When Turner was right

Celebrating the twentieth anniversary of the Turner Classic Movies cable channel earlier this week, I noted that I was a little vague on how Ted Turner came to own the rights to nearly every worthwhile movie ever made. A reader wrote to offer a look back at the ancient history that provides the answer:

Back in 1985 I was working as a senior consultant for the entertainment division of a large, prominent accounting firm in Los Angeles. This firm happened to be the auditing and tax firm engaged by Turner Broadcasting System. Ted Turner had just completed a complex stock purchase and merger agreement to acquire MGM/UA Entertainment Co. from Kirk Kerkorian in which Turner paid about $1.5 billion but simultaneously got back $470 million by selling the United Artists subsidiary back to Kerkorian.

Turner was being widely mocked in the Hollywood party circuit for being played for a sucker by Kerkorian. The press was also reporting that Turner had paid a sum far in excess of MGM’s business worth and would have trouble financing the deal – he needed to raise about $1 billion. The difficult financing and subsequent poor performance of MGM’s new film releases slowed down the completion of the deal for several months. Ultimately, Turner’s dream of owning a film studio fell through and he ended selling off most of MGM’s assets (including the venerable MGM studio lot in Culver City) back to Kerkorian (and other entities) for about $300 million.

However, Ted Turner had confided to his accounting and tax advisors that what he really wanted out of the deal was the film library which consisted of the MGM classics such as The Wizard of Oz and Gone with the Wind (Ted’s two favorite movies) and also the good parts of the Warner Brothers and RKO libraries as well.

Turner went to great lengths to preserve his ownership of the film library. In order to complete the transaction and take advantage of certain tax benefits (the tax accounting part of the transaction was complex and way over my head), he engaged his accounting firm to conduct a valuation of the film library. I was assigned to the project because of my particular expertise in designing and programming computer software for entertainment asset valuation.

I worked closely with the accountants to ensure that all possible revenue streams including foreign, domestic, TV syndication, new media (videocassettes, pay cable, etc.) were assessed and calculated by the software. The program ended up being extremely complex and, because it was valuing over 2,000 films, it strained the computer resources available at that time.

I remember working all night to deliver the final valuation number (and about 2,000 pages of worksheet calculations as backup). The number for the entire library, as I recall, was around $90 million (Net Present Value) which was a lot of money in 1986, but far lower than Turner had effectively paid for the rights.

Since I was just a young tech guy, I wasn’t in the meeting in the board room when the accounting firm partners delivered the news to Ted Turner. I was waiting in the adjacent room and I could hear through the walls Turner screaming his objections. He called the partners “bean counters” with no imagination and concept of entertainment. He said something like, “You have no idea what these films are worth, they’re priceless. I am creating new channels and new technologies to exploit these films. This library is easily worth over a $1 billion.”

After the meeting was over, the partners asked me to make some adjustments to the software to account for new distribution and technologies. I remember them telling me to create a “colorization” parameter and apply it to certain classic films in the library. I asked what this was and they told me that Turner has the crazy idea to use new computer software to turn black and white films into color films.

The tweaks to the various parameters added a few million dollars to the value of the library which I was told by the partners would not satisfy Turner. He was not only concerned about the tax consequences of the lower valuation, but also of his image as a mogul – i.e., reinforcing the impression that he was taken advantage of by Kerkorian. Ultimately, the conservative accounting firm could not risk its business reputation by increasing the valuation to match Ted Turner’s grand vision.

As the years went by, I watched (and often was involved in the valuations) as Turner launched TNT and TMC to exploit the library. He also purchased Hanna-Barbera, which allowed him to launch the Cartoon Channel.

Ted Turner got in over his head in the mega corporate entertainment world and ultimately had to sell out to Time Warner. I never liked his left wing politics and he fell short as a solid business leader, but Ted Turner definitely understood the value of entertainment content and was brilliant in finding new ways to exploit it. Bottom line: His acquisition of the “rights to just about every worthwhile movie ever made” was a deliberate and savvy business strategy that paid off. In the end, the MGM film library really was worth over a $1 billion.

Essence of the Constitution

In his column today, George Will lauds a short new book by Timothy Sandefur, The Conscience of the Constitution: The Declaration of Independence and the Right to Liberty. Will provides a short course in the original understanding of the Constitution and the Progressives’ effort to remake it in the name of “democracy.” Please check out his column.

The column presents a useful reminder of the difference between modern liberals and modern conservatives. They go to the roots. The differences are wide and deep.

