CHAPTER 17

Pissing with Picasso

I felt pretty good in my new fawn seersucker suit. It had cost $60 at the Moe Ginsburg discount store in the Flatiron district of New York City. I wore it for the first day of my new job, along with one of the $6 defective Arrow shirts I routinely bought at a downtown street stall. I wanted to look my best.

I had spent three years in Boston before moving back to edit The Star from offices in a suburban Westchester business park. Now, I was in Manhattan — the centre of the world — newly in charge of Rupert’s stable of glossy magazines.

Carl J. Portale was not impressed when I arrived at the Madison Avenue offices of European Travel & Life, a periodical aimed at the very rich. Its mission was to reach that touching part of the American psyche that is dazzled by anything more than a century old. It did so by presenting a flawless fantasy of Scottish castles, Tuscan villas, and an idyllic rustic life of wine, fresh bread, and pure air, as if the entire European continent were embalmed in a perfect past.

Portale was the magazine’s publisher. He was born to the role. His skin had a Mediterranean hue, and his slicked-back hair was black with matching streaks of white at each temple. His dark-blue suit was creaseless, with the tiny hint of sheen, and his silver tie had a broad knot; the kind I had never been able to master. As we shook hands, he raised his chin and peered at me down his Roman nose.

My appointment as executive vice president of Murdoch Magazines was a jolt. I had always been a newsman, living with the immediacy of newspapers and news agencies. Now, most of the publications I had to work with were glossy monthlies, including Elle and Premiere. There were just two weeklies: New York and The Star, the twilight zone tabloid I knew so well. With these exceptions, my new world was an unrushed one. It could be intense, even fiery at times, but no one was ever in a hurry.

For the first time, I had the task of overseeing the business as well as the journalism. This was a challenge. I was suddenly in charge of a multi-million-dollar enterprise without ever before having looked at a balance sheet.

Rupert had surprised me again. In the autumn of 1987, he called me to his oval-shaped office at the New York Post. It was in a dirty-white slab of a building that sat anonymously in downtown Manhattan in the shadow of the FDR Drive. According to office lore, it had been anonymous since the previous owner, Dorothy Schiff, removed the New York Post sign for fear a disaffected reader would take a shot through her office window. This made sense because the FDR offered a perfect line of fire and an easy getaway.

‘Welcome to super management,’ Rupert said, and announced my new salary, which was agreeable but not lavish.

I had never worked with people like Carl Portale. I moved into an office next door to him and he took me into his care, advising me I needed to look the part when visiting clients. They represented, he said, the world’s most desirable hotels; they were purveyors of expensive fashions, jewellery, and high-end European cars. The Moe Ginsburg suit I was so proud of wouldn’t do at all. He took me to his Italian tailor on the 15th floor of a building on Central Park South. ‘Three decent suits for this young man, and don’t overcharge him,’ he ordered.

Other colleagues joined in. Julie Lewit-Nirenberg, the sleek publisher of Elle, disapproved of my shirts and their wayward collars. She recommended an expensive substitute, and told me to use collar stays. I had thought those plastic strips were part of the retail packaging. A stylist at the magazine told me to wear long socks to avoid the unacceptable exposure of skin when I crossed my legs at meetings. Ed Kosner, editor and publisher of New York magazine, explained that seersucker suits were strictly for summer, to be worn only between Memorial Day and Labor Day.

The dress code at The Star had not been so demanding. No one cared about my shaggy dark-green coat or brown plastic boots lined with faux fur, or the happy yellow pom-pom ski hat I wore on cold days. My briefcase was a Sloan’s Supermarket bag. It wasn’t much different at the Herald, where I kept a tie on the back of my chair in case someone important came to lunch.

If genetic coding links all journalists, those working for fashion magazines and supermarket tabloids are at opposite ends of the chain — although Elle staffers did snatch up the free copies of The Star that were left in piles around the building.

