David Geffen Tries Out A New Act

He made $1 billion producing records. But can he go mainstream?

It's less an office than a room built for schmoozing. No desk. An L-shaped sofa. Two sleek telephones. And a wedge of warm, Southern California sunshine streaming through the window. Outside, miniskirted women and ponytailed men scurry down halls hung with posters advertising the rock groups Guns N' Roses and Nirvana. But inside, the bustle is replaced by the steady cadence of David Geffen's voice.

If he were alone, Geffen would be making phone calls. Lots of them. Whether he's sitting in his office, riding in the back of his chauffeured Lincoln, or flying to New York in his new Gulfsteam IV jet, it's a rare moment that he doesn't have a phone pressed to his ear. Contacts are Geffen's stock in trade: Working them better than anybody else made him the world's largest independent record producer. A knack for dealmaking, buckets of energy, a legendary toughness--all have been crucial to Geffen's heady success. But the reason David Geffen emerged last year as the richest man in Hollywood is his uncanny ability to discover raw talent, feed it through his Rolodex, and parlay it into rivers of money.

RELENTLESS. Lately, though, Geffen has spent more time chatting with investment bankers than rock stars or club owners. And today, he's explaining how David Geffen the Hollywood record producer would like to cross over to become David Geffen the hotshot businessman. Since 1990, when the former made $710 million by selling his booming Geffen Records, the latter has been itching to emerge. Geffen has done Hollywood. Now, as he approaches his 50th birthday, he's looking for a different way to channel the relentless ambition that drove him from a row house in Brooklyn to this Sunset Boulevard nonoffice.

"It's not the money," he insists. At least, not anymore. "I couldn't possibly spend more money than I already have." What Geffen wants is to take that money--$1 billion at last count--into the world of mainstream dealmaking. He dreams of becoming chief executive of a major company. "I don't know what's left for David in the record industry," says Geffen's friend Allen Grubman, a New York entertainment lawyer. "His dilemma is: What's he to do with the rest of his life."

Most Geffen watchers--and they abound--expect him to team up with a friend such as ex-Fox Inc. Chairman Barry Diller or Walt Disney Studios chief Jeffrey Katzenberg to go after one of the TV networks or an entertainment giant such as Paramount Communications Inc. But his biggest foray so far has been a far cry from the entertainment industry. Last September, he joined with Fort Worth financier Richard Rainwater and the Bechtel family to make an unsuccessful $3 billion bid for failed insurance company First Executive Corp. and its portfolio of junk bonds. "David Geffen isn't just some Hollywood guy," says Leon Black, a former Drexel, Burnham Lambert Inc. investment banker, whose group won the bidding for First Executive. "He's a very shrewd investor who knows value when he sees it."

DAY-OLD GROWTH. The record so far is hard to dispute. In early 1990, eight months after he sold Geffen Records to MCA Inc. for $545 million in stock, Japan's Matsushita Electric Industrial Co. acquired MCA, turning Geffen's 12.5% stake into a $710 million windfall. Add in assets ranging from a rich portfolio of real estate to interests in Broadway hits such as Cats, and Geffen's net worth climbed past $1 billion after the deal.

The question is whether the fiercely independent entrepreneur can successfully manage anything other than his own record label. His only attempt so far was a disastrous stint as vice-chairman of Warner Bros. Pictures in 1975. That failed when Geffen couldn't adjust to the constraints of corporate bureaucracy, forcing his departure in less than a year. When Geffen sold out to MCA, he says he harbored hopes that MCA's 79-year-old chairman, Lew Wasserman, would eventually step down and let him run the show. But he also admits that "I don't operate well under majority rule. I have to be the one who is responsible."

He's certainly making no attempt to recast himself in the corporate mold. You can start with his attire. Geffen is definitely a clotheshorse, but a coat and tie aren't part of the uniform. Khakis or jeans, Italian loafers, and casual shirts are his mainstays, complementing his stylish, close-cropped hair and his penchant for a day-old beard. When Geffen showed up at Sotheby's Inc. in New York last November to drop $3.4 million on Willem de Kooning's painting Woman, he was sporting slacks, a loose-fitting shirt, and a white painter's cap worn backwards. He likes to work at home. He hates details. And when he does go to the office, he arrives closer to 11 a.m. than to 9, so he can work out with weights. "David does things his own way," says Grubman. "His style doesn't fit the corporate structure."

