Seth Shapiro\'s Business Innovation Blog

“Monopoly is a terrible thing – until you have it.”
– Rupert Murdoch, New York Magazine, October 1978

Steve Ross is long gone. The gregarious, brilliant, ethically fluid architect of the modern media empire died in 1992.

Steven Jay Rechnitz  was born in 1927. By 1953, he had a father-in-law with a funeral parlor. He noticed that the funeral limos were often idle, and began renting them out. He soon expanded from car rentals to parking lots and office cleaning. By 1962, the parent company, Kinney National, was worth $12.5 million.

When he was 39, Ross acquired the Ashly Famous agency, bringing him into the world he’d always dreamed of: show business.

The real play came in 1969, when he bought Warner-Seven Arts, the remaining shred of the Warner Bros legacy. It was the beginning of a very big story.

Ross is best known for creating a series of interlocking fiefdoms, in which each of his managers exerted relatively autonomous control. An eerily talented accountant, Ross was able to run the numbers in his head – and as long as the math worked for him, he let his people spend. One example was the Warner Records empire, known in the boom days of the music business as WEA: Warner Bros, Elektra/Asylum and Atlantic Records.

Each of these labels were run by independent chiefs.  All prospered under Ross’ tutelage. A generation of executive talent flocked to Ross, including David Geffen, Ahmet Ertegun and Steven Spielberg.

“Steve was very much what I wish my father was.”
– Steven Spielberg

An early believer in cable, Ross moved into television, seeding many of the brands that dominate today. Both MTV and Nickelodeon began at Ross’ Warner, before being sold to Viacom for massive profit, where they still reside today.

When Ross believed, he bet big. In 1976, he got the video game bug – accurately, but very early. Ross bought Atari, which hemorrhaged money and almost destroyed the Warner empire.

While Ross fumbled, someone was watching.

Rupert Murdoch, new to New York, was in the midst of acquiring the New York Post. After mounting a successful hostile takeover of New York Magazine, Murdoch took a run at Time Warner as well.

Ross countered by acquiring 20% of Chris Craft, a company which owned television and radio properties. Because federal law prohibited a foreigner from owning TV stations, this strategy fought Murdoch off, who as an Australian national could no longer devour Warner.

At least for a while.

In 1989, Ross went on the mount his crowning achievement, the merger of Warner Communications with Time Inc, to become Time Warner in a $14 billion deal that created the world’s largest media company. The merger combined Time’s leadership in print (23 magazines) with Warner’s industry-leading music and cable businesses, and the property that would come to dominate them all: Time Inc.’s HBO.

Ross went on to found the first major foray into interactive television: the Qube trials.

But time was running out. In 1992, Ross died of prostate cancer, leaving a massive company that would scale the heights in the HBO-dominated era.

Unfortunately, all this value would be gutted in the worst deal in the history of American industry:  the merger of Time Warner with AOL.  Under Ross’ successor, Gerald Levin, Time Warner would enter into a disastrous era that would destroy billions in shareholder value, and leave the company vulnerable to another takeover attempt.

From guess who?

Rupert Murdoch has a romance with satellite television. For those who’ve been around, as he certainly has, nothing exemplifies that era more than HBO, which kicked the whole game off with the Thrilla in Manila in 1975. Murdoch loves satellite the way former Time Warner Vice Chairman Ted Turner loves cable: with the ardor of someone who has seen an opportunity and made billions from it.

Unfortunately for Turner, most of the billions he made building CNN, TBS, TNT, HLN and the Cartoon Network – and on acquisitions including MGM, Hanna Barbera and the Atlanta Braves –  were lost when Jerry Levin betrayed Turner in the AOL debacle.

Murdoch, on the other hand, has only grown richer. He has had his own trials, but has never sold. News Corp remains liquid, and solidly in one man’s control.

In the shadow of the hacking scandal, perhaps the 83-year-old Murdoch just wants one more triumph to be remembered for. Perhaps he still wants HBO, the network that started the cable revolution. Perhaps he wants to try another round of the brinksmanship that won him The Wall Street Journal.

Or perhaps, with the overwhelming force he has always loved, Murdoch wants to even the score with Steve Ross’ ghost before he crosses over.

Whatever the reason, it’s not pretty.

Posted in Blog by Seth Shapiro.

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