From Scratch Page 5

  “You’ll run out of money in a couple years and you’ll be asking us to pitch in more,” Stengel said. He thought the plan was the kind of cheap, provincial thinking he would expect from a small-time cable operator like Colony. He knew it and every other operator hated having to pay Ted Turner for his channels every month when the smug bastard from Atlanta was also collecting advertising money without having to cover the expense of dispatching trucks to make sure every old lady’s cable was screwed into the back of her Trinitron properly. But that didn’t mean it made sense to start a network based on a fantasy of free channels for everyone! He was surprised that Tryg had signed off on this mess. Having sat on the first board of CNN, Stengel knew how chaotic Reese could be, and how nasty he could get when anyone questioned him. As far as Stengel was concerned, Reese was not an asset to this project. Two strikes against it. But he respected Tryg and Jack too much to say no outright.

  Comcast did turn them down outright.

  So did Teymour Boutros-Ghali, vice president of Time Inc. Ventures. He agreed that the crucial component in the channel’s success was securing carriage across many cable systems. He understood why the plan was structured as it was; giving ownership to a group of cable providers would indeed ensure carriage. But Time Inc. did not want to own small pieces of companies. It created too much confusion. For instance, if Time was interested in the “synergy” of having shows named after its own food magazines, how would it deal with the other partners? Who would control the valuable brands? It was too messy. Time was in the midst of starting a syndicated TV show based on People magazine, called Extra, a project the company would own 100 percent.

  “We’re in this business to get big pieces, to start new franchises,” Boutros-Ghali told Jack.

  What he did not tell them was that he also knew Reese, and had heard that Reese was as volcanic as ever.

  Yet another rejection came from Charles Dolan, the CEO of Cablevision on Long Island. Dolan alarmed Jack and Andrew when he told them that he had been looking into the idea of a food channel himself. “It’s a great idea and we’re doing it,” he said. They were further jolted when Dolan introduced them to the executive in his programming group who was in charge of investigating its feasibility. But months after their initial meeting, no one from the ProJo Food Channel team had heard anything, so Tryg called Dolan to ask if he was in or out. Dolan was dismissive. He told Tryg a food channel “doesn’t make any sense. It’s way too big a category.” And, he added, even if someone could figure it out, “I don’t think you guys really have the talent over there to get it done.”

  Meanwhile, there was a problem with the name. “Food Channel” was trademarked. “Food Network” was also trademarked, although not for the purpose of a television channel. In any case, the problems with clearing the names legally increased the ProJo team’s anxiety that someone else would beat them to the punch. If those names were gone, surely someone else was up to something.

  Jack suggested Television Food Network; TVFN for short. No one had that. It stuck.

  But so far, all they had was a name and a pledge from P&G. No investors were aboard. As the months wore on, some of Joe’s colleagues started to rib him. One day Jeff Wayne, Colony’s head of marketing, saw Joe hunched over the business plan. Jeff, like many others, had been skeptical all along that the channel could be viable without collecting per-subscriber fees.

  “You still kicking around that food idea with Johnson & Wales?” Jeff laughed. “You haven’t got real work to do?”

  Joe nodded. His ideas had been mocked before. He was used to it. “There still may be something there,” he said quietly. “We’ll see.”

  But the cascade of bad news continued. Johnson & Wales dropped out. J&W had first been asked to contribute $10 million to be part owners, then, when the school administration balked, $2 million for a smaller stake, but they had been edgy all along. The school was in the midst of massive spending on expansion. The more Ken Levy and others at J&W considered the TVFN plan, the more they realized the channel was about entertainment and not their core mission, education.

  Then, Steve Cunningham dropped out. He’d been tapped to run a new shopping network. After legal wrangling, Steve retained a small ownership stake in whatever became of the project. Reese would be left with a roughly 5 percent share. So far these were shares of nothing.