It's all part of Geffen's business-by-immersion approach. Much of his success in music stems from his ability to live the Hollywood life, feel its rhythms, and mine it for all it's worth. Rock musicians feel they can trust him--so they stay with him and recommend their friends. And once Geffen has an act, he'll use his extensive business contacts to help it blossom. "He has one of the best Rolodexes in town," says superagent Michael Ovitz, himself one of the industry's most ubiquitous schmoozers. "There's no one that he can't get on the phone."

FREQUENT CALLER. The phone is Geffen's lifeline, the focus of his day. He says he has spoken with Disney's Katzenberg every day of the week for the past 15 years. They've never done business together, but the information they trade is worth its weight in gold. "I try to get his observations on what's valuable to me," Katzenberg says. And vice versa. Geffen has even had a special satellite phone installed in his plane so he can keep in touch across oceans, where regular cellular phones fail. The price tag: $600,000.

Geffen's life has been the sum of his contacts ever since he made his first $1 million in 1969. That was three years after he signed his first big act, folksinger Laura Nyro. When Geffen met Nyro in 1966, her songs were well-received, but her career was foundering because of an awkward stage presence. Geffen moved in with her, formed a company called Tuna Fish Music to hold her copyrights, and then worked the phones. He got her songs placed with stars such as Barbra Streisand and the Fifth Dimension, dramatically increasing their value. By 1969, he arranged to sell Tuna Fish to CBS Inc. for $4.5 million, collecting half of that for himself.

A year later, 27-year-old Geffen started his own label, Asylum Records, and began to make his mark. Success again was an example of networking, Bohemia-style. One of Asylum's early stars was folksinger Joni Mitchell, whom Geffen discovered on a demo tape sent in by another singer, Buffy Sainte-Marie. His success with Mitchell led Jackson Browne to send in a tape. And when Geffen went to Browne's house to sign him, he heard about a group called the Eagles living upstairs. All became Geffen superstars, while others, such as Tom Waits, merely did well. Geffen discovered Waits while standing in line to use the bathroom in a Los Angeles club.

While Asylum became Geffen's second major deal--he sold it to Warner Communications in 1972 for $7 million--his biggest score came from Geffen Records. This time, the key relationship was with Warner Communications Inc. Chairman Steven J. Ross. In 1980, Geffen persuaded Ross to help him launch a new label by providing financial help and a distribution contract. Eventually, however, the company's equity reverted to Geffen. Over the next decade, the label grew into the nation's largest independent by finding such superstars as heavy metal sensation Guns N' Roses and rebound rockers such as Cher and Aerosmith. By the time a wave of consolidation swept the industry in the late 1980s, Geffen was in a perfect position to make a killing.

Part of Geffen Records' success stemmed from the chief's decision to hire a team of smart young executives to spot new talent--Geffen was tired of trying to judge teenage tastes. Meantime, he focused on larger issues such as doing deals and chasing established stars. In 1990, that led to a now-infamous face-off with his biggest rival in the industry--Walter R. Yetnikoff, then the fiery president of CBS Records Inc.

DIVIDENDS. The issue was Michael Jackson, whose contract was held by CBS (now Sony Records). Although Geffen denies it, sources say he wanted Jackson for his own label. When Jackson's pact came up for renegotiation, Geffen persuaded the star to fire his team of business advisers and replace them with Geffen's people. As it turned out, Jackson couldn't switch labels because of a contract technicality. But the move paid other dividends: MCA, which had already bought out Geffen that year, got management rights to certain Beatles songs that Jackson owned. Moreover, industry sources say the lengthy battle between Jackson and Yetnikoff--Geffen's enemy--hastened Yetnikoff's departure from CBS later that year. The incident burnished Geffen's reputation for ferociousness when it comes to chasing talent and targeting those he doesn't like. "Business is rough, and David is good at business," says Diller. "Draw your own conclusions."

It's easy to conclude that Geffen won't stand still for long, not with all that money in his pocket. Though he has almost three years to go on his contract to run Geffen Records for MCA, he spends lots of time managing his $750 million personal bond portfolio and burning up the phone lines hunting for the right deal to spend it on. The way Geffen sees it, finding undervalued assets and spinning them into winners isn't so different from sniffing out underappreciated rock groups and turning them into superstars. "I'm an excellent problem solver," he says. He's proved that many times. But even for David Geffen, knowing who to call in Hollywood is no guarantee of success anywhere else.

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