With Feuds Like This, Who Needs The Movies?
Apr. 29 was a big day for Viacom Inc. Chairman Sumner M. Redstone but hardly a red-letter one. Viacom launched TV Land, a 24-hour cable channel devoted to reruns such as Green Acres and The Addams Family. At the same time, it was hit with a nasty lawsuit by MCA Inc., which is now run by Frank J. Biondi Jr., the CEO Redstone fired earlier this year. A tough litigator himself, Redstone countersued.
MCA and Viacom's Paramount Communications Inc. unit are ripe for a divorce. They've been partners since 1981, when they agreed to jointly own USA Networks, which airs both the USA and the Sci-Fi cable channels. The tale leading up to their nasty legal spat involves some of the fiercest Hollywood infighting in years, with Edgar Bronfman Jr., CEO of Seagram Co., MCA's parent, crossing epees with Redstone, one of the entertainment industry's wiliest swordsmen. The outcome will go a long way toward showing if Bronfman is the starstruck rich kid many dismiss him as, or a media mogul to be reckoned with.
The feud wound up in the courts despite intense negotiations between Redstone and Bronfman. Their main point of dispute: a clause in the partnership agreement, signed by previous owners of both companies, that bars each from independently starting or running a competing cable channel. Any new channels are supposed to be launched through USA, giving both partners an equal stake. Indeed, using USA as a joint MCA/Viacom vehicle was seen as plenty viable last year, when the two companies briefly discussed having it make a bid for CBS Inc. Now, MCA says Viacom's launch of TV Land was a flagrant betrayal of the agreement. Viacom says MCA is just using the TV Land issue to force it to sell its half of USA to MCA.
MCA first raised its objection to the TV Land launch in December, six weeks after Biondi announced the venture. Then, in January, Redstone abruptly fired Biondi. Bronfman needed a seasoned executive to run MCA, and he asked Redstone to release Biondi from a one-year noncompete clause in his employment contract.
After a meeting on Feb. 12, Redstone thought he had a deal that made everyone happy: Biondi would be free to go to MCA, and MCA would withdraw its objections to TV Land. But, as described in Viacom's court filings, the next two months were a maddening series of flip-flops, with Bronfman agreeing to a deal, then changing his mind.
On Apr. 11, Bronfman called Redstone and said MCA would sue if Viacom didn't sell its stake in USA. It would have fetched a nice price: Analysts estimate the venture's total value at $3.5 billion to $4.5 billion. Soon afterward, Redstone surprised many by releasing Biondi from his noncompete clause, without any concessions from MCA in return. On Apr. 22, Redstone sent Biondi a letter, saying it appeared the TV Land issue wouldn't be resolved soon and that he didn't wish Biondi to be a pawn in the conflict.
CRAFTIEST MOVE. But releasing Biondi may have been Redstone's craftiest move yet. Since he already knew MCA would probably sue when TV Land was launched on Apr. 29, having Biondi at MCA made him a valuable, if unwilling, ally in the enemy camp. As CEO of Viacom, Biondi had maintained for months that TV Land was a spin-off of Nick at Nite, not a new cable channel, and therefore not subject to the clause in the USA agreement. Now that Biondi is CEO of MCA, it would be ruinous if he said as much under oath. Redstone may also be counting on Biondi to negotiate a compromise between his current and ex-bosses.
MCA badly needs USA. It has no other cable outlet, and USA, with $520 million in annual revenues and the potential to be seen in 66 million homes, is the perfect vehicle for MCA's library of 16,500 hours of TV programs such as McHale's Navy and Leave it to Beaver. As a practical matter, MCA can't just make Viacom an offer for its USA stake. Under the 1981 agreement, whichever partner initiates the breakup must allow the other the first opportunity to buy.
If MCA made the first move, it would, in effect, be giving Viacom the right to acquire all of USA. In its suit, MCA is asking that a judge declare that Viacom's 1994 acquisition of Paramount triggered such an event, which would give MCA the right to buy Viacom out. MCA argues that when Viacom bought Paramount, it immediately ran afoul of the USA agreement by independently operating three other cable channels it owns--MTV, VH-1 and Nickelodeon.
The suit goes to a Delaware court, which has scheduled the trial for Oct. 1. Will it come to that, or will Bronfman and Redstone reach a compromise? If they don't, MCA faces the glum prospect of its own CEO being called as a witness for the other side.