  Then there was Couponix. The Oregon company had not actually developed a working prototype. All it had was a cartoon that when broadcast could make a toy dog bark. No one knew if advertisers would even want an electric coupon machine or if supermarkets would add technology to accept it. Joe and Reese had to face reality and remove it from the business plan, leaving a big financial hole.

  At this nadir, Reese and Joe kept fighting to keep TVFN inching forward. Like a veteran superhero gathering his old Justice League comrades to fight a new battle, Reese made the rounds, asking for help from those who had stood with him before and made TV miracles.

  One of them was Robin Leach, the nasal-voiced host and producer of the loved and ridiculed syndicated show Lifestyles of the Rich and Famous—“Champagne wishes and caviar dreams.” Reese had hired Robin in 1980 as a reporter on a celebrity-focused CNN news program called People Tonight. It became one of the new network’s most popular shows and helped Robin develop the idea for Lifestyles.

  When Reese came to see him at his office in the Lipstick Building on Third Avenue in Manhattan, Robin was wrapping up the fourteenth season of Lifestyles. Ratings were down and the show was nearing its end. Robin might have played his host role with wacky bombast, but he was also a shrewd businessman, up early to meet with stations carrying his show, videotaping customized promotions for their regions, and haggling with satellite operators for better prices. Reese explained that he wanted him aboard a new project. He flattered Robin, telling him his fame and his understanding of start-ups would be essential. Perhaps Robin could leverage his celebrity connections to attract notable guests for a new talk show he could host himself, just like People Tonight on CNN.

  “Right now you’d be the biggest star we have,” Reese said. “Your name will impress people.”

  Robin was certainly one to bask in such praise, especially when his show was dying.

  “What’s the project, Reese?”

  “A twenty-four-hour-a-day food network.”

  Robin was silent for a moment. It occurred to him that Reese had gone out of his mind. Poor guy. Started CNN, got booted, and now he was grasping at whatever he could in order to get back in the game. Then he paused and reconsidered. Reese had proven he was no joke.

  “Well, Reese,” he said, “every time I’ve been told I was mad, it turned out to be the best thing since sliced bread.”

  “That’s right,” Reese said. “Sliced bread.”

  “But how on earth do you do twenty-four hours of food?”

  “That’s the challenge we both have. Can you help me?”

  The two struck a deal. Robin would be paid based on the number of subscribers the network attracted. He had good relationships throughout the country because of his travels to syndicate Lifestyles. In addition to appearing on the air for TVFN, he could use those relationships and his famous name to get meetings and cajole smaller cable providers to add it to their lineups.

  Robin liked having skin in the game. The arrangement Robin agreed to was that once the network got up to sixty million subscribers—if it ever did—he would be paid something more than a million dollars.

  —

  Robin Leach coming aboard was not likely to make the difference between TVFN living or dying. What did make a difference, however, was a landmark new law governing cable television, passed by Congress in October 1992. Part of the complicated legislation was called “retransmission consent.” It forced cable providers to compensate broadcast channels for carrying them. For example, if Comcast wanted to include local channel 3 on its cable l
ineup in Philadelphia, it had to pay the owner of channel 3 in some way.

  What kind of payment? It took months for the cable and broadcast industry to figure it out. The cable providers needed to spend their money on laying better transmission wires, so instead of compensating local broadcasters with cash payments, they settled on offering space on their expanding dials as barter. What the owner of a broadcast channel gained was the right to a second slot on the cable dial. This is how Fox started FX, NBC launched what became MSNBC, and ABC got cable providers to carry ESPN2.

  Once Reese recognized what this might mean for TVFN, he leapt. First, it meant that ProJo could use its leverage from the broadcast channels it owned in Kentucky, Texas, and elsewhere. If each ProJo station used retransmission consent to win an extra slot on a local cable system, TVFN could be wedged into those slots, adding hundreds of thousands of homes.

  Second, Reese recognized that retransmission consent meant that owners of other broadcast channels had also gained the power to demand second channel slots—and not all of those owners were prepared for the opportunity. Reese called George Babick, an executive at the Tribune Company. He had been CNN’s first advertising sales manager. Tribune owned eight TV stations around the country in big urban areas, Los Angeles and New York among them.

