Dear AT&T;: Go Hollywood, Not Hardware

To: AT&T; Chairman Robert E. Allen

From: Mickey the Agent

Bob, baby! Sorry I didn’t get back to you sooner but it’s been crazy. Hey, love your phones--I use them all the time. Even my BMW has two phones--both with call waiting, call forwarding and a fax machine. Everyone in Hollywood has them. You know how it is: deals, deals, deals.

Speaking of deals, let’s talk about this $6-billion NCR thing. Bob, you know I think you’re tops, but I’m confused. I like digital cash registers and Unix-based minicomputers as much as the next guy but, Bob, they’re hardware . Who wants to be a hardware guy in a software world? This is Hollywood. The value isn’t in the technology--it’s in the package.

As I was telling Jack (a hell of an actor no matter what anybody says about “The Two Jakes”) at the Lakers game: “Jack, what’s with Bob? Sony buys up CBS Records and Columbia; Matsushita--whose executives haven’t even seen ‘E.T.’--gets MCA. Morita and the other Japanese hardware guys all think software is the future. Even the Koreans seem to think so. So why is AT&T; spending billions on a business that makes boxes just when the box makers are acquiring software companies?”

“You know,” Jack drawled, “for the kind of money AT&T; is prepared to spend, it could have bought MCA.”

Don’t get me wrong, Bob. It’s not that you don’t have vision; it’s that you’re not talking to the right people. Stay away from those McKinsey consultants and the Wall Street suits; they’re ‘80s--out, outre . These are the ‘90s. Don’t go to Morgan Stanley for advice; go to Michael Ovitz. Let him do for Ma Bell what he did for Sony and Matsushita. You need someone who can help you see the big picture--and own it.

As you know, Bob, thanks to companies like yours, America is going fiber optic. People will be piping movies, video and all manner of digitized multimedia through these growing fiber optic networks. In the future, people will be able to pick up their phones to dial up and download their favorite shows on their high-definition TV screens. Don’t you want a piece of that action?

You need content, Bob, content! There’s more to software than Unix and object-oriented languages. You can use content to create demand for AT&T;’s network just as Sony and Matsushita want to use it to generate demand for their audio and video boxes.

Now, I know what you’re thinking. You’re thinking, “What the heck does AT&T; know about managing the entertainment business?” Well, for one thing, probably at least as much as Matsushita and Sony. What’s sauce for the Japanese goose should be sauce for the AT&T; gander.

For another--and I don’t mean to be cruel here, Bob--your firm hasn’t exactly set the world on fire managing its computer business either. Ever since the lifting of the 1956 consent decree barring you guys from the computer market, your company has lost billions trying to turn itself into a contender. Your strategic relationships with Sun Microsystems and Olivetti weren’t boffo performances either.

I understand how strongly your culture believes that computers are a natural corporate fit but, hey, reality and red ink say no. Does acquiring NCR really solve your computer problems or does it just mire you deeper into an industry that’s facing increasing competition and declining margins?

Besides, your company has just as deep a legacy in show business as it does in computerdom. Back in the ‘20s, your guys launched the first commercial radio network with WEAF in New York. Bell Labs created most of the equipment. Your technology was used to create the first talkie, “The Jazz Singer,” back in 1927. Your firm even had to create a new subsidiary to market its studio recording and theater reproducing equipment.

Your company also launched television broadcast technology--including cable transmission in 1936, microwave transmission in 1946, coast-to-coast TV transmission in 1951 and the transatlantic Telstar satellite television broadcast in 1962. Your firm just screams “synergy!”

I’m not just singin’ in the rain. As I was saying to Meryl (don’t you just love her accents?) the other night at Spago: “AT&T; is already in the content game in a big way--look at their new credit card business. Lots of customers and growing. It’s synergistic with their existing transaction-processing capabilities--it’s just that the ‘content’ is credit account balances instead of phone account balances.” Meryl loves to talk about business strategies; she’s a pro.

So why buy NCR when you can buy Walt Disney? Sure, it’s priced at $10 billion--but maybe Ovitz could help you structure a clever deal. That would be a great All-American merger of two pop technology giants. Think of the synergies. Bell Labs could create special effects for the movies and high-tech wizardry for the theme parks. The network boys and the Hollywood gang could craft Fantasia-esque “virtual realities” to play over the fiber optic networks. It would make Nintendo look like a pipsqueak pinball gallery. Besides, isn’t there already a Mickey Mouse phone somewhere?

In the long run, who do you think will generate more AT&T; network demand--NCR or the company that encourages you to wish upon a star?

Sure, Mike Eisner wants to acquire CBS--but over-the-air broadcast is yesterday’s business. Mike will wise up once you point out that AT&T--working; with the regional Bell operating companies--will soon be able to create the ultimate television network.

Or maybe you should acquire Paramount Communications. It’s valued at roughly NCR-size--$6.2 billion. They’ve got a huge publishing division to go along with all their video and film enterprises. Martin Davis is also one of these “maximizing shareholder value” types, but think of the global clout you’d have. America’s media are global; the networks are global. Just as surely as Sony wants Bruce Springsteen singing on its digital audio tape Walkman, AT&T;/Paramount would want Godfather IV flowing through its proprietary global pay-television services. It’s a natural.

Theodore Vail, the conceptual architect of the original Bell System, would have understood, Bob. He intuitively recognized the importance of vertical integration and constructed the most successful, public-oriented monopoly that America has ever seen. Vail would know that your firm’s future doesn’t rest primarily on getting computers to talk with each another but to get people to put their ideas, dreams and fantasies on the network. Just as people have paid a premium to share their dreams over the phone, they’ll pay a premium to watch and interact with them over the network. Your network.

It’s like we always say, Bob: There’s no business like show business. Gotta hop. My other phone’s ringing.