Mel Karmazin: Disney's Savior or Eisner's Clone?

First published June 08, 2004

By C. W. Oberleitner

Last week's surprise resignation by Mel Karmazin set tongues wagging and keyboards clicking from Wall Street to Burbank. C. W. Oberleitner weighs in on what impact this development (if any) may have on the Mouse House.

Around six on the evening of March 3 of this year, I found myself wandering around the lobby of Loews Philadelphia Hotel. The local NBC affiliate has a broadcast booth facing Market St. located at the far end of the hotel's lobby restaurant and bar. On this particular evening, it had been taken over by a team of producers and reporters from CNBC. They were frantically preparing to break an exclusive news story.

CNBC was about to tell the world that the Board of Directors of The Walt Disney Company (WDC) was about to strip Michael Eisner of the title of Chairman of The Board of Directors and that the board would, in short order, also replace him as CEO. According to the CNBC folks feverishly working on the story, Peter Chernin, President of News Corp. and FOX Entertainment, would be offered the position of CEO and Viacom President Mel Karmazin would be asked to come on board as President, effectively replacing WDC President Bob Iger.

The entire scene was like something out of a movie. This corner of the otherwise quiet restaurant and lounge was by comparison utter chaos as this group of earnestly stern men and women worked their laptops and cell phones. One group was keeping the network updated with their readiness to go on-air live with breaking news while still others were frantically seeking independent corroboration of the story.

I left the CNBC folks and did a little snooping of my own. I checked with sources from SaveDisney.com—who were headquartered in the same Loews Philadelphia Hotel. What I learned was that in the noise and confusion following the Disney shareholders' meeting, which had taken place earlier that day across the street at the Pennsylvania Convention Center, several members of the Disney board had apparently said that they were willing to meet with former directors Roy E. Disney and Stanley Black—as well as other major investors—to discuss what should be done next regarding Michael Eisner's then 43% no confidence vote earlier that day.

Sources within SaveDisney let it be known that, despite earlier refusals to name possible successors to Eisner, Mr. Disney and Mr. Gold felt that Messrs. Cherin and Karmazin were very well qualified to take the reins of Disney.

By the time the story hit the air, Disney media relations had once again gained control of its wayward directors and issued a series of statements. These statements confirmed Eisner would no longer serve as both Chairman and CEO. He would remain CEO and be stripped of his job as chairman, replaced in that position by former Senator George J. Mitchell. Disney media relations went on to say that the board would meet soon to discuss succession plans and possibly meet with concerned investor groups, such as the vocal state pension fund managers that had previously urged a NO vote on Eisner.

For its part, CNBC went on the air live that evening backing away from the "Eisner will be replaced," part of the story. They did say that "sources" close to both the Disney Company and SaveDisney.com confirmed that either Chernin or Karmazin were "leading" contenders to be Eisner's "eventual" successor.

That was then. This Is Now.

Eventually, both New Corp.'s Peter Chernin and Viacom's Mel Karmazin released statements to the press each saying that he was perfectly content with the job he presently held. They both went right on saying this all the way up until last Monday when Mel Karmazin abruptly resigned as President and Chief Operating Officer of Viacom.

For months, the business media has devoted nearly as much space to Karmazin's battles with 81-year-old Viacom chairman, Sumner Redstone, as it has to Michael Eisner's problems with mounting shareholder revolt. Despite all of that, both Redstone and Karmazin repeatedly denied that their disagreements were anything more than an exchange of ideas between equals. Last year, Karmazin even signed a new three-year contract with Viacom.

The ink was barely dry on Karmazin's letter of resignation when the press began speculating how soon it would be before he was put forward as Michael Eisner's successor by either Shamrock Holdings President, Stanley Gold, or the WDC board of directors.

When asked about Karmazin's resignation, Disney board chairman George Mitchell said the following:

The board has complete confidence in the current management. On the strength of our recent results we believe that confidence has been justified, and will be further validated as our performance continues to improve…

Under the headline, "They Should Be Talking To Mel Karmazin," Roy Disney and Stanley Gold quickly published their response to media inquiries regarding Karmazin's resignation on their SaveDisney.com website, saying, in part,

George Mitchell said the Board would be talking to both inside and outside candidates for the Disney CEO position as part of the company's succession planning. We would assume he has or will be contacting Mel Karmazin, among other obvious candidates.

Early last week speculation ran rampant as to what Karmazin's next move might be. It's fairly well known among financial analysts that Sumner Redstone has been disappointed with Viacom's Infinity Broadcasting's performance over the past couple of years. The L.A. Times, among other publications, suggested Karmazin might mount an effort to purchase the radio broadcast group from Viacom and return to the business from which he first launched his career.

It was, however, Rupert Murdock's tabloid paper, the N.Y. Post, that came right out and said that Karmazin was jockeying for Eisner's position. In a story that appears in The Post's June 2, on-line addition they said:

Representatives for Mel Karmazin are expected to reach out to Walt Disney's board of directors soon about the possibility of the former Viacom president succeeding Disney honcho Michael Eisner….

The following day the Post's Page Six gossip columnist, Richard Johnson, took things a step further suggesting Michael Eisner would step down as Disney CEO at the end of this summer and that

…he's handpicked former Viacom president Mel Karmazin as his successor…. "Eisner trusts Mel," says one of our sources. "They've been talking about him taking over."