At Elle, looking chic was essential. Black dominated the tribal costume, with added semaphores of taste such as the H buckles on Hermes belts; Chanel’s interlocking Cs; the Gucci strip; and the golden LV monogram. Accessories were commonly layered around necks and wrists, and there was subtle disapproval of those who didn’t get it quite right, who overloaded the accessories, or clashed their colours, or fabrics.

After I took the job, we launched Mirabella with the doyenne of Manhattan fashion magazines, Grace Mirabella. Her chiming accessories acted as an early-warning system when she prowled the office. At Elle and Mirabella, I developed an inconvenient work-related condition — a sneezing allergy to strong-smelling perfumes.

Grace Mirabella was one of the best-connected journalists on the Manhattan social scene. Dinner parties at her Upper East Side brownstone were full of notable people. I met Donna Karan there, just as she was hitting the big time; Peggy Noonan had gained renown for the speeches she wrote for Ronald Reagan; Tom Wolfe sang Christmas carols — and I saved the company millions of dollars after meeting Carl Icahn.

Icahn was already a billionaire and famous for his forceful takeover tactics. He had gained control of Trans World Airlines (TWA), so it seemed polite to show respect for his success. I asked the kind of question sure to flatter a towering tycoon: ‘When you acquire a company, what is the first thing you do?’

He smiled. ‘I fire all the procurement people,’ he said. ‘Not because they’re crooked or taking kickbacks, but if they stay in the job too long they become friends with the people they’re buying from. They play golf together, they go to shows. That softens them when they’re renewing deals.’

Soon after my conversation with Icahn, we were negotiating to renew a multi-year printing deal. I put the company’s most cantankerous finance executive alongside the regular negotiators. He was a stranger to the people we were buying from, and he was tough. We reduced our costs by $90 million.

The least fashionable member of the Elle staff was also its most important. Regis Pagniez was the publication director, and he dressed in a simple shirt with an old V-neck sweater. Sometimes, but not often, he combed his grey hair. He had spent years in the superficial atmosphere of fashion, and I suspect most of its rituals bored him. He cared only about shapes — a handbag, a silk scarf, a face.

Pagniez could crop a picture so that a simple shoe looked like a beautiful sculpture. It was wonderful watching him work; he would select a shape or a photo that he knew was right, but no words could explain, only the sight of it on the page.

Elle was a 50-50 venture with the French publisher Hachette Filipacchi, and Pagniez made it an instant success, which caused brief but satisfying anxiety at Vogue. He was a perfect example of how exasperating the best creative people can be, and a lesson for me in dealing with them. I worked with many: art directors who stormed off after mild criticism; columnists who went into hysterics when a sub-editor invaded their fine prose with a clumsy comma; editors who sulked after a gentle rebuke about an underplayed story or an oversized headline. But in my entire career, no one compared with Regis Pagniez. Any challenge provoked in him a wild Latin tantrum. We had many arguments. Didier Guerin was my French counterpart in the joint venture and once had to jump between us as Pagniez reached for my throat.

Pagniez’s boss, mentor, and defender was Daniel Filipacchi, chairman of Hachette Filipacchi magazines and a legend in France. He had started as a Paris Match photographer and made many millions in media. He also had a vast and renowned collection of surrealist art.

I once complained about Pagniez over lunch at Filipacchi’s country house near Paris. Filipacchi gave me an understanding look. ‘Certainly, Regis is a prima donna, but he is brilliant also, and worth the trouble he causes. Companies must always burst with imagination, and they need people like him.’

It was good advice. I repeated his lecture many times to orderly minded executives struggling to cope with crazy creatives. All the same, I was secretly relieved in 1988 when we sold back to Hachette our 50 per cent share of Elle.

But I did not forget Filipacchi’s wisdom, or my visit to the toilet down the long corridor leading from his dining room. The walls of his home were covered with paintings, and that included the bathroom. There was an eye-catching blue abstract low on the wall to the left of the toilet where I stood. It was a perilous position for a valuable work of art, easily within splashing distance. I mentioned it to the waiting butler as he led me back to the dining room.

