Frenemies Read online

  After graduating from college in 1971, he moved to New York City with hopes of becoming an actor. After attending acting school and performing as a tough guy in TV series like The Six Million Dollar Man and Cannon, it dawned on him that acting was a dead end for him. “I knew I was a mediocre actor,” he says. He segued to producing plays before joining the development office of Columbia Pictures to nurture and select TV sitcoms. After two years, he moved over to 20th Century Fox to develop movies of the week and miniseries. Recruited by Lorimar Television in 1985 to supervise its movies and miniseries, he would rise to be head of creative affairs and then president. When Lorimar merged with Warner Bros., he was elevated to CEO of their combined television operations. Warner Bros. Television thrived; one year he successfully sold twenty-three shows to various networks, including Friends and ER. Even as a mediocre actor, he believes his experience before the camera made him a better program executive. “I knew what to look for in a script and in talent.”

  With CBS lagging in last place among the four networks in prime time, the network recruited Moonves to become president of its Entertainment division in 1995. Ratings rose, as did he, first to CEO of CBS Television and then in 2003 to CEO of all of CBS. The corporate parent of CBS was by now Viacom, and its chairman, Sumner Redstone, divided the company into Viacom, with its cable and Paramount Pictures, and CBS. Although Moonves’s range of responsibilities is wide—in addition to the network he oversaw its TV stations, its TV studios and distribution arm, its HBO pay-TV competitor Showtime, its CW network, CBS Radio, CBS Interactive, outdoor advertising, and Simon & Schuster, among other divisions—he still micromanages the Entertainment division. He says he reads twenty scripts each week and “no pilot gets green-lit without my approval. And none of the four or five lead actors on a show gets hired without my approval.” He has programmed some series worthy of the “Tiffany Network” tag that originally attached to CBS, like The Good Wife. But he does not pretend to be a highbrow. This is reflected not just in the many formulaic programs that helped propel CBS to ratings glory, like NCIS, The Amazing Race, and Hawaii Five-O, but also what he describes as the “delicious candy” of series he wishes he owned, like the ten episodes of The People v. O.J. Simpson on the FX network.

  Moonves attributes part of his success to a core team of executives who have been at his side for a minimum of a dozen years. His favorite movie is The Godfather, and to members of his team he is seen as a benign version of Don Corleone. “He is one hundred percent accessible to me and my team,” Jo Ann Ross, the lauded president of CBS Sales for more than two decades says, “I never want to disappoint him.” His second wife, Julie Chen, once told the Hollywood Reporter, “If you cross him, he doesn’t forget. You’re dead to him.”

  He feared he was, figuratively, dead in late 2005 when Sumner Redstone announced that the parent company would be split into two separate entities, Viacom and CBS. Moonves was unhappy, believing he was stuck with slow-growing assets like radio, publishing, billboards, and even the CBS network, all of which Wall Street punished because they were pigeonholed as old media. He wanted some of Viacom’s fast-growing cable assets and its movie-manufacturing arm, Paramount Pictures. However, within a few years Viacom’s stock tumbled and CBS’s soared. By February 2016, Viacom had a market value of $12.4 billion, half its former worth, while CBS was now worth nearly twice as much as Viacom. “He is the only guy since Bill Paley who is both a businessman and a showman,” says George Schweitzer, president of CBS Marketing for two decades. “We’ve had businessmen and showmen. We’ve not had both.”

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  The showman might have to be waterboarded to publicly admit the perils ahead for CBS. As newspapers are more reliant on Facebook to distribute its content, Moonves privately knows he is increasingly dependent for revenues on digital platforms that lustily compete for the attention of viewers. He says he is comfortable with this because “we are a content company.” Now that CBS is allowed to own and produce programs, it is a television studio, not just a network platform for other studios. “Netflix is a friend. They pay us a lot of money,” he says. “Netflix just paid us $5.5 million per episode for Star Trek outside of the U.S. All in, it’s hundreds of millions of dollars.”