Representatives of the WDC denied that any such negotiations were taking place. They went on to say that Eisner is and would remain CEO of the company. The fact remains, however, Eisner's current contract expires in 2006 and few, if any, in the industry or on Wall Street expects it to be extended.

Now Just Wait a Gosh Darn Minute

There's little doubt that Mel Karmazin is, and has been for some time, on Stanley Gold's short list of possible replacements for Michael Eisner. He has said of Karmazin:

Mel is a world-class executive who has both the right credentials and experience. He should definitely be on the Disney Board's short list.

With his skillfully crafted reputation for being a no-nonsense "antimogul," Karmazin is also considered a darling of Wall Street. He helped build Infinity and then successfully took over leadership of CBS, after that company bought the radio and outdoor advertising group. Later, he was credited with the highly profitable sale, for shareholders, of CBS to Viacom, where he landed the job of President and COO for himself.

In recent months, however, that image has been slightly tarnished by a 17% drop in the value of Viacom's shares since last year.

Precisely because of his low-key approach to doing things, little else has been known outside Viacom about Mel Karmazin, the man and the manager. For that reason, I started talking with some folks within Viacom's Paramount operations here in Los Angeles.

"Mel's not a bricks and mortar kinda guy," a Paramount creative executive told me. "I don't think he'd work out at Disney. He has no interest at all in things like theme parks, restaurants, hotels, product licensing, DVDs. All the stuff that Disney's into so heavy."

Echoing sentiments that began appearing in the press following the rounds of speculation that Karmazin would succeed Michael Eisner, my source went on to say that what Karmazin was really into was sales. "He's all about ad revenues. He's a sales guy. He doesn't really care for the creative, intangible stuff or anything else but sales."

Under Karmazin's leadership, Paramount Pictures, while profitable, hasn't really scored a major hit in years and by most accounts is a major industry underachiever. The lack of hit films also adversely impacts the company's video and DVD sales.

As Viacom's leading shareholder and board chairman Sumner Redstone is known to enjoy taking a gamble and a risk on possible blockbuster films with their potentially huge payoffs. Around the Paramount lot, Karmazin is known to prefer keeping costs down. The Wall Street Journal even reported that he dismissed "the creative parts of the business as 'arts and crafts.' "

New York broadcasting fixture Jonathan Schwartz in his memoir, All in Good Time, recalls having worked with Karmazin at WNEW in the 1970s:

To him, language was only utilitarian; it slipped from his lips as he hurried through his days, while clumps of financial declarations dribbled down onto his lapels during flurries of cost-cutting meetings and memos and phone calls and one-paragraph letters… All of it served the dismal fact that Mel had no interest in music, news, sports, books, theater. It mattered not what a station proffered, only how it profited.

Suddenly, the idea that Michael Eisner might actually be courting Karmazin as his replacement appears to be a great deal more plausible. And, Redstone's decision to replace Karmazin with two executives known as much for their creative as well as financial successes, Tom Freston, who heads up MTV and Nickelodeon, and Leslie Moonves of CBS, also appeared more logical.

Baby with the Bathwater

The task of finding a CEO who can run a major entertainment conglomerate, who has both the creative vision necessary to nurture its core business and the operational skills to satisfy Wall Street, is daunting, to say the least. At its annual retreat this past April; the Disney board of directors had said it would take up the matter of succession.

Following the retreat, sources within the company said the board had secured Eisner's agreement to step down as CEO later this year while still retaining his seat on the board. They also were said to be favoring Disney Theme Parks and Resorts President Jay Rasulo as Eisner's successor.

The idea of announcing the eventual promotion of Rasulo over WDC President and COO Robert Iger almost immediately ran into problems. Because of his close ties to ABC's failures, virtually no one expects Iger to be offered the chief executive's job. Passing over Iger and giving the job to Rasulo would leave Iger in a difficult, if not untenable, spot and the company in an embarrassing situation.

Iger, like Eisner, sits on the Disney board, and the board has, since the March shareholders' meeting, frequently said they continued "to have complete confidence in Michael Eisner, Bob Iger, and the senior management team and in their strategic growth plan to continue to strengthen the company's position as the global leader in quality family entertainment."

Following the retreat board chairman Mitchell, in a prepared statement, simply repeated the company's standard assertion that "The Board… continued its systematic assessment of both CEO and senior management succession."

Since the announcement of his resignation as Viacom President and COO, there has been an all too familiar ring to the sound of the emerging story of Mel Karmazin. A driven, bottom line obsessed executive, devoid of creative vision, his is a story of a man, in an ego-driven business, not known for his ability to cultivate talent and relationships. And yet, he heads a company dependent on the vision, imagination, and talent of others.

The next Disney CEO will not only have to be capable of moving the company forward, he or she will also have to rebuild relationships with some of the most powerful people in the entertainment industry. Disney's new CEO will have to reach out to the likes of Steven Spielberg, George Lucas, Steve Jobs and yes even Jeffrey Katzenberg, just to name a few. One has to wonder that, if in his zeal to see Michael Eisner removed from the reins of power at the WDC, Stanley Gold might not be acting too hastily by so vigorously endorsing Mel Karmazin.

C'ya real soon!