20th CENTURY FOX : Diller’s Hands-On Efforts Pull Firm Off the Critical List

A handful of top executives at 20th Century Fox Film Corp. sat in Barry Diller’s conference room, waiting for the Fox chairman. On that particular day last month, the group met as a compensation committee. Even though low-level salaries were typically under review, no such meeting had ever begun without Diller. But the newest executive in the group--Leonard Goldberg, who gave Diller his start 21 years ago at ABC--was restless, and said so, when Diller ducked in to say he was running late in another meeting next door. Diller urged the group to begin without him.

“So we started, and we finished. And he was still in his meeting,” says Goldberg, the studio president. When he said goodby, the Fox chairman protested: “ ‘What do you mean, you’re leaving?’

“In other words, the joy of going through that stuff had been taken away,” Goldberg says, amazed at Diller’s passion for hands-on management.

Diller volunteers the same story a few days later. But he offers it as proof that he is beginning to delegate authority. “I’d better,” says the 45-year-old executive, acknowledging the sweep of his empire and the danger of creating a bottleneck in his cool beige, five-room suite of offices at the West Los Angeles studio.

Return to Profitability

For 2 1/2 years, Diller has immersed himself in every decision affecting the repair and running of a motion picture and television production company that had suffered four years of losses while Denver oilman Marvin Davis owned it.

Fox’s return to profitability has been widely credited to Diller’s tough, demanding, involved style. But that hands-on approach may also have slowed the recovery’s pace, most noticeably in motion picture production, as events thrust new responsibilities on Diller.

Shortly after Diller was hired, Davis sold the company to a new owner with a much broader agenda. News Corp., 46%-controlled by media baron Rupert Murdoch, paid $575 million to buy out Davis, then shelled out another $1.6 billion to acquire television stations in seven of the nation’s largest cities. Murdoch’s plan: to create a new television network to provide programming to those and other non-network stations.

The new Fox network and the TV stations are now grouped with the 72-year-old Fox studio beneath a new corporate umbrella called Fox Inc. It is Diller’s kingdom, and he appears deeply appreciative of Murdoch.

Twentieth Century Fox “is one of those companies . . . that could have disappeared,” Diller says, regardless of the valiant effort Fox employees were making in early 1985. “The only thing . . . that will see it into the 21st Century is the transaction with News Corp. and Rupert Murdoch.”

Murdoch has bought a Beverly Hills-area home (that of MCA’s late founder, Jules Stein, another entertainment titan), but he spends only a few days each month at Fox. Production executives say he has never commented on a movie script or television series. But Murdoch--a longtime publisher of newspapers--has suggested layouts for movie advertising campaigns, they say.

Murdoch did not respond to interview requests for this article.

Diller says he is “completely” comfortable in his relationship with Murdoch. “I don’t find (his) interesting and stimulating involvement at all onerous,” Diller says. “I encourage his participation. . . . He is completely without pretense or artifice. He is an intelligent man of his word.”

Diller admits now that he did not know how deeply troubled the studio was in September, 1984, when he came to Fox from Paramount Pictures, where he had served as chairman and chief executive for a decade. Yet as part of his contract, he did negotiate a 25% stake in the company and Davis’ pledge not to interfere.

Took the Dash Out

Davis, quite literally, had taken the dash out of 20th Century Fox. During the Denver oilman’s tenure, a 50-year-old hyphen was erased from the venerable 20th Century-Fox name. (The studio was created by the 1935 merger of two Hollywood also-rans, Fox Film Corp. and 20th Century Pictures.)

More significantly, $591 million was used to pay banks that had financed the Davis acquisition in 1981.

With no public shareholders, the company didn’t need to worry about showing a profit. Davis re-evaluated assets and accelerated amortization to minimize taxes. The company began reporting bottom-line losses in 1982, but serious deterioration wasn’t evident until about the time Diller arrived.

“In motion pictures, it had lost $300 million in two years,” Diller says. “When it sold (TV) series the previous year, it succeeded in losing $23 million in pure production costs.”

But the problems were more fundamental than a losing streak at the box office, or high overhead in the television unit. “Aside from its financial status, which was some sort of electric shock to the brain,” Diller says, the worst discovery was that “there was very little of a real company . . . with any kind of thoughtful rationale and any kind of integration working for it.”