‘Yes. It is a Picasso, sir,’ he said.

The job did have variety. Glossy magazines dominated the group when I arrived, but we brought it down to earth by buying Soap Opera Digest. This came with the rights to an annual awards ceremony for soap operas. Within a few weeks of watching the high fashion parades in Paris of Gaultier, Givenchy, and Chanel, I was in the ballroom of the Beverly Hills Hilton applauding winners from classic daytime soaps such as The Young and the Restless and One Life to Live.

John B. Evans was president of Murdoch Magazines, and theoretically my boss. He was a brilliant, quixotic Welshman and an important figure in the history of News Corp.

Evans was a recovering alcoholic and drug addict, and always eager to share the details of his struggle. He had spent years crewing private yachts in Europe and the United States before becoming a classified advertising salesman at The Village Voice. In a company tolerant of quirky characters, Evans rose to become publisher of The Voice, then president of its magazine division.

As a manager, he was haphazard and restless; too distractible to spend time on detail, and with a propensity for madcap ideas. But in his search for excitement, Evans gave the first warning of the thing that would threaten News Corp’s newspapers more than anything before.

In the late 1980s, when Tim Berners-Lee had yet to become famous for creating the World Wide Web, Evans began warning of the dangers of a dull sounding thing called ‘electronic publishing’. He became a digital apostle, the canary down the mine who sensed the changing atmosphere that would demolish the business model that for generations provided riches for the owners of print.

He told us that the end of days was coming for any business that depended on ‘smearing ink on crushed trees’. In the future, he warned, everything would come to us on screens and these screens would become mobile. They would act as ‘butlers’, organising our lives with calendars, and access to banks and restaurants. They would also, he said, provide customised news, tailored to the interests of each user.

He took groups of us to the pioneering Media Lab at the Massachusetts Institute of Technology in Boston, where its founder Nicholas Negroponte issued terrifying predictions. The coming age would offer instant and absolute communication, he said, and fresh news would no longer be delivered in lumbering trucks.

When Microsoft was still the spear-point of new technology in the early 1990s, Evans arranged a visit to its Seattle HQ, and we flew there with Rupert. After signing an agreement to keep their secrets, Microsoft told us they had purchased electronic rights to Funk & Wagnalls Encyclopedia and were going to compress its entire contents onto a single CD-ROM — a disc that looked like the one that transformed the music industry. This disc would be searchable by typing ‘keywords’ on a computer keypad. Its contents would include sounds and images; at the touch of a few keys, you could see a bird and hear its song. This vast, magical, almost weightless encyclopaedia would be called Encarta.

Microsoft gave us a glimpse into the future, and while CD-ROMs were not the future for long, we knew that the information business was heading for an upheaval. But it was only a hint of what lay ahead, and we left Seattle uneasy but not yet alarmed.

When I went to Murdoch Magazines in 1987, digital media was not a threat, but new technology was already changing the industry. Software that produced magazine pages quickly and cheaply had lowered the cost of entry, and the market was crowded. Magazines, like most newspapers, earn their profits from advertisers. With only so much advertising money to go around, the competition was intense.

Having moved to the business side of media, I spent a lot of time with advertisers. Apart from Portale’s instructions on the dress code, there were other rules. When meeting advertisers, it was important not to wear or carry a competitor’s product. Wearing a Hermes scarf to a Chanel sales meeting was never a good idea, nor was drinking a Diet Coke in the company of a Pepsi marketing director. Once, when Ralph Lauren came for lunch with Rupert, an advertising executive handed us Ralph Lauren ties. ‘Be sure to wear them. He will notice.’ I found an old Lauren sports jacket in my closet and wore that, too. It might have helped. Back at his office, Lauren told his marketing team: ‘I want to advertise in that magazine every week.’ Unfortunately, it was a monthly, but we liked his attitude.

