Sumner Redstone declined to join Hulu; Viacom’s content, he believed, appealed to younger viewers than Fox’s or NBC‘s, and in any case, he and Daumann wanted control over where their content appeared. CBS, which was split off from Viacom but which did not lose Redstone as its controlling shareholder, came close to a licensing agreement with YouTube, but pulled back. Redstone didn’t want CBS to make such a deal; nor did its network peers. Like Redstone, CEO Les Moonves said CBS would not agree to display its programs exclusively on Hulu. “The issue of the moment is whether Google is going to dominate advertising,” observed private equity investor Steven Rattner, then managing principal of the Quadrangle Group, which invests in media companies. “The airlines always kept McDonnell Douglas in business because they did not want to depend on just Boeing. Everybody wants at least two suppliers.”
Still, CBS established a more cooperative relationship with YouTube and Google. This reflected, at least in part, the different nature of the two businesses. As a cable program and movie supplier, Viacom got the bulk of its revenues not from advertising but from the license fees cable distributors like Comcast and Time Warner paid them. Unless YouTube offered a reasonable license fee, Viacom risked blowing up its cable business model. CBS, a broadcaster reliant on advertising as its sole source of revenue, saw YouTube as a worthwhile experiment to tap into new revenues that might replenish the revenue CBS lost as its audience shrank.
CBS also had a more assertive digital strategy. Les Moonves decided that he would not treat the Internet as a single distribution channel that his network could control; instead he would spread CBS content on over two hundred Web sites. He had to overcome resistance from the traditionalists in CBS. Jeff Fager remembers the contentious 2005 meeting he attended. Fager is the executive producer of 60 Minutes, the longest running program in evening television history, and he wanted to expand his audience. He had worked out a proposed agreement with Yahoo that would give the Internet site a total of sixteen clips, up to two minutes long, from the CBS show each week. Yahoo would sell advertising against these clips. Fager pitched the deal to a roomful of CBS executives. He assured them CBS News would retain control of the editing process, that he would have a staff of seven to edit these pieces, that Yahoo had agreed to pay half this staff cost and to split the advertising revenues. “I argued that we needed to reach a larger and a younger audience and to find new revenue sources,” he recalled. The average age of his Sunday evening audience was approaching sixty. “The resistance was: ‘Why do we want to give one of our best brands to the competition?’” They would be diluting the exclusivity of a venerable CBS program found nowhere else. CBS executives wrongly thought of the Internet as just another distribution platform, and anyone airing 60 Minutes should pay big bucks. They did not see the Internet as a transformative medium, a medium with thousands of Web sites that could serve as CBS platforms, an interactive platform, a promotional platform that would lure younger viewers to CBS. “The sentiment in the room was not to do it,” said Fager.
But Les Moonves intervened. “Look at all the new people we can introduce to 60 Minutes,” Moonves remembers saying. “And since we don’t syndicate 60 Minutes, we are not cannibalizing it. There is no downside for us.” That was the decision, and soon 150 million Yahoo visitors would view 60 Minutes clips each year on Yahoo, far more than the 10 million streamed on CBS.com. (Of course, one day 60 Minutes video streams might produce big bucks, but not yet; the experiment was cancelled in 2008, after producing only one million dollars, to be split annually with Yahoo!)
Moonves also announced another partnership, with YouTube, in the fall of 2006. CBS would allow the video service to air short-form clips, usually none longer than three minutes, from its entertainment, news, and sports divisions, with CBS and YouTube sharing any advertising revenues. CBS would also become the first network to agree to test a new YouTube technology that would identify its pirated content on YouTube. “We’re pleased to be the first network to strike a major content deal with what is clearly one of the fastest growing new media platforms out there,” Moonves declared in the joint press release. Redstone blessed the deal, said a CBS executive, because showing clips of CBS long-form shows was a promotional platform to enhance their value, while showing clips of short riffs from such Viacom programs as The Daily Show With Jon Stewart would rob them of value. In the not too distant future, CBS would follow Murdoch’s lead with a major digital acquisition, CNET.
CBS’s switch to playing offense coincided with the appointment in 2006 of Quincy Smith as president of CBS Interactive. “I think Quincy is one of the most advanced thinkers in this space,” said David Eun, who was a Time Warner executive before becoming Google’s vice president for strategic partnerships; he now works out of Google’s New York office as their principal negotiator with traditional media companies. Smith’s task, in part, he continued, “is to go back and educate his very smart colleagues that this will not kill their business,” because YouTube is not “a destination” that competes with CBS, but rather another platform. The challenge to media companies is to get “their content to where the audience is.” Eun credits Moonves: “What he’s decided is that he has to change. He needed someone and he empowered him.” Of the geekspeak that gushes from Smith’s mouth, Moonves said, “I understand half of what he’s saying, on a good day! But the important thing is, he understands everything.”
SMITH IS PROUD to be called a geek, though this was not what was expected of him when he entered the world. He was born in December 1970 on Manhattan ’s Upper East Side. His father, Jonathan Leslie Smith, became the youngest partner at Lehman Brothers; his mother, Elinor Doolit tle Johnston, was a Bennington College graduate and the editor of Art + Auction Magazine. A computer was Quincy ’s childhood pet.
He enjoyed a privileged childhood-Collegiate, Phillips Exeter, Yale philosophy major-that suggested a life on Wall Street, or the CIA. His ponytail did not. He cut it, though, for his first job as an analyst for Morgan Stanley’s Capital Markets group, in 1994. But computers and technology were what really inspired him. He moved the next year to the technology group in Menlo Park, under Frank Quattrone. He worked on the 1995 Netscape IPO, going on the road with cofounders Marc Andreessen and Jim Clark, and with CEO James Barksdale. In October 1995, he joined Netscape as their chief deal maker and Wall Street liaison. He helplessly watched as Microsoft bundled the free Internet Explorer browser in with its dominant operating system, weakening Netscape.
Andreessen’s company was profitable, but Netscape was sold to AOL for $4.2 billion in 1999, where the browser lives as the open-source Firefox. Smith left and joined the Barksdale Group to invest in Internet start-ups.
It took just part of his time, and Omid Kordestani, whom he had worked with at Netscape, tried to lure Smith to Google in 1999. He had several interviews, including one with Page and Brin, but was rejected. “I didn’t graduate with a Ph.D.! I didn’t even go to business school,” he said. “The coach”-Bill Campbell-“wanted me to join a couple” of the companies he was advising, but Smith stayed with the Barksdale Group until early 2003, when he joined Allen amp; Company. “The day I joined,” remembers Smith, “the coach stopped talking to me. He said, ‘I have no respect for investment bankers.’”
For the next three and a half years Smith labored on a number of big deals, including the Google IPO. He was introduced by Andreessen to his future wife, Kat Hantas, who coowned a small Hollywood production company with the woman who was then dating Andreessen. In the summer of 2006, Les Moonves called and Smith began to do advisory work for CBS. Moonves said he wanted to hire a new digital executive to move more au daciously into the digital space. Smith funneled people in to see Moonves. After each interview, he said, “I felt the harpoon.” Moonves wasn’t satisfied with the candidates. He entreated Smith to take the job. The clinching argument came, Smith said, when Moonves told him: “You know, I used to be an actor. One night I was going to a premiere and my agent called and said, ‘Good luck. We’re all in this together.’”