public dissent, none of the three networks lodged a protest. No one cared. The networks felt impregnable. NBC’s parent company, RCA, even leased one of its Satcom I satellites to the infant pay-cable channel.

Why should the networks feel threatened? Of the 85 million Americans who owned TVs in 1976, nine out of ten watched evening shows on one of the three networks. On a typical night, the average household received just seven stations, and TV Guide listed only fourteen viewing options. Neither Showtime, ESPN, CNN, the Disney Channel, nor MTV was included among the fourteen, since aside from services like the struggling HBO, cable programming barely existed. Only the Big Three could afford to exhibit recent Hollywood movies. There were fewer syndicated shows, and none bulldozed a time period as Wheel of Fortune, Jeopardy!, or Oprah Winfrey does today. There were, in early 1976, few commercially available VCRs, few cordless remote-control clickers, no satellite distribution of programs, no backyard dishes, no superstations, no Fox Network, and about a hundred non-network independent TV stations in the entire United States. Advertisers wishing to reach mass audiences were held hostage by the networks. The revenues of CBS, ABC, and NBC racked up doubledigit growth every year, swelling by an astonishing 324 percent between 1976 and 1984. The network was king.

Almost everything about the networks suggested comfort, from the silver limousines on demand to the chartered airplanes to the first-class air travel provided even technicians, to the mountains of caviar dispensed at network-sponsored conventions, to the party and conference planner on staff at ABC who did nothing but book hotels, reserve golf courses, and order custom-made ice sculptures for network parties. There was the luxury of knowing that the three networks were still controlled by the same founders or institutions—William Paley (CBS), General David Sarnoff and RCA (NBC), and Leonard Goldenson (ABC). In addition to job security, there was also the serenity that came from knowing that even the third-place network made money. Looking back, Paley conceded, There was a sort of comfortable attitude on the part of the networks.

Competition came not from other methods of TV distribution but from the networks themselves, which were located within five blocks of each other along Manhattan’s Sixth Avenue. It was a competitive but clubby world. There were enough advertising dollars to go around. Profits were assured. You lunched at the same restaurants, attended the same confabs of the National Association of Broadcasters, the National Association of Television Programming Executives, and the Association of National Advertisers, sat on the same industry boards, lobbied the same federal government. Mostly, you thought about each other. "In the old days it was us versus them" recalls Brandon Tartikoff, president of NBC Entertainment, who had been an ABC programmer in the seventies. We used to ask: Did we win Friday? No one had to ask: What is the network share of the television market on a given night? The pie was sliced just three ways, with the nibblers vying for the crumbs.

Although the networks alternately fought cable or vied to invest in it, or battled the Hollywood studios, in general the Big Three were filled with their own power. When David J. Londoner, a respected media analyst with Wertheim & Company, issued a report in 1978 predicting that new methods of entertainment distribution would significantly erode network audiences, the Big Three were irate. Even under the worst circumstances, in the long run, proclaimed an internal ABC retort to Londoner, the maximum negative effect on network audiences would be 6 percent or less. More than likely, the networks argued, their audience would grow because the population would. Nor were the networks worried about costs. As costs spiraled, they simply passed them along to advertisers by hiking prices. The networks were gougers, admits Jake Keever, ABC’s head of Sales. The networks would inflate the price of their ads, he recalls, and be stunned when advertisers agreed to pay them.

Meanwhile, they failed to focus on such emerging competitors as cable, independent stations, and the VCR. The pattern was not an unfamiliar one. As the networks paid too little attention when HBO requested access to a satellite, so a decade earlier the American auto companies missed the rising threat from cheaper, smaller, more fuel-efficient Japanese imports. Something similar happened earlier to the railroads, which were displaced first by the automobile, then by the airlines, and would happen to RCA and the American consumer-electronics industry as a whole, which lost its bet on video disc technology—or didn’t bet at all—to the VCR revolution that would sweep America in the eighties.

Down the yellow brick road the networks skipped, blithely unaware of the bad news awaiting them.

For ABC, the first forecast of bad news concerned the price of its stock. The news was delivered on a radiantly sunny day in June 1984 by Michael P. Maliardi, the network’s unpretentious chief financial officer. The setting was the vast, lavish green rolling lawn of the Crescent H Ranch in Jackson Hole, Wyoming. The occasion was a four-day ABC executive retreat, and the twenty-five executives present paid heed because Maliardi, fifty, was respected for his financial acumen and because he was without bombast, a down-to-earth man who preferred cutting the grass at his Rockland County home to attending cocktail parties or network junkets.

Our company is worth more dead than alive, Maliardi warned his audience. The breakup value of ABC is greater than the price of our stock. ABC stock, he cautioned, was trading at forty-two dollars a share, which suggested that the company was worth only $1.2 billion. Yet the book value was sixty dollars a share, suggesting a worth of about $2 billion. But Wall Street said that if the company were broken up and sold it would be worth about $4 billion. So, fellas, people out there are saying ABC is worth more than twice its current market value. We are vulnerable. A raider, he was suggesting, could pay a steep premium for ABC, knowing he could dismember and sell off the parts—five TV stations, five AM and seven FM radio stations, seven satellite-delivered radio networks, ABC Motion Pictures, more than one hundred magazines and a book publishing arm, three cable-programming services, and various other assets, including extensive real estate holdings. ABC also made an inviting target, Maliardi said, since it was swimming in cash. Fueled by its robust TV stations, ABC would have a strong year in 1984, with $3.7 billion in revenues and $195 million in earnings.

Maliardi in his Jackson Hole speech was, of course, telling only part of the story. By the mid-1980s the television industry was wobbling from changes that shook the very foundation of the networks. TV Guide, which a decade before had listed fourteen viewing options each evening, now listed thirty-three. On a typical night, viewers could with their remote-control clickers flick from the networks to three times as many independent stations as existed in 1976, and to a veritable alphabet soup of choices, including A&E, ESPN, USA, SHO, HBO, FNN, NICK, LIFE, MAX, CNN, MTV, DIS, BET, C-SPAN. Movies and syndicated fare like Wheel of Fortune helped independent stations snare one out of five viewers. By the end of the decade, 60 percent of all homes would have cable. And if neither cable nor the broadcast stations appealed to viewers who increasingly grazed from channel to channel, technology offered still another choice not available in 1976. Viewers could now pop a rental movie into their VCRs. By 1985, VCRs would be in 20 percent of all American homes; six years later seven out of ten