  Netflix is also a classic frenemy, for while CBS receives revenue from them it has built up a competitor. Irwin Gotlieb thinks Moonves and the other networks that sell programs to Netflix and Amazon and other streaming platforms are “potentially sowing the seeds of their own destruction by selling their content to Netflix and any other subscriber VOD [video on demand] system.” Netflix is a colossus. Already, it estimates that its subscribers watch one billion hours per week, and by the end of 2017 it expected to have 116 million subscribers, nearly half of them in the United States. CBS and the other networks today have smaller programming budgets than Netflix or Amazon. And at the same time, Google and Facebook are siphoning more of CBS’s ad dollars.

  Moonves’s optimism is predicated, in part, on his bet that cable system owners will continue to pump more dollars into paying retransmission fees to the networks to air their programs, a sum he believes will climb close to $2 billion by 2020. His bet relies on three assumptions. He assumes that growing consumer pressure to break up cable bundles will not weaken cable’s ability to make those payments. He assumes that by selling network programs to cable competitors like Netflix he will not retard cable’s willingness to make those payments. And he believes, as he says flatly, that cable “needs the networks.”

  Moonves the salesman does not wail publicly about the perils ahead for CBS. Michael Kassan will surely advise his clients to invest more ad dollars elsewhere, including digital platforms like Google and Facebook, which by 2017 were poised to receive more ad dollars than the traditional ad sales champ, television. Irwin Gotlieb may refuse to pay steeper prices for ads on CBS because its audience is not growing and the number of those who watch ads on CBS shrinks. A generation accustomed to not watching ads will drive brand clients away from expensive thirty- and sixty-second ads. Les Moonves is not deaf. He’s heard marketers like Michael Kassan say quite publicly that at some point soon advertisers will insist on paying less and will shift dollars elsewhere. He has reason to fear how CBS will pay for expensive quality drama series that after several seasons of star salaries can cost up to $10 million per hour. And while CBS has nicely diversified its revenue streams, with only half its revenues now coming from ads, one out of every two dollars is still an irreplaceable revenue stream.

  These perils became public in the summer of 2015 when Disney CEO Bob Iger acknowledged that ESPN was for the first time losing subscribers—3.2 million subscribers, Nielsen reported—and thus “there’s an inevitability to ESPN peeling itself away from the traditional pay-TV bundle.” Iger went on to say, “eventually” ESPN would be “sold directly to the consumers,” streamed over the Internet just as Netflix is. This unsettled the easily rattled financial markets. Because ESPN had always been a financial juggernaut, Wall Street clamored to ask: If ESPN bypasses the cable middleman, with the most popular programming in the cable package removed, did this doom the cable bundle? Did it mean more viewers would rebel against the expensive cable bundle and cut the cord? With cable stressed, did this mean broadcasters would lose some of the retransmission fees cable pays? If ESPN’s growth has stalled, did this mean popular sports programming has hit its ceiling? Didn’t this demonstrate that broadcasters substantially overpaid for sports rights? And if Disney would pull ESPN from cable, did this mean that Internet TV, like Netflix, is destined to replace traditional television? Didn’t it mean viewers are fleeing from familiar television channels?

  As questions mounted, media stocks cratered, losing more than $100 billion of their value by the end of 2015. CBS’s stock price fell by one third. “Wall Street went crazy,” Moonves says. Wall Street was reacting, he told a reporter for SportsBusinessDaily, as “if the whole ecosystem is failing. A
nd that is just not true.” The financial community was straining for a new narrative, and he defined it thus: “‘Digital is taking over the universe. The old guys are dead.’”

  Moonves didn’t believe that. CBS’s profits belied it. But Michael Kassan among others believed the networks, like ESPN, were in a long-term downward spiral. “The last bastion is sports,” Kassan says. “That’s why the market crashed when Bob Iger made the comments about ESPN. Everyone said, ‘Oh my God, we know this is happening on ABC. But ESPN?’ That’s like the joke about the guy who comes home and sees his wife in bed with his best friend and he looks and says to his friend, ‘I have to. But you?’”