Drawing on what Publius referred to as discoveries and improvements in “the new science of politics,” the Founders created a frame of government designed to limit the powers of the government by the system of checks and balances with which we are all familiar, at least by reputation. The powers of the government were limited in the interest of liberty.

To limit the powers of government necessarily meant to limit the power of a democratic majority. The Founders meant to restrain the power of a democratic majority; they feared the tyranny of the majority. They viewed unconstrained majorities as the bane of liberty. Up through their time, history had shown all known democracies to be “incompatible with personal security or the rights of property.” They formulated the Constitution to protect the rights of citizens against the tyranny of the majority. Publius put it this way in Federalist 10:

The instability, injustice, and confusion introduced into the public councils, have, in truth, been the mortal diseases under which popular [i.e., democratic] governments have everywhere perished; as they continue to be the favorite and fruitful topics from which the adversaries to liberty derive their most specious declamations.

The Founders had in mind the kind of man who presents himself as a tribune of the people — somebody who talks this way to impressionable young men and women graduating from college. Someone, i.e., like Barack Obama.

Given the limited scope of his column, Will does not intimate the success of the Progressives in overcoming the structural constraints on tyrannical action. The Progressive project has made great strides in removing the constitutional barriers protecting our rights to life, liberty and property against against the tyranny of the majority and the administrative state. We need to deepen our understanding of the task of restoration before us.

NOTE: I infer from reading Will’s column that Sandefur is a student of the students of Harry Jaffa at Claremont or Hillsdale. It turns out that he is a Hillsdale and Chapman Law School alum and now working at the the Pacific Legal Foundation. His book is published by Cato; he credits the book in part to the more than a decade he has spent working for the PLF.

Today’s IRS Documents: What Do They Show?

Earlier today, Judicial Watch made public a batch of documents that it received from the IRS in response to a Freedom of Information Act request. The documents consist of a series of emails relating to the IRS’s treatment of applications for 501(c)(4) status from “Tea Party” or otherwise conservative organizations.

I am still working my way through the emails, but have a few preliminary observations. First, the most significant ones I have seen so far have already been widely discussed. The email below documents a call from the Department of Justice about whether non-profits that “lied” about doing political activity can be criminally prosecuted. This was an idea that Senator Sheldon Whitehouse raised at a committee hearing. It was picked up on by DOJ, and there was some coordination among DOJ, the IRS and the FEC. Click to enlarge:

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This one is obviously significant. Lois Lerner says, in effect, to disregard administration spin: the effort is “ALL about 501(c)(4) orgs and political activity.” Click to enlarge:

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This one is my favorite. It was sent by Cindy Thomas to Lerner just after Lerner disclosed the targeting of conservative groups at an American Bar Association conference, and blamed it on “low level workers” in the IRS’s Cincinnati office. That was obviously a total lie, and Ms. Thomas, who was in charge of exempt organizations at the Cincinnati branch at the time, rubs it in. This email was actually made public last November, but if you haven’t yet seen it (I hadn’t), you should. Click to enlarge:

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My only other comment is that the emails are heavily redacted. Almost all of the redactions cite exemption b5, which is very general; it covers any document or portion of a document that would not have to be produced in a civil action. Actually, if documents fall within the scope of a Rule 34 request, the circumstances under which they do not need to be produced are quite narrow. While it is impossible to judge the appropriateness of a redaction without knowing what has been blacked out, there are a number of instances where it is hard to believe that any normally recognized privilege would apply.

When it comes to spying, secrecy and accountability are not mutually exclusive

Barton Gellman, who led a Washington Post team that revealed NSA surveillance measures, has argued that our interest in “self-government” requires that the public know “the secret policy decisions the government is making for us.” I have responded that our interest in self-government is sufficiently vindicated in cases like spying that require secrecy as long as the political process determines who makes the secret decisions and provides for checks against abuse.

The work of the NSA meets this test because it is conducted under the direction of our elected president and is subject to review by our elected legislative branch. It is also subject to judicial review.

I don’t mean to suggest that this system is ideal. Ideally, the public would know what decisions the executive is making and Congress and the judiciary are countenancing. The public could then punish elected officials with whose balancing of national security and privacy interests it disagrees. That’s self-government at its best.

The problem, of course, is that if the public knows what secret surveillance measures the NSA is taking, the measures will no longer be secret. They will then become less effective, if effective at all.

Moreover, although less than ideal from the standpoint of self-government, secret decisions that balance national security and privacy interests are not entirely insulated from public scrutiny. The public can’t review the decisions when they are made, but it can observe the consequences and punish elected officials for bad ones.