  “Listen,” Reese said to his old colleague, “do you think Tribune would be interested in getting involved with this TV Food Network? You guys have big markets, ten million homes, and you’re getting basically nothing for it from the cable companies.” If Tribune gave TVFN its retransmission consent rights, it would receive a large ownership percentage of the new network.

  George’s office was on the nineteenth floor of the Tribune Tower, ten feet away from the president of Tribune Broadcasting, Jim Dowdle. George had presented many ideas to Dowdle over the decade he’d been there, but inevitably, Dowdle would get a team of underlings to spend months generating charts, spreadsheets, and research reports, and then the decision was almost always “no.” Slow death. George missed the fast-breaking excitement of working on a start-up with Reese.

  Perhaps it was because Dowdle had passed on the opportunity to make Tribune an original investor in the SciFi channel, a decision he regretted bitterly. Perhaps it was because cable was growing like mad, and Tribune did not have a solid piece of it. But it took Dowdle a stunning and uncharacteristic two days to approve the deal. Tribune kicked in around $10 million cash and got 30 percent ownership of TVFN, and in return, the upstart network got Tribune’s retransmission consent rights for ten million homes across the country. George would soon quit the Tribune gig and, promised his own small ownership share in TVFN, go to work for Reese in New York.

  Because cable providers did not have space immediately available to add more channels, TVFN would not have all of Tribune’s ten million homes at launch, but the agreement signaled that the channel was well on its way. With the Tribune commitment, the team began to make the rounds again, and this time the results were different.

  E.W. Scripps, a media company based in Cincinnati, was considering starting its own cable channel. Lawrence Leser, the Scripps chief executive, brought the TVFN proposal to Ken Lowe, a rising executive in the company, who was painstakingly trying to cobble together a winning plan for Scripps to start what he aimed to name Home, Lawn and Garden Channel. Ken had recognized that women were an underserved cable audience and that “lifestyle” programming could be a way to reach them.

  Ken liked the food idea—it fit in with the research he had done. But he disliked the approach and the show ideas. It was all too informational and instructive, boring. What’s more—the old bugaboo—giving it away free for ten years went against the wisdom of every revenue projection he had done on his channel. Advertising would not be enough to cover expenses. The plan looked like chaos and pure bravado to him. Although it was infringing a bit on the territory he envisioned for Home, Lawn and Garden, for which he aimed to produce a few cheerful cooking shows, the food plan made him feel more confident about his own, better-thought-out, proposal.

  He went back to Leser. Ken praised the concept, but concluded, “I don’t think I’d invest in it.”

  “We already have,” the CEO said. Pressed by TVFN to make a decision fast, they had not waited for Ken’s input. As it had for Tribune, it seemed a way to acquire something without committing much cash. Ken shrugged and handed back the plan. Not his problem. Scripps ended up kicking in $9 million and pledging to deliver the network to 630,000 of its cable subscribers, in return for a 13 percent ownership stake.

  With Scripps and the Tribune Company on board, Tryg went back to Continental. He called the company’s founder, Amos Hostetter Jr., and made a personal appeal. Amos decided the company could risk $9 million on a plan Tryg endorsed so wholeheartedly. Robert Stengel still wasn’t sure about Reese, but Tryg had proved himself enough to convince Hostetter to take a gamble.

  —

  On August 16, 1993, more than two years after Goat Island and a year after ProJo had hired Reese, the investors were in place and an agreement was finally signed. The original ownership of TVFN is easiest to understand as three pies—Management, Class B, and Class A—and a grasp of this ownership structure helps make sense of what happened later, when a lot of decisions were made based on financial necessity. The money and power that the numbers represented would come to influence which personalities held sway in shaping the channel’s growth: who got rich, who got famous, and who didn’t.