  Broadcast viewing tumbled badly between the start of the new season in September 2015 and December. The ratings of only three returning programs improved, Advertising Age reported, while 42 fell by an average of 25 percent. Cable programs also nose-dived. As viewing choices multiply—the average TV home had 206 channel choices, according to Nielsen—so audiences bifurcate, leaving fewer viewers for each platform. And this does not include their Internet and app options. Advertising dollars drifted down as well. The Upfront sales marketplace, which usually begins in May and runs into summer, and where roughly three quarters of ad dollars for the 2015–16 season would be invested, sank by an estimated 10 percent for broadcasters and 5 percent for cable networks. About $2 billion shifted from traditional to digital media. It is now conventional wisdom that the young, impatient with constant advertising interruptions and spoiled by being able to watch what and when they want without commercial interruption, and to be able to binge on it, will continue to abandon traditional television.

  David Poltrack, the venerated chief research officer for CBS who has worked at the network for nearly fifty years, rejects this notion. He believes those who shun advertising and television are a passing fancy. The young may be tuned out to advertising and television today, he says, but that has always been true, and as they age they will become more like their parents. Millennials between twenty-five and thirty-four watch 43 percent more TV than those eighteen to twenty-four, he says. Although one third of each broadcast hour is devoted to advertising interruptions, and slightly more on most cable channels, he merrily insists, “People do not object to advertising. They object to bad advertising and irrelevant advertising. People like advertising. Advertising informs people. Advertising entertains people.” When you ask millennials whether they would pay even as little as a dollar not to have to watch ads, he says, 90 percent say they would prefer to watch ads.

  In a modest-size office surrounded by piles of research reports, Poltrack made another counterintuitive argument: Since 80 percent of those between eighteen and thirty-four are simultaneously on the Internet with another device when they watch their TV screen, “that has resulted in the fact that they are more tolerant of advertising because they have something to do during the commercial breaks. They need those breaks to keep up the IM-ing with their friends and the tweeting.”

  What? But they are not watching the ads?

  They are, he insists. “There is research that shows those active on their devices are more likely to recall the advertising than those who weren’t.”

  Why?

  Because without a device, “when you’re sitting there and doing nothing you’ll look for something to do,” and you are more likely to leave the room. “But if you’re still in front of the TV” and you’re accustomed to multitasking and the only sound in the room is the TV, this “means their hearing is totally centered on the sound from their television set.”

  Poltrack made a more startling claim during the annual summer 2015 press tour in Los Angeles: when you count current CBS programs on cable, and those streamed over the Internet by CBS, and those that are recorded by DVRs or on video on demand from cable or satellite companies and watched over a full month, if measurement services could track all these programs and the multiple devices they are watched on, he claimed, “Our programs are being viewed by more people today than a decade ago.” And millennials, he guessed, were not watching less TV. He suspected the devices they viewed them on were not measured by the ratings services. He did acknowledge that the American population had swelled by twenty-five million in the ten years he was counting, and this partly explains his thesis. Poltrack, like Moonves, chants this thesis like a mantra. In May 2017, CBS published a full-page ad in newspapers proclaiming that “more people watch CBS today than 16 years ago.”

  Does this claim have the virtue of being true? In 2016, Nielsen added a measurement tool that allows them to estimate the number of viewers up to thirty-five days after the program originally airs. They measure those who watch CBS prime-time shows live, and those who watch them later on their DVRs or on VOD from their cable or satellite company. Even though the number of viewers does not account for those who watch CBS programs streamed digitally on multiple devices, Nielsen still confirms that CBS’s claim regarding its shows is accurate. The ratings for a hit show may be a third of what they were sixteen years ago, but the cumulative audience is slightly larger. But, and here’s the rub: with ad skipping the advertiser reaches a smaller audience, even though the overall audience is slightly larger. Plus: advertisers don’t pay for CBS shows that appear the next season on ad-free digital platforms like Netflix and Amazon.