For example, the company had no complete list of its television shows or other properties. As for licensing its movies to pay-television, Fox had a long-term deal to supply only one pay-TV service--but that was Showtime/The Movie Channel, not Home Box Office, the nation’s largest pay-TV company.

Diller recruited another tough-minded executive--Jonathan Dolgen of Columbia Pictures--as senior vice president to help assess the damage and begin the repairs.

“It was like a car where everything is broken at least a little,” recalls Dolgen, a lawyer who left private practice in New York to join Columbia 11 years ago. “The attitude was, ‘Can’t do. It’s too hard. Even if we work at it, we won’t finish, so why bother?’ ”

A cheerless spirit settled on the lot as departments were trimmed. Privately, departing executives complained that Diller and Dolgen belittled some employees, dressing them down in front of colleagues. One former executive says, upon reflection: “They didn’t have time to be nice.”

The money simply was running out. Fox had already exhausted 80% of its borrowing capacity when Diller arrived, and according to one source, he resisted a Davis proposal to sell $250 million in high-risk “junk bonds” because the action would have encumbered Fox with even more debt.

Bolstered Finances

Diller refuses to discuss the Davis era in detail. “What I think I could say is: Wisely or unwisely, Mr. Davis did not want to invest further in the company.” (Davis, who seldom grants interviews, could not be reached for comment.) So Diller began shoring up the studio finances through a series of smaller moves. He accelerated work on the movie, “Cocoon,” for a June, 1985, release, instead of waiting for the scheduled Christmas opening. The gamble paid off when Fox reaped $41 million in domestic rentals from the Ron Howard-directed film.

Fox also renegotiated its home video partnership with CBS, to obtain $135 million in cash. Of that sum, $75 million was obtained by selling CBS/Fox notes to private investors, and the remaining $60 million was advanced against future royalties.

Completing an agreement with Home Box Office took nearly one year, but in early 1986, the two companies signed a pay-TV pact and agreed that the two companies would co-finance and distribute any theatrical films HBO makes.

For the studio’s finance and legal staff, Diller says, “The strain . . . was beyond belief. (The) average day lasted until 11 or 12 o’clock at night during that period.”

The motion picture division went through equal turmoil.

Lawrence Gordon, who had been appointed president of the unit just two months before Diller’s arrival, quit 15 months later, citing potential health problems. He stayed on as an independent producer at Fox.

For the next eight months, former Embassy Communications Chairman Alan Horn served as the studio’s president, but he quit in frustration when it became clear that Diller would “never offer me the range of responsibilities I had expected,” as he said when he resigned last August.

Introduced Discipline

Then it was 28-year-old Scott Rudin who, as the ranking production executive, reported directly to Diller until Leonard Goldberg was named president and chief operating officer in November.

Rudin says Goldberg has introduced a “tremendous discipline” to the division, encouraging selectivity in projects and better delegation of tasks. Goldberg also has more time for the planning and administrative aspects of movie making.

“In the time before Len was here, it was very hard sometimes to get to Barry,” Rudin says. “Barry would have his hands full. I would walk in; I would get a minute with him, and I could see in the conference room there would be 12 people there, sitting there, waiting for him.”

Although Fox scored respectably at the box-office during this period, it never delivered a “blockbuster,” defined by analysts as a film generating $50 million or more in film rentals. Last year, Fox trailed five other studios with its 8% shares of the industry’s film rentals, according to the trade paper Daily Variety.

“Fox was down on the second and third tier” of the creative community’s preference list, because of the executive turnover and uncertainty, one entertainment lawyer says.

The selection of 52-year-old Goldberg was widely applauded last year. But Goldberg is still sorting out his working relationship with Diller.

Diller had been his assistant when Goldberg headed ABC’s network TV programming in the late 1960s, but the two men insist the role reversal is not a problem. Nor have they clashed on film projects. Goldberg says he had no difficulty getting three movies (“Revenge of the Nerds II,” “Wall Street” and “Saigon”) the green light for production during his first four months on the job.

“We just have a totally different philosophy of management. He and I have yet to sit down and have that meeting and go through it,” says Goldberg, a Wharton School graduate who takes a measure of pride in planning an orderly day and delegating tasks to subordinates.