It is dangerous to appease advertisers when they complain about editorial content. When New York magazine was working on a long profile of Calvin Klein, and the writer Michael Gross was asking penetrating questions about Klein’s personal life, all Calvin Klein advertising was pulled from the magazine. They were spending about $1 million a year, so it was a big deal. I took one of Klein’s partners for a long lunch and he gave me an ultimatum: fire Michael Gross or lose the ad revenue. I have always found threats like this easy to handle; if we capitulate to one advertiser, others would soon try the same trick. I told Klein’s partner what he could do with his $1 million a year ads, and the lunch came to an abrupt end. Gross continued writing for us, and Calvin Klein returned to the magazine, but not before we lost millions.

Years later, when I was running Rupert’s British newspapers, the Korean company Hyundai was starting to gain a foothold selling its cars in Britain when The Sunday Times’ motoring writer Jeremy Clarkson gave one of their new models a scathing review. He added that no country whose citizens ‘ate dogs’ could ever make a decent motorcar. Hyundai threatened to pull its advertising from all News International newspapers unless there was an apology. I told our panicking sales executives to let the Koreans know that Clarkson was the country’s most popular motoring writer and that over-the-top remarks were part of his brand. I also told them to assure Hyundai that the company had no opinion on the Korean tradition of dog eating. They kept advertising. The hard reality was that the pages around Clarkson articles were prime real estate for selling cars.

At Murdoch Magazines, it wasn’t just the intense world of advertising that was new to me; there was also The Numbers. I had never seen a balance sheet, or a profit and loss statement, or heard terms like discounted cash flow, or accretion. Most journalists think they’re the only people in the business who matter. They aren’t interested in what goes on behind the scenes in the less obvious or visible parts of publishing. I know because I was like them.

Now, I had to cope with it all: advertisers, printing contracts, marketing budgets, distribution costs, paper prices. These were all areas where numbers ruled, not words. Numbers had never been my friends. The grades and comments on my school mathematics reports were painful. The stories numbers tell are stubborn and unchangeable; you can’t add a flourish, as you can with words, at least not legitimately.

For some clever people, numbers live and breathe. Rupert loved and understood numbers. It was always fun to see him show off in meetings, scratching billion-dollar figures on a pad with his green pen, working out if deals made sense. He might have made bad decisions now and then, but it wasn’t because he couldn’t count. I never saw him use a calculator.

I worried about numbers, but Marty Singerman calmed me down. He was one of the few who could match Rupert when it came to mental calculations. ‘It’s common sense, just common sense,’ he would say as he guided me through my first profit and loss statement.

He was right. Any business comes down to this: the proper balance between spending and earning; increasing revenue while controlling costs; how much actual cash the business earns; whether customers are being charged enough; and whether debtors pay up on time.

In making acquisitions, you need, simply, to understand the business and be confident that you can make it worth more than you’re paying for it. Mostly, it is about the talent who will come with the purchase; the most valuable assets go home at the end of the day, and that doesn’t always need to include the bosses. Will the new people be easy to work with and fit into the company’s personality and style? If it’s a business with a new idea, is their intellectual property safe — patented — or easily copied? How crowded is the competition? If it is crowded, will our purchase accelerate the target company’s chance of success?

In deciding whether to buy a new company, other calculations come into play, but the final decision is more abstract than any mathematical equation. There is a natural tension between ‘ideas people’ and ‘numbers people’, but they need each other. Numbers keep a creative business grounded, but ideas make it fly. You can’t rely too much on piling statistics into a computer when the most important currency is ideas, and everything depends on those quirky, mercurial, undependable readers.

A good idea can overwhelm every cautious accountant’s gloomy spreadsheet — but a big financial mistake can bring disaster. In the summer of 1988, News Corp agreed to buy Triangle Publications, publisher of TV Guide, Seventeen magazine, and the Daily Racing Form. The price was close to $3 billion. It was the biggest acquisition in the history of US publishing.

TV Guide had a weekly circulation of more than 17 million and was the trophy of the deal. For decades, Rupert had imagined owning it; long ago, he had acquired a copycat publication in Australia, TV Week.

