Sometimes strange bedfellows just remain strange bedfellows. NBC’s 1996 partnership with Microsoft was a marriage of convenience. Because our two companies anchored opposite ends of the media spectrum, it could well have been doomed from the start. But we kept at it, slogging through our clashing agendas and leadership styles to forge the MSNBC cable channel and website—a game changer for both of us.
It just didn’t feel good at the time.
NBC News urgently wanted to develop around-the-clock cable news capability to compete with CNN, but the cost and risk were substantial; we needed a high-tech player with credibility and deep pockets. Bill Gates wanted to ride NBC News’s coattails to a mainstream Internet presence. With a joint venture, the costs and risks would be shared.
The idea was to create MSNBC out of our second struggling cable channel, America’s Talking, and its 23 million cable subscribers. We already had CNBC, our homegrown business and financial news cable channel, but we planned to take MSNBC in a different direction. That made MSNBC appear less like a frontal assault on CNN and a threat to cable operators, whose support we needed to carry the new service.
Creating MSNBC with Microsoft was an example of taking an organization where it needed to go even as GE, the NBC station affiliates, and my own NBC executives were fighting the proposition. NBC News was number one in the ratings under the astute leadership of News Chief Andy Lack. CNN was unchallenged on the cable news front. GE supported cable news and entertainment as long as someone else paid for it. There were a lot of people on both sides of the aisle who said, “Bob, we wouldn’t mind if you just dropped that!”
The 800-pound gorilla in the equation was Microsoft. It was the dominant force in computing software but still defining its role on the Internet. But times were changing. Gates believed the Internet would quickly become a universal source of news and information and that mainstream media would assure his involvement. Earlier he had tried to negotiate a partnership with CNN but failed. Aligning with NBC News would give Microsoft a competitive edge even though the enterprise was insignificant to its earnings.
So in the summer of 1995, NBC Cable president Tom Rogers leveraged his past dealings with Microsoft to jumpstart discussions about a joint venture that would create MSNBC TV and MSNBC.com. Microsoft didn’t understand the TV programming business. Neither one of us knew what to expect with the Internet, which was still uncharted territory, and neither one of us was completely comfortable with the other’s business dynamics. Considering all that, it’s not surprising the negotiations were very difficult.
We ended up structuring the deal in a way that was far more advantageous to us early on. And in a nice bit of irony, a critical tipping point came in the midst of a major news story.
Million Man March
Washington, DC
October 16, 1995
The makeshift studio overlooking the throngs gathered at the National Mall for the historic Million Man March on October 16, 1995, gave NBC News anchorman Tom Brokaw a special vantage point to report on the day’s highly charged activities. The day-long event on the grounds of the US Capitol generated a deafening ebb and flow of sermons, speeches, and chants from scores of civil rights activists and African American community leaders. Controversy over crowd estimates and the controlling presence of the Nation of Islam and its leader, Louis Farrakhan, heightened the drama.
In the midst of it all, Brokaw stepped away for a phone conference. On the other end, at NBC’s New York headquarters, Tom Rogers, NBC News president Andy Lack, and I sat anxiously in the executive conference room with Bill Gates. We were trying to craft the MSNBC deal, and things were not going well. We had decided to bring in Brokaw.
Brokaw knew the negotiations had reached a critical point. So, surrounded by swarms of camera crews and producers, the consummate newsman used the extraordinary circumstances to his advantage. “Look, Bill,” Brokaw began. “I’m going to go on the air tonight at six-thirty and we’ll be lucky to have six minutes of time devoted to this. If we were in business together, Microsoft could have our coverage on its website and NBC could have it on cable news. We could be running with this all day long and straight through the night, and build an audience across a much wider platform.”
Gates got that. Although he professed to watch little television, he envisioned a rapidly emerging digital world in which the Internet would become the primary source of video, superseding cable in a mere 20 years. Listening to Brokaw, a wide-eyed Gates kept nodding his head.