  “Management” was the smallest pie—10 percent, held by the founding companies behind TVFN, ProJo, and Reese’s company, Pacesetter Communications—and it would earn profits after everyone else had recouped their investments. It was cut into two unequal slices, three-quarters for ProJo and one-quarter for Pacesetter.

  “Class A” was the largest—60 percent, divided into five roughly equal slices owned by Tribune Cable Ventures, Scripps Howard Inc., Landmark Programming (a cable operator), Continental Programming, and ProJo. Each had invested around $9 million in TVFN, and were on the hook to pay for losses, but they would also be the first to enjoy profits, should there ever be any.

  “Class B” owned 30 percent of TVFN, and had given FN carriage, but not cash: C-TEC Cable Systems, Times-Mirror Cable Television, Adelphia Communications, and a subsidiary of Cablevision Industries (unrelated to Charles Dolan’s Cablevision). Every Class B partner received 2 percent for every 1 million households it delivered. Some of the Class A owners also had pieces of Class B, depending on how many households they delivered. After four years, the size of the shares froze.

  Reese had proven his worth in this essential early phase, sticking with the project through ups and downs that might have made a less adventure-tolerant chief queasy. For his part, Joe was tapped to move to New York as the first employee of the new network. His creativity and persistence had started the thing, and Colony figured he was entitled to stick with it. When that was decided, Joe tried asking Reese for a small ownership share of the network, but Reese explained that he had already promised stakes to a few of those he was eager to bring in. If he gave away more equity to Joe, he would be diluting the shares and lose the leverage he needed to attract top talent.

  Strangely, a few days before Joe moved to New York, he came home from a business trip and realized his Proton television had been stolen. There was no sign of forced entry, and Joe was too busy with everything to ever file a police report.

  Reese had set the start date as somewhere around Thanksgiving 1993, which gave them only a few months to get a national network on the air.

  —

  More trying tests lay ahead. The network they were starting was unlike any that had come before. Only one on-air personality was committed, there were zero fully-thought-out show ideas, and they had no network headquarters—no network at all really, except the hypothetical one agreed to on paper.

  CNN with Stoves

  Reese established t
he TVFN start-up headquarters in a tiny three-room apartment on Seventh Avenue and West Fifty-third Street. The walls were quickly covered in yellow Post-it notes, each darkened with heavy scribbles as Reese issued his staff an ever-evolving to-do list. He had hired a few employees, including Susannah Eaton-Ryan, the former manager of the punk rock club CBGB, who also had experience overseeing TV production facilities; Ricki Stofsky, a news producer from local channel 5; and Rochelle Brown, a recent college graduate hungry for a break in the TV business.

  Susannah had worked with Reese on a short-lived syndicated TV show he’d produced in 1989 called Crimewatch Tonight. Those few who had not known him prior to the TVFN project began referring to all of the hires who had known him, such as Robin Leach and George Babick, as F.O.R.s—Friends of Reese. Others were Robin Connelly, an aspiring talk show host who had been romantically involved with a relative of Reese’s, and Jonathan Lynne, the son of Reese’s former lawyer, Michael Lynne, a co-founder of New Line Cinema.

  It was, basically, insanity in that office. When Rochelle had applied for the job of production assistant, she sent a cake with her résumé. One food-world snob Reese had hired stuck her finger in to taste it, wrinkled her nose, and said, “It’s from a mix.” On Rochelle’s first day, Ricki shoved aside a pile of videotapes and assigned her an upturned box to use as a desk.

  For Reese and everyone else on the business side, the project was a business play made possible by the changing realities of cable TV—not a way to spread the gospel of a food revolution. He had a rough list of what needed to get done to pull the network together. Some of the items were obvious essentials, like finding a real broadcast home. Others were wishes, such as figuring a way to bring Julia Child aboard in some capacity because she was the biggest name you could get in the TV food industry. And a few items on Reese’s list were thought through only in general terms: they needed something to put on the network, but exactly what shows with what talent was not clear. The original list of show ideas included in the business plan had been hastily composed, and although it had been improved over the next year to attract investors, it still was unspecific. Who exactly would host what?