This acquisition was the high point of the biggest spending spree of Rupert’s career. In the 1980s, he spent billions buying TV stations across America, as well as the 20th Century Fox film studio, Triangle Publications, and more newspapers in America and Australia. Rupert didn’t like waking up in a town where he didn’t own a newspaper.

At the time of these deals, interest rates were low and banks saw Rupert as a safe bet. In 1987, he unlocked a river of new profits to service more debt when he won a year-long conflict with British trade unions whose shakedown tactics had strangled his newspapers and the entire industry.

These were high-stress years. I remember the day we closed the Triangle deal and handed billions to publisher Walter Annenberg. We were waiting in a motel near Triangle’s HQ in Radnor, Pennsylvania. Lawyers and finance people were working the phones in an ill-lit conference room, organising the wiring of cash to Annenberg’s banks. Rupert was standing in the lobby with me and a couple of others, talking about what we would do when we walked into Triangle’s huge offices to take over the business. Here was the tough and invincible mogul on the brink of another mega deal. But then I saw a red smear on his fingers, staining the white handkerchief he had taken from the breast pocket of his jacket. He had picked at the cuticles of his fingernails until they were bleeding.

At the time of the TV Guide deal, Rupert had built his company with debt instead of selling equity. He never wanted other shareholders to threaten his control. But in 1990 a global recession hit and interest rates began rising. The mountain of borrowed cash that had fed News Corp’s spectacular growth turned into a potentially fatal trap. The company’s share price plunged as details emerged of the debt — it had reached more than $7 billion — and free-lending banks became afraid News Corp could not meet its obligations.

At the time, News Corp was also losing £2 million a week on a risky new start-up in Britain. Sky was the satellite television service Rupert had launched against the country’s broadcasting duopoly — the BBC and competing ITV commercial channels. But Sky faced the competition of another newcomer — British Satellite Broadcasting — and the two were beating each other to death.

The debt crisis was the existential threat of Rupert’s career, far more dangerous than the phone-hacking scandal 20 years later. The company owed money to more than 140 banks, and it faced the immense and potentially impossible task of persuading every one of them to keep its debt and extend the repayment terms. A single bank’s refusal risked triggering an exodus by them all, and that could mean the company’s liquidation.

Bringing round these anxious bankers involved the most important show-and-tell in the company’s history. Executives of every bank were assembled in London and New York to be persuaded that, for all its overload of debt, News Corp was profitable, growing, and a sure success. Our life-or-death mission was persuading them to cut us some slack. Whatever fear I had of public speaking, that experience cured it. Nothing would ever compete with the tension of those days in the autumn of 1991. When we appeared first in the City of London in a steep-tiered auditorium, with a sea of sceptical faces looking down on us, it felt like the Colosseum.

Never again in the business would so much be at stake. The debt drama was a brutal experience for Rupert. His life’s work was on the brink of ruin. He called me at home one Sunday night to talk. It was a wandering, inconsequential conversation, just gossip and a discussion of the day’s news. We spoke only briefly about the banks.

His voice was low and drained. He was famous for inexplicable, long silences during phone calls, but this time the silences were longer than usual. After a long pause, he said: ‘How are you doing? You sound tired. Are you tired?’

Actually, I felt fine after a relaxed weekend, but I didn’t want to tell him that.

‘Yes, I’m exhausted,’ I said.

‘Me too,’ he replied, with relief.

The author William Shawcross, in his 1992 biography, gives a graphic account of Rupert about to place a make-or-break phone call to the president of a Pittsburgh bank. Everything was at stake. This bank was the last holdout; News Corp could disintegrate if it refused to roll over its $10 million debt, and Rupert had to stop them.

Ann Lane, a Citibank vice president, was Rupert’s chief adviser during the crisis, and she told Shawcross:

It’s not a pretty sight to see a great man like that. He was so vulnerable. One phone call could mean the end of his whole life’s work … But my job was not to show panic. My job was to keep Rupert calm and focused … He didn’t wig out. He was visibly shaking, but he didn’t go crazy. He wasn’t hyperventilating.