No Detail Too Small

So many years had passed since the two men worked together that Goldberg says he had forgotten Diller’s passion for involvement.

“It’s remarkable, because no detail is too small for him to get into. He has a great mind,” says Goldberg. As for their differing styles, “Who is to say which is best? Barry has done a remarkable job at every company he’s gone to.”

Diller says he is devoting most of his time to the new Fox TV network, now being launched to serve the Fox-owned stations and more than 100 affiliates. His hands-on approach is “‘creating lots of bottlenecks, because you can’t talk to (programming executives) Garth (Ancier) or Kevin (Wendle) and make it stick,” one industry lawyer complains.

Flaring, Diller says: “Am I involved? You bet I’m involved. Am I involved in every decision that’s made? Yes, I am. But I am the easiest--I am so easy to (persuade) . . . that it’s crazy,” he says.

Some old-time Fox employees say they, too, were taken aback by Diller’s degree of involvement, but his accessibility and quick decision making have won them over. Those strengths outweigh Diller’s unsettling style. (“How come you didn’t tell me you washed your car yesterday?” is how one survivor jokingly describes a typical Diller phone call.)

Another studio veteran, Harris L. Katleman, who has run Fox’s television production since 1980, says he had a “major disagreement” at the outset when Diller slashed his budget. But since then, Katleman’s contract has been renewed not once but twice.

“Barry was right. We were fat. We had too much overhead,” he says now.

The television executive was elated because Diller backed his effort to lure Steven Bochco to Fox in 1985, when that longtime “Hill Street Blues” producer decided to leave MTM Enterprises.

Quick Decision Helped

Bochco went on to create “L.A. Law” for Fox, teaming with writer Terry Louise Fisher. “L.A. Law” has become a hit this year for NBC, and now Bochco and Fisher are writing three scripts for a fall ABC series, “Hooperman,” starring John Ritter.

Diller’s quick endorsement “was a lot different than the previous regimes,” says Katleman. “I would have had to spend six months justifying it, and I would have lost Bochco in the meantime. Barry’s very quick. He gives you an answer, yes or no.

” . . . A lot of people paint a picture of Barry as being cold and ruthless,” Katleman says. “He’s introverted . . . (but) he cares about people. If you deliver for Barry, he delivers for you.” Introverted or not, Diller guards his privacy. He discourages publicity about a corporate plane (Fox has one), his salary ($3 million plus 5% of Fox Inc.’s pretax operating income) or the vast wealth represented by his 4 million shares of News Corp. (1.2% of the company, worth $64 million, when trading closed Thursday.) Those shares were exchanged for Diller’s equity in Fox after Murdoch took over.

Diller still retains some preferred shares, which give him 25% of the Fox TV station group’s voting rights. Murdoch personally owns 51%, leaving 24% in the hands of News Corp., an Australian company, to comply with federal law barring foreigners from owning 25% or more of a U.S. television station group.

Born in San Francisco, Diller moved to Beverly Hills at age 6, with his father--now a retired real estate developer living in Brentwood--and his mother and older brother, who are deceased.

Diller attended Beverly Hills High School and UCLA but almost immediately dropped out of college to work in the mail room of the William Morris talent agency. In 1966, he moved to ABC, where he created the made-for-TV “movie of the week.” He was running ABC’s prime-time schedule when he quit in 1974 to accept Paramount’s top post at age 32.

Recruited Eisner

“The seminal moment was going from ABC to Paramount,” he says, looking back. “I was so ridiculed. I was such a kid. I was the first person that had come into the movie business from television.”

He recruited another young ABC executive--Michael Eisner, now chairman of Walt Disney Co. Together, the two made Paramount a phenomenal success for its parent, Gulf & Western.

Diller admits that he and Eisner “would fight like crazy,” but “there was nothing that we could say to each other that ever really dusted us up.” He dismisses speculation that he and Eisner are still competing for kudos. “I think there was more competition between Michael and myself when we were at Paramount.”

The two men talk at least once a week, and Diller says: “I really wish him as well as I wish myself, almost.”