Meanwhile, Andy Lack had prepared a video retrospective of NBC News footage reaching back to 1947. It was a vivid reminder of the digital value of NBC’s rich video archives. At the same time, a live NBC News feed of the impassioned images and sounds from Washington played on conference room monitors. Together they created a dynamic display of NBC News’s legacy and credibility: the video history side by side with breaking news. Everyone in the room could see the potential. Consumers would be able to access breaking news and information whenever they wanted, on cable and on the Internet. By the end of the meeting, Gates was hooked. He signed off on the joint venture. It turned out to be the easiest moment in an otherwise mercurial process.
◆ Tom Rogers. Early in the heady negotiations with Microsoft, Bob pulled me aside. “This one’s just you and me, Tom. Can you go out there and get this thing done?” For me, this was a new fight on familiar territory. It wasn’t just a matter of winning over Gates and Microsoft so they would bankroll our newest cable channel. We needed enough cable systems carrying MSNBC to assure its commercial success.
Today, the MSNBC franchise is worth billions of dollars and it makes so much sense. Back then, we were defying convention. ◆
Microsoft wanted pure news credentials for MSNBC, which meant choosing Andy Lack over Roger Ailes. So in the summer of 1995, in order to keep Microsoft from going to Turner or Comcast to enter cable news, we agreed to convert our America’s Talking channel to MSNBC and have NBC News president Andy Lack oversee it. We didn’t know anything about the Internet, but we knew we would get there one way or the other, and most likely faster working with Microsoft.
Andy Lack was just the serious news force we needed. Before coming to NBC, he had spent 17 years at CBS News, and he understood TV news from the inside out. We worked well together the 9 years he led the news division. Andy made news a profit center, and I knew he would make MSNBC a profitable venture—and he did. Roger Ailes was unhappy about being passed over, and on his way out the door to Fox. He openly cast doubt on plans for our unconventional Microsoft-financed news channel, and the ability of skilled executives without programming experience to make it successful. He criticized me, Jack and Andy for taking America’s Talking away from him and instead giving him overview of CNBC, our fledgling business channel. It didn’t take much to stir up the waters, for many at NBC were already skeptical about what we were trying to accomplish. Tom Brokaw and others tried to calm concerns and hold protests at bay.
◆ Tom Brokaw, anchorman NBC Nightly News. I personally reached out to Gates, big-city NBC affiliates, and my NBC News brethren in support of the new MSNBC venture. MSNBC allowed NBC to reenter cable news with a successful, functional website from the get-go. That was a huge plus. NBC’s leap from analog to digital was painfully convoluted. We accepted digital news was going to be an increasingly important element on the Internet, but we didn’t grasp how to mine our own resources to get there. ◆
When we went into partnership with Microsoft, we really believed they wanted to turn the whole world digital. And we believed that could help our news business. So we were willing to take the risk, knowing that Microsoft would be a tough partner. Our news division was not set up to produce digital content. Someone had to pay for that, and we knew it would not be GE.
After a series of intense meetings in New York and at Microsoft headquarters in Redmond, Washington, through the summer and fall of 1995, Gates agreed to pay $220 million for a 50 percent stake in America’s Talking. Microsoft also contributed $200 million to build a new studio headquarters in Secaucus, New Jersey, and to create MSNBC.com, which it would manage. The additional licensing fees Microsoft paid for online access and use of NBC News content offset NBC’s $250 million matching contribution to the cause. NBC’s mounting startup losses were also shouldered by Microsoft.
Some people, looking back, say we outwitted Bill Gates. I rather think Bill knew exactly what he was doing but didn’t like funding all the early startup costs. He often appeared uncomfortable with the arrangement that his team negotiated on his behalf, and he became more visibly distraught with every check he wrote. It was also obvious that he was discouraged by the slow pace of consumer adoption.
Gates underestimated the effort the MSNBC website would need to draw millions of people quickly. He misunderstood a lot of things about the Internet. He was thinking too fast about moving forward. He wanted everything to be done tomorrow. We were focused on building MSNBC cable and web, and Microsoft did not manage their end of it very well. Gates got what he wanted, and then he didn’t know how to use it, and that was the real problem.