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  Netflix, in the meantime, thrives. By 2016, Netflix had nearly as many subscribers as the entire U.S. cable industry. Television watching on all channels declined 3 percent in 2015, according to a study by Michael Nathanson, senior media analyst of MoffettNathanson, and Netflix viewing accounted for half the decline. One reason for that decline is ad fatigue. “We have overstuffed the bird,” Kevin Reilly, president of cable networks TBS and TNT confessed to the Television Critics Association in early 2016. In a halfhearted attempt to reduce ad clutter, Reilly’s networks and the Fox network announced that they would reduce their ad loads, however slightly. NBC’s Saturday Night Live said it was paring its commercial breaks by one third. Others gingerly followed. Mindful that his cash register was filling nicely, Les Moonves declined to join. Asked if she worried about ad clutter, Jo Ann Ross says she doesn’t. “Maybe down the road this model gets tweaked. But so far, people haven’t come to us and said, ‘I’m not buying you because you have too many commercials.’”

  Moonves was aware of other competitive threats, including Google’s YouTube and Facebook, each of which commonly—and falsely—boast that their audience exceeds that of network TV. In June 2014, RBC Capital Markets’s respected television and video analyst, David Bank, released a study revealing that for advertisers the ratings value of watching YouTube for an entire week would only match the value of a single original episode of CBS’s The Big Bang Theory.* YouTube executives invented new ways to assert that their audience was bigger than it was. They proclaimed that their twenty-three videos from Jimmy Kimmel Live! averaged 9 million views, more than the average 2.2 million viewers of the ABC late night show in May 2015. Yet Steve Hasker, Nielsen’s global president and COO, notes that TV viewing is measured by how many viewers watch in an average minute, while digital outlets like YouTube measure the gross number of times the video is viewed for either one minute or one second. Since Nielsen was only measuring the average audience in any given minute, the average hourly Kimmel show in May 2015 had 5.3 million views nightly and 43.1 million adults for the month.

  Unlike television, which has Nielsen to grade it, Hasker pointed out that Google and Facebook did not allow “independent third-party measurement.”

  Another long-term problem awaited Moonves, one that paralyzed most newspapers and magazines when they were first confronted by the digital threat in the late 1990s. Broadcast television could offer advertisers vast audiences, but they could not offer targeted ads and could not tell advertisers who actually watched their ads and bought their products. Unlike most newspapers and magazines, broadcast television remains
a robust mass medium. However, unlike Internet or digital video, it lacks the tools to target audiences, the addressable advertising that helps explain why digital advertising spending would catch up with the $70 billion ad dollars devoted to television.

  Moonves and his network brethren also resist computerized programmatic advertising that automates the targeting of audiences. Brian Lesser, the North American CEO of GroupM, is not alone in predicting that “all media will be digital”—meaning the TV networks will be streamed over the Internet just as Netflix is—and “all TV will be bought and sold programmatically.” Moonves resists, believing that if he turned over ad sales to machines it would take the skill and the timing of the salesman or saleswoman out of the equation, reducing CBS’s leverage. “Programmatic buying is fraught with peril,” he says. “Somebody is selling inventory cheaper than you’re selling it for.” Networks like the mystery that the only way you can reach, say, women eighteen to forty-nine is by watching Scandal.

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  Also assailing Moonves and the networks was a six- or seven-year-old digital advertising bazaar—the New Front—meant to vie with traditional television’s Upfronts, the period in which the four major broadcast networks sell up to 80 percent of their $9 billion worth of ads for the year. For several weeks in May 2016, thirty-nine digital companies sponsored presentations at which they made their pitch to about ten thousand advertisers and agency representatives. The New Front is organized by Randall Rothenberg’s Interactive Advertising Bureau, and MediaLink kicked off the New Front at a May 2 breakfast at the New York Times Center on West Forty-first Street, presided over by Michael Kassan. MediaLink served as host and sent the invites, though the breakfast was paid for by two MediaLink clients, Vox Media and Kargo, a mobile marketing firm. The large hall was crowded with agency representatives and with many of Kassan’s digital clients. By his count, Kassan says he represents 80 percent of the digital companies seeking to sell ads at the New Front. Surveying the crowded room, Harry Kargman, the founder of Kargo, said he saw the breakfast as an opportunity. “MediaLink allowed Kargo to be in front of people we may not have had the ability to get in front of,” he says. “We want CMOs to say, ‘What are we doing with Kargo?’” That’s what he hoped happened when he spoke at this breakfast. And after this breakfast, he said, “Michael can pick up the phone and say, ‘You’ve got to know this guy Harry Kargman.’”