Diller now says he felt purposeless during his last year at Paramount. “The thing worked so well. But it was enervating, in a not-good way, to me,” he says. With the 1983 death of his mentor, Gulf & Western founder Charles Bluhdorn, “I’d lost any rudder that kept me.”

The talks with Fox began because “I really wanted to have a substantial equity (stake) in a company that I felt was mine.”

Diller says he does not want to own a studio outright (“I’m not greedy”), nor is wealth his primary motivation (“I’ve always had enough money.”)

For now, at least, he is motivated by the challenge of creating a “fourth” network when two of the existing three--CBS and ABC--are losing money.

“If you believe the structure of what you’re doing is right, the best time to get involved in something is during times of adversity,” he says.

By Diller’s calculation, the new network--called Fox Broadcasting--will post a net loss of about $22 million by the end of its fiscal year on June 30, but he expects the other two divisions--20th Century Fox Film Corp. and the TV station company called Fox Television--to be profitable.

Refinanced Deal

The cash flow of the Fox stations should be nearly $125 million this year, according to the estimates of Richard J. MacDonald, a securities analyst at First Boston in New York. Of that sum, nearly $80 million goes to lenders and investors who financed the 1985 acquisition of the six former Metromedia stations.

The original deal was widely criticized as overpriced, but Murdoch has been able to refinance it, benefiting from declining interest rates. MacDonald, noting the “full resources” of the parent News Corp., contends that the gamble “simply was not very great.”

The first show on the Fox network premiered last October. “The Late Show Starring Joan Rivers,” started out with a 3 in national Nielsen ratings (each rating point equals 874,000 homes, or 1% of the nation’s TV households), but by the first week in April, had sunk to a 2, its all-time low. If it falls any lower, it’s believed by some that Rivers would be replaced by a new host.

But Diller disputes the unnamed sources who say he is trying to get rid of the comedienne, who has a three-year, $10-million contract. “I don’t want to get rid of her,” he says. “I hope that the show succeeds.” To that end, a new producer has been hired, and the company intends to “spend a lot of money to promote it” during the coming May “sweeps,” a critical ratings period. Since April 6, results filtering in from the nation’s top 13 markets indicate that the show’s rating has improved slightly to 2.2.

Two weeks ago, Fox began rolling out its new Sunday night programming. On its second Sunday, a new police-action show (“21 Jump Street”) beat both ABC (“The Disney Sunday Movie”) and NBC (“Our House”) in the overnight ratings in New York, Chicago and Washington, but lost to perennial CBS favorite “60 Minutes.”

Fox executives are elated.

“It means it can work. It makes the Fox Broadcasting Co., in Week Two, a possibility,” Diller says.

The Fox chairman says he and Murdoch have never discussed how large a loss they’re willing to sustain or how long they’re willing to wait for the fledgling network to succeed.

Nor has he held that conversation with himself.

“Never,” Diller says. “I haven’t asked myself those two questions, ever, once.”

TV STATIONS WNYW New York KTTV Los Angeles WFLD Chicago KDAF Dallas/Fort Worth WTTG Washington KRIV Houston WFXT Boston

FOX FILM RENTALS FROM TOP 10 FILMS SINCE OCTOBER 1984 U.S. and Canada 1. Aliens $43 million 2. Cocoon $41 million 3. Jewel of the Nile $36.5 million 4. The Fly $17.8 million 5. Commando $17 million 6. Mannequin * $15 million 7. Prizzi’s Honor * $14 million 8. Jumpin’ Jack Flash $12.6 million 9. The Morning After * $12 million 10. Black Widow $11.5 million * Distributed for another film company Currently in release

20th CENTURY FOX TV SHOWS (for networks, first-run syndication and the new Fox Broadcasting Co.) 1. L.A. Law 2. Mr Belveder 3. The Wizard 4. Rags to Riches 5. Hooperman (next season) 6. 9 to 5 7. Small Wonder 8. The Tracey Ullman Show

FOX BROADCASTING Shows from Hollywood producers for new Fox network.

The Late Show Starring Joan Rivers

21 Jump Street

Married. . .With Children

The Tracey Ullman Show*

Duet

Mr. President

Down and Out in Beverly Hills

Karen’s Song

Werewolf

The New Adventures of Beans Baxter * Only show purchased from 20th Century Fox