When things didn’t turn out as planned, Gates began losing interest. His uneasiness became so profound that he was trying to wiggle out of the MSNBC deal just hours before it was announced to the press on December 14, 1995. In the early morning hours, Rogers, Welch, and I straggled into the office of NBC tech czar Mike Sherlock at NBC headquarters at 30 Rockefeller Center. We were joined by Greg Maffei, Microsoft’s chief financial officer, and Peter Neupert, vice president of strategic relationships for Microsoft’s interactive media division. The five of us huddled over a speakerphone on the desk. Gates’s troubled, disembodied voice was on the other end from Asia, where he was on business.
We didn’t yet have a signed agreement, just a handshake in principle, and we scrambled to button down the details. The elaborate press conference almost came off without a hitch. Randy Falco, who was head of the NBC TV network, coordinated the live satellite feeds from Germany, China, and the US—which was quite an effort in 1995. Jack and I anchored the event in NBC’s famed Studio 8H. A big screen behind us displayed the boyish-looking Gates live via satellite from Hong Kong and Nightly News anchorman Tom Brokaw from Ramstein, Germany, where he was reporting on the political unrest in Bosnia. I proclaimed the Microsoft partnership and creation of MSNBC would “redefine the way people get their information” by providing consumers “a continuum of news.” I think I managed to hide all the behind-the-scenes angst.
Gates didn’t like some aspects of the deal, but he was not about to give it up. He just wanted better terms. He didn’t care about people and microphones and cameras. He just wanted ownership of all the NBC News material: historical to date and going forward. And that’s probably what hurt him in the end, because he didn’t get involved in how they were doing all of this online. Gates assigned his Microsoft people to do it, but it wasn’t a priority in Redmond.
Two weeks later, on Christmas Eve, I maintained a telephone vigil from our home in Aspen, Colorado, trying to nail down the final partnership terms with a still-reluctant Gates. I was camped out at a desk in our living room surrounded by family and friends gathered there for the holiday. I was on the phone for a long time, trying to keep the negotiations alive and wondering to myself, “Does Bill Gates know what day it is?!” He seemed totally oblivious to the fact that it was Christmas.
Despite an army of negotiators, it came down to me reconciling what we needed and what they wanted. Although the deal was finalized in late December 1995, tensions between Microsoft and NBC continued unabated through MSNBC’s ceremonious launch July 15, 1996, and the periodic partnership reviews that followed. Gates sat through most of those meetings, barely uttering a word.
◆ Warren Jenson. We basically figured out how to work within GE’s rigid system to create a risky new business involving locations outside of New York City and nonunion help. Ultimately, we were inventing a new culture with new economics. But we couldn’t mandate the pace of digital and Internet adoption—by consumers or by our own affiliates and cable system operators—to satisfy Microsoft’s expectations. So our partnership remained strained and never really thrived. Still, as dysfunctional as it was, it did improve NBC’s ability to compete with CNN, enhance our news dominance, and strengthen our presence across many different media platforms. That took 15 years. ◆
The friction with Microsoft was eclipsed by the ire from NBC TV stations and cable system operators. No one wanted to buy into these new ways or products. Our affiliates felt entitled to exclusive use of all NBC content even though they were severely limited by available broadcast airtime. They saw our cable news shows as direct competition for viewers and advertising dollars, so they challenged our right to use our “regular” NBC material on MSNBC and CNBC.
The first major showdown took place in Phoenix during a cocktail reception at the annual affiliates meeting on May 24, 1996. Our 250 affiliates were very vocal about their fears: that NBC would move its programming and advertising to cable, destroying their 75-year partnership. I argued that cable presented us with a new reality, and that our partnership with stations could only be preserved by sacrificing exclusivity.
To counter their resistance, I drew on a set of secret weapons: my team. I asked NBC Network president Randy Falco to be peacemaker and referee. Randy took responsibility for the network and getting the stations on board. David Zaslav accepted responsibility for cable and DirecTV satellite. Randy and David nurtured relationships with all of the individual broadcast and cable companies, no two of which could be treated the same. Cyril Vetter, a highly creative songwriter, lawyer, entrepreneur, and Louisiana station owner, headed our affiliate board. He understood and accepted the marketplace’s changing dynamics.