That Pittsburgh bank came through, and News Corp survived the debt crisis, wounded but pretty well intact. The banks were happy when Sky stemmed its cash drain by merging with its competitor and forming British Sky Broadcasting. But they also demanded the company raise cash by selling assets.

The company sold 8 of the 10 magazines I was managing, including New York, the city’s leading weekly; Seventeen, since the 1940s, America’s most popular magazine for girls; the film magazine, Premiere; European Travel & Life, the high-end bi-monthly peddling its illusory image of the old countries; and Soap Opera Digest. The two remaining were Mirabella and TV Guide. Mirabella was struggling to break even (it still hadn’t when sold to another buyer four years later), and TV Guide’s circulation was declining in a losing battle against local newspapers that were providing more detailed TV listings. It was no fun being required to help with the sell-off.

John Veronis, the New York media broker behind many of America’s biggest deals, was hired to help. He produced a string of interested buyers and I had to explain the business to them. The ultimate buyers surprised me. K-III Communications was an offshoot of the New York investment firm Kohlberg Kravis Roberts. They saw our titles as a trophy asset for the magazine group they were building, but they didn’t seem to know anything about magazines. After our first meeting, I felt my time had been wasted. I’d spent more than an hour answering their questions — and they were pretty basic questions. ‘These people will never buy,’ I told John Veronis. ‘They know nothing about what we do.’

But Veronis had made millions knowing how to sense a good prospect. ‘I think you’re wrong,’ he said.

I turned out to be both wrong and right — wrong to dismiss them as buyers, but right that they didn’t understand the business.

‘Looks like we’ve got a deal with K-III,’ Rupert said. ‘But there’s a catch. If they make the purchase, they’re going to make it a condition of the sale that you go with it. They need you to teach them about magazines.’

By now, I was president of the magazine division — John B. Evans had been given an assignment in London — and until that moment the plan was to put me in charge of US publishing, replacing Marty Singerman, who was due to retire. This group included the magazines we were not selling, TV Guide and Mirabella, as well as newspapers in Boston and Texas, the New York Post, and a highly profitable company that inserted cents-off shopping coupons in Sunday newspapers.

‘Go with them for a couple of years,’ Rupert said. ‘You’ll make a lot of money, and I promise that a job will be here for you when you come back.’

I wasn’t happy.

‘I don’t mind making money,’ I told him, ‘but I would sooner make it working for you.’

But I couldn’t refuse and expect Rupert to forgive me. The magazines were the bulk of a $600 million deal (we were also selling them the Daily Racing Form newspaper) and News Corp needed the cash. It was 1991, and 32 years since I first worked at the company. I was enjoying how it continued to grow and change, and felt dismal at the prospect of hanging out with the K-III people. They were a joyless group set on turning around the magazines in a few years and selling them at a big profit for themselves. It’s a popular and reasonable activity in all areas of business; it just didn’t excite me. There was not much choice, however, so I continued with my meetings and tutoring. But as the deal looked stronger, I stopped being so enthusiastic in my efforts to help them, and that probably explained what happened next.

‘I’ve great news,’ said Rupert one morning. ‘Stan has got you out of the deal. You’re staying.’ Stan Shuman was a partner at the investment bank Allen & Co. He was part of the negotiating team and a good friend, and he knew how badly I wanted to stay.

The magazine sale was a painful retreat for Rupert. He had built his name as an innovator and conqueror whose empire only expanded. Now he had been forced to sell a business he wanted to keep, and he blamed himself. He was miserable about it.

He organised a dinner for the departing executives, about 50 of them, and we sat in his office early that evening discussing what he would say to them. He wanted to be sure to have a grateful remark for every individual in the room. He put down his pen at last and looked silently across his office, in the direction of a wall of television screens.

‘I feel like I’ve let them all down,’ he said.