If the government errs on the side of privacy interests, fails as a result to connects dots, and therefore fails to learn about a deadly attacks, the public will learn about the failure, as it did following 9/11. It probably will become irate.

If, on the other hand, the government engages in abuses such as using information obtained from secret surveillance against Americans for reasons unrelated, or insufficiently related, to fighting terrorism, the victims can be expected to scream. The public probably will become irate.

From all that appears, NSA has not used information obtained through its surveillance programs against Americans for reasons insufficiently related to fighting terrorism. But if it did, the political process provides a potential remedy, even if the Washington Post and others do not disclose the NSA’s secret programs.

But there is no remedy for the Post’s disclosure. Once it decides to tell the world about a given NSA surveillance technique, the NSA typically can no longer use that technique effectively. And the public cannot “unelect” the reporters, editors, and managers of the Washington Post.

All that remains for those who worry about protecting this country from terrorist attacks is to take what solace we can from Bart Gellman’s self-serving claim that he and his colleagues have “been as careful as we could be to balance the public interests in self-government and self-defense.” I take none.

Where Do We Turn For Wisdom on Foreign Policy?

You know it’s an upside-down world when editorial cartoonists have a more sober understanding of national security realities than the administration’s foreign policy team. Click to enlarge:

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The Fraud of Mary Landrieu

By now news has traveled far and wide that Louisiana Senator Mary Landrieu faked a Senate hearing in a TV ad in order to make herself look less bumbling.  Pretty cheesy, yes, but it ought to raise a larger point: What else is she faking?

Well, everything really.  This is going to be one of those years where Democrats conveniently leave off their party affiliation in TV ads, and affect of posture of—”Obama? Obama who? Obamacare? Let’s roll up our sleeves and fix it!”  If I were an independent campaign ad strategist, I’d rerun Landrieu’s ad to make exactly the point that she’s a fake senator, and thank her for so candidly admitting it.

I predict someone will throw a shoe at her any day now.

Krugman to the Rescue!

There’s hardly anyone who can top former Enron adviser (TM James Taranto) Paul Krugman in the sweepstakes for bemoaning income inequality, and so it makes perfect sense that City University of New York would hire Krugman for $25,000 per month to be a grandee at its new center to study the problem.  The Onion and The Daily Show may as well take the rest of the day off.

The offer letter, as detailed on Gawker.com, says that Krugman needn’t be bothered “to teach or supervise students,” which is a relief, really, but still—isn’t teaching and supervising students what college faculty are chiefly hired to do?  The professors who actually do teach and supervise students at CUNY?  Well, adjuncts, who typically have little chance at permanent employment or advancement at CUNY or anywhere else, get paid $3,000 per course at CUNY (think Krugman will agree to make a guest appearance in any of their classes?), while permanent tenured faculty top out at $116,000.

The story doesn’t say whether Krugman’s CUNY gig is concurrent with his Princeton faculty position, but you can be pretty sure what the answer is.

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JOHN adds: Krugman’s “job” will be to “play a modest role in our public events” and “contribute to the build-up” of a new “inequality initiative.” Whatever that means. One can only imagine what they would have paid him to play a major role in their public events!

Meanwhile, Krugman and his fellow one per centers draw ever farther ahead of their less privileged colleagues in academia. PBS did a story on how “low-paid adjunct professors struggle to make ends meet.” One of the professors they interviewed was from CUNY:

PAUL SOLMAN: Nicole Beth Wallenbrock got a Ph.D. in French lit to become a full-time professor anywhere.

NICOLE BETH WALLENBROCK: I had this idea that I could get a job so that I could have a good income to support my son, and it didn’t work out that way.

PAUL SOLMAN: Since graduating in 2012, she’s worked part-time and is now teaching just two courses at the City University of New York, making $2,800 a class, though she’s more highly-rated than almost all of her peers.

She’s moved to the cheapest place she could find on the outskirts of the city, a three-hour-a-day commute. But she can’t make it without public assistance and help from her family.

NICOLE BETH WALLENBROCK: I’m a precarious worker. I have no job security. So I have to accept whatever I can get. It’s depressing. It makes me feel like a failure in a lot of ways.

Let’s see: Ms. Wollenbrock makes $2,800 for teaching a class, while Krugman makes $225,000 for teaching no classes. I am sure it will console Ms. Wallenbrock to learn that Paul Krugman’s staunch opposition to income inequality is about to make him even richer.