◆ Cyril Vetter, affiliate board chairman NBC and owner WVLA-TV in Baton Rouge, Louisiana. The hand-to-hand combat that evening began with apoplectic station executives booing Wright and Tom Rogers, who was the spear-catcher in the deal. Affiliates considered Tom an enemy to their cause, and they labeled Wright’s moves pure heresy. Randy stepped in to defend his boss, only to be shouted down by the angry crowd. Then, without so much as raising his voice, Bob explained why it was time to change or die. Consumers—not stations—would determine NBC’s economic fate. ◆
I did some of the best visionary work of my entire career with the NBC television stations, and I still flunked. I just couldn’t get our stations to buy into cable or the Internet on anything but the most superficial level until after MSNBC forced the issue. It would be another decade before stations fully accepted the coexistence of NBC content on cable television and online. NBC maintained a Chinese wall between its broadcast network and cable news organizations. It gave the semblance to affiliates and NBC News rank and file of retaining “first rights” to the Nightly News, Today Show, and Dateline even as Microsoft and Gates were claiming it as their own.
At the same time, cable operators were also fighting us. They insisted they were not obliged to offer viewers MSNBC as a replacement for America’s Talking in 22 million homes. David Zaslav, the number two in charge of NBC Cable at the time, was entrusted with the job of getting cable affiliates to approve. Somehow he managed to get them to buy in to the MSNBC proposition, and that meant negotiating with each of the companies that he had a personal relationship with. So we dreamed up these things and David went around the country making them happen. Randy accomplished the same on the broadcast side by having very close relationships with each of the affiliate owners. And they sometimes had to be very clever about it.
MSNBC officially launched on July 15, 1996, but it wasn’t carried by a full contingent of cable systems across the country. The stand-off with cable operators came to a head a month later in an August 23, 1996, meeting with Jerry Levin, chairman CEO of Time Warner at the company’s Rockefeller Center headquarters. Time Warner was on the verge of taking control of CNN through its pending acquisition of Turner Broadcasting System and didn’t want to pay us to carry MSNBC.
I reminded Levin that he didn’t have a choice because of the retransmission consent law, which was my trump card. Instead of collecting a cash payment from cable operators for our broadcast network signal, NBC demanded carriage of its new CNBC and MSNBC cable channels. After Time Warner capitulated, other cable operators fell in line. A year later we had to pay Time Warner a $1 million fee to retain cable carriage of CNBC and MSNBC in New York City. I was told we had to match or exceed Murdoch’s offer to get carriage for Fox News there. The Fox News fight was just beginning!
◆ John Malone. NBC seized a unique opportunity when it created MSNBC and required cable operators to carry it if they wanted to continue accessing the NBC TV network. If the government had not instituted the new retransmission consent rules at that time, the destiny of cable programming would have been completely different. That swing in market power allowed broadcasters to essentially take over and dominate cable networks and programming, beginning with MSNBC. So some of it was by design and some of it was just good timing—the way so many important developments happened back then. ◆
Bill Gates estate
Medina, Washington
November 20, 1997
Gates was still fuming when Rogers, Lack, Welch, and I visited his mansion in Medina, Washington, on November 20, 1997, for dinner and a quarterly business review. The $120 million estate was a curious interplay of traditional media and emerging digital technology that didn’t always work that well together—making it a striking metaphor for our companies’ strained partnership. Gates and his family lived in the upper levels, with corporate meeting rooms and a 200-seat banquet hall on the ground floor. Monitors and control panels in every room synchronized visitors’ preferences for room temperature, information, and entertainment.
Gates was uncharacteristically outgoing that evening as he ushered us into his elaborate home theater, where he quickly became flustered trying to retrieve one of the thousand-plus films stored there in his personal computer. It turned out the technology was only as good as the user—even if the user was Bill Gates!
◆ Tom Rogers. There was Bill Gates, pounding on the computer keyboard, unable to show the kings of media his spectacular setup. You can be the richest guy in the world and still not be able to get your toys to work when you want to.
At the next morning’s partnership review, Microsoft conceded it was being forced to temper its expectations about how quickly Internet business models would develop 16 months into the MSNBC venture. Gates was more agitated over the widening gulf between his financial commitment to MSNBC and the prognosis for mass digital adoption. He suddenly saw a great imbalance in the deal we struck. We had seriously out-negotiated him.
Microsoft was making escalated payments on NBC’s new cable assets Gates could care less about. It was shouldering the financial risk of MSNBC in exchange for licensing news video rights that eventually would have real value in the digital world on smartphones and tablets that didn’t even exist at the time. ◆
Microsoft headquarters
Redmond, Washington
November 21, 1997
◆ Tom Rogers. The next day, in an executive conference room at Microsoft headquarters, Gates glared across the table at me and squirmed uncomfortably next to Jack Welch. The friction between them was fueled by a just-published Financial Times story ranking the world’s top CEOs. Welch topped the list; Gates was second.
Watching this interaction that morning, I was suddenly struck by the irony of this quirky alliance. Each man thought they had the better piece of the MSNBC deal. Gates cared less about TV and only about controlling NBC News on the web for a hundred years and a couple hundred million dollars. Welch believed he had tricked Gates into building a cable news channel for NBC and considered the Internet a waste of time and money. Each of them accomplished what they wanted, but neither could see the value of the synergies created. They were so wrapped up in their own agendas, they failed to recognize they were creating something big that would develop over time into something even bigger. ◆
◆ Andy Lack. MSNBC really got on the map from 1996 to 2000 with all the drama of the Clinton years. That dispelled any doubt a 24/7 news channel would dramatically change the way NBC News would move forward in the 21st century.
But what most people don’t know is that it took years of cajoling the news division into submission. For the longest time, our own people felt it was too early in the digital game for that type of consumer behavior to develop and that the cable audience wasn’t ready for it. The Internet audience wouldn’t come to cable. They were two separate businesses sharing some common content but couldn’t yet be tied together under one umbrella. ◆
The elephant in the room during our MSNBC journey was Rupert Murdoch’s Fox News, which swept onto the scene in October 1996 and disrupted the status quo. I thought it was clever and bold, making right-wing talk core to its news operations. That was largely the handiwork of Roger Ailes, who had left NBC to command a larger power base at Fox, where he began promising objective news and then delivered everything but.
We were middle-of-the-road on America’s Talking, careful to keep it an arm’s length from the news operation just because it was emotionally based programming by design. The concept was giving everyday people a platform for telling their heroic stories, large and small.
Just as we began converting America’s Talking into MSNBC, Fox jumped in with a highly unconventional news model and cash payments to cable operators for news carriage, which caught everyone off guard. And that’s what forced MSNBC to develop an on-air attitude that eventually settled into politically left-of-center programming. Cable operators were happy to pay for it because it helped them to neutralize the airwaves.
◆ Tom Rogers. MSNBC was developed and launched in July 1996 to take advantage of new laws assuring TV networks and stations that cable operators would have to pay for the retransmission of any of their program signals. Most everyone involved in news viewed cable as part of the problem rather than a solution. Fortunately, Andy Lack, the new president of NBC News, was open to solving the division’s problems and advancing its cause on multiple fronts, even if it meant extending its resources to cable.
We couldn’t just come forward with a new cable news channel of our own because the major cable operators, who had an ownership interest in Turner and CNN, would resist that. But nobody had a good news talk channel or a vibrant left-of-center platform. It’s something we could do relatively cheaply. If we wrote the program description broadly enough, we could morph it into a news talk channel agreed to and paid for by the cable industry, using those fees as our quid pro quo for retransmission consent.
Of course, Fox had the same notion, which put our companies in a race to secure guaranteed cable subscribers. Fox was more willing than GE and NBC to pay cable operators for an audience. An initial $11 per subscriber was an ironic reversal of the retransmission fees we fought so hard for and were counting on to help fund MSNBC and CNBC. Fox claimed it was fair incentive to cable operators with limited channel capacity in those pre-digital days. The 20 million cable subscribers we inherited from NBC’s America’s Talking were transferred to MSNBC; NBC News got Microsoft as a new partner, and David Zaslav worked tirelessly to secure new license agreements. Even Jack Welch and Bob were making personal appeals by telephone to cable system operators.
So it was a showdown in 1996 as broadcast network news moved into position on cable, and it played out primarily between NBC and Fox. Despite its news strength, ABC abandoned attempts at cable news after spending nearly half a billion over 5 years. CBS News was never in the game. After owning cable news for more than a decade, CNN was fighting to defend its turf. ◆
The MSNBC experience gave us confidence we could productively use the Internet. It gave the news division self-assurance about what they could do with digital even before they were comfortable with it. Microsoft’s half-billion-dollar investment thrust NBC into the Internet age ahead of its network peers. Today, MSNBC and NBCU’s other cable networks anchor the company’s profits and valuation.
But the lack of strategic clarity between cable TV and the Internet back then eventually took its toll. In 2007, MSNBC.com and MSNBC cable were decoupled. NBC bought out Microsoft’s 50 percent interest in MSNBC for a mere $120 million in 2007 and then acquired Microsoft’s half interest in MSNBC.com in 2012 for $300 million.
If we had created MSNBC 5 years later, the original approach of holistically tying together the Internet and cable would have resonated with more people at NBC and other traditional media companies. While MSNBC demonstrated NBC was capable of pioneering the next media frontier, it couldn’t shepherd the audience.
◆ Tom Rogers. The MSNBC experience was the first test of a major media company’s ability to integrate its vast and varied business resources across emerging platforms—against all odds. It wasn’t just about the sea change in cable and television news, or the turf wars between a network’s news division and local station affiliates. MSNBC became ground zero for breaking the corporate mold and playing by new rules in the new cable and Internet arenas. What we didn’t count on was politically charged news competition from Fox or Microsoft’s inept management of MSNBC.com.
The traditional news reporters and producers Microsoft first hired to develop content for MSNBC.com didn’t understand or accept the potential value of real-time online news and information. The concept of MSNBC TV and MSNBC.com working in tandem to provide continuous coverage did not gain traction until they became a showcase for NBC News coverage of the September 11, 2001, terrorist attacks.
The tipping point for MSNBC came December 2, 2004, when Brian Williams crossed over from the White House beat to anchor a nightly newscast called The Site on MSNBC and another regular program on CNBC, even as he was being groomed to succeed Tom Brokaw as the network’s premiere anchorman on the NBC Nightly News. The move triggered favorable response within NBC and throughout the TV news industry. ◆
◆ David Zaslav. We couldn’t mandate audience convergence, which took its own course. The new culture we were creating eventually took the place of the old culture, which crumbled under the weight of changing consumer behavior, technology, and economics.
We all learned during our time at GE and NBC how to look past the horizon for the change that’s coming and have the courage to act on it. There are companies that can’t deal with change and have no tolerance for failure. And there are some companies—like NBC back then—that built a business strategy around both, and paid the price for years until the gamble paid off. ◆
It wasn’t enough to create just another cable news channel with MSNBC in 1996. An enterprising use of the Internet to create and leverage scale made all the difference. NBC was the first traditional broadcast network to partner with Silicon Valley on a major Internet venture. That it was Microsoft made it all the more courageous and risky. That took time and lots of effort, but it never fully fused as a combined interactive force. Only now, years later, is the convergence of television and the Internet starting to take hold.
Not all industries have achieved that kind of unity. Even though the Internet is fully entrenched in everyday life today, it is still something of an enigma to many people in all kinds of business. Sadly, not all of us have developed a big-picture approach to using it in our work. Too few people in any organization connect the dots or take things to the next level on their own. And that’s why progress can be so slow. We must take full advantage of the huge array of digital tools and resources we have available. It’s the difference between being informed and being knowledgeable, and then putting that knowledge to work. A lot of people spend a lot of time on the Internet. They’re packing themselves with information, but they are not necessarily more knowledgeable, because they don’t know how to use it. Collecting data doesn’t make you smarter.
If you really believe in a project, you will find ways to get it done even if it means the complex fusion of existing and new resources, old and new thinking, support and opposition. That process takes on a life of its own when it involves bigger-than-life characters like Bill Gates and Roger Ailes, or an overwhelming enigma like autism. Both Microsoft and NBC were taking a chance by moving outside their comfort zones. But that is often the only way to achieve the extraordinary.