THE LAST EMPERORS

The Studios

After nearly two decades of golden partnership, Warner Bros, co-chairmen Bob Daly and Terry Semel stunned Hollywood by quitting. Did the power, planes, and palaces that made Daly and Semel great end up making them obsolete?

KIM MASTERS

In June, Clint Eastwood presented his longtime friend Warner co-chairman Bob Daly with an honorary degree from the American Film Institute— an organization for which Daly has served as a board member since 1981.

The night before the ceremony, there was a dinner at the Peninsula Hotel in Beverly Hills. A.F.I. chairman (and former chairman of MCA's motion-picture group) Tom Pollock sat with Daly and his wife, songwriter Carole Bayer Sager, who was describing their newly purchased 18.5-acre ranch in the hills above Malibu.

"Bob's going to raise pigeons," Sager said.

"Pigeons instead of horses?" Pollock asked. "People raise horses on ranches."

"I'm a Brooklyn boy," Daly said simply. "I raise pigeons."

It was a classic summing-up of Daly's no-frills personality. Despite having spent 19 years as head of the most Holly woodish of all studios, despite having emerged as the most respected elder statesman among studio chiefs, Daly retained a regular-guy quality that was particularly admired in an industry where keeping in touch with reality poses a constant challenge. His co-chairman, Terry Semel, was more the player, the guy who sailed on yachts with Tom Cruise and vacationed with Michael Douglas at Douglas's house in Spain. Together, Daly and Semel represented old-style Hollywood culture. Warner was the studio famous for coddling its stars with everything from state-of-the-art studio jets to the legendary Warner houses in Aspen and Acapulco.

And for the better part of 20 years, it had worked splendidly. During Daly and Semel's tenure, Warner was consistently ranked No. 1 or 2 in terms of domestic box office. There were the fabulous Batman and Lethal Weapon franchises. But in the past few years, the Warner style began to look out-of-date. Daly and Semel's famous relationships were with aging stars such as Eastwood—legends, but not exactly names guaranteed to lure the youthful audiences so coveted by the industry. Thanks to the success of its television operation—with hits such as E.R. and Friends—Warner still minted money. But there were persistent reports of tensions within Time Warner over the studio's lavish ways—especially as the franchises faded and high-profile bombs such as Kevin Costner's The Postman and Sphere, starring Sharon Stone, raised high-profile questions about whether Daly and Semel were losing their touch.

Everyone knew that Daly and Semel were the most wellcompensated studio chiefs in town and everyone wondered if they really needed the hassle. Being a studio chairman puts a fellow in a very exclusive club, with unique power and perks. (Each is said to be worth hundreds of millions of dollars.) But there had developed a chronic, low-grade doubt in the minds of industry executives about how much longer the relationship between Time Warner and its studio chairmen would last. Still, Daly and Semel seemed so permanent a fixture, and their track record—glitches and all—was so enviable, that their departure seemed all but unthinkable.

"Steve Ross," says Joel Schumacher, "set a tone for Bob and Terry as individuals."

At the A.F.I. dinner, the curious Pollock posed a delicate question. "You've been doing this terrible job so long and so well," he said to the 62-year-old Daly. "Aren't you ready to give it up?"

"Not yet," Daly replied.

Five weeks later, Daly and Semel handed their resignations to Time Warner chief executive Gerald Levin. The town was shocked—and so, perhaps, were they.

The letter in which Daly and Semel divulged their "extremely difficult decision" to leave their posts was given to Levin in a carefully timed minuet. Daly and Semel wrote that they had made their decisions on Sunday, July 11, as they flew home from a trip to Europe. Semel had attended producer Joel Silver's wedding to Karyn Fields at the Hotel Cipriani in Venice while Daly and his wife vacationed in France. They waited until Wednesday, July 14, to inform Levin, they said, "in order to avoid a potential distraction from the [Tuesday] world premiere of Eyes Wide Shut" Stanley Kubrick's long-in-the-making final film. Daly and Semel had overseen the project, and they had had a close working relationship with the late director. But Daly and Semel also gave Levin space that Wednesday to brief Wall Street analysts on Time Warner's record-breaking secondquarter results—a net income of $593 million—without upstaging that news with their own departure.

Back on the West Coast, even those who had fancied themselves close to Daly and Semel were stunned by the resignations. The co-chairmen were, after all, Hollywood's twin pillars—the industry's longest-running and most respected dynasty. But it was also because the two big men on the gossipy Hollywood campus had actually managed to keep a secret—a truly impossible mission. Then again, Daly and Semel had always been good at keeping their own counsel.

The Friday after the news broke, Daly and Semel addressed more than 500 of their troops in the Steven J. Ross Theater at the studio in Burbank. As the two took the stage, they received a standing ovation which lasted several minutes. Both men wept. Daly noted that the theater named for Ross was an appropriate setting for this emotional encounter.

Daly and Semel were the last of the Old Guard which had flourished in a culture fostered by the late Steve Ross— perhaps the most outsize figure in recent industry history. Ross, the creator of the Warner empire, was the industry's true godfather, says a longtime Warner executive, although that title was routinely conferred on former MCA chairman Lew Wasserman. "He really was the guy who walked into the room and was unbelievably charismatic. He really cared about the people," says this executive. "It's a very different world now. This is big business. That culture is hard to maintain in a company that size."

"I think all of us who benefited from Bob and Terry's enormous generosity and support owe a big debt of gratitude to Steve Ross," says director Joel Schumacher, who made Falling Down, The Client, and Batman Forever at the studio. "Steve Ross set a tone for Bob and Terry as individuals and as a partnership.... I always felt we were lucky to be part of something that people were going to write about for years to come."

Ross was famous for courting the kind of mega-stars who turned Warner into the studio where filmmakers wanted to be. There were famous perks such as the Acapulco house—two houses, actually: six bedrooms, a junior-Olympic-size pool, indoor tennis court, and massage room. "The Acapulco house is like Valhalla," says a former Warner executive. "You want something and it appears in front of you."

In the immediate aftermath of Daly and Semel's announcement, the industry was torn between two versions of the story. The official one held that Daly and Semel, whose contracts will run out at the end of this year, had simply decided that it was time to go. Then there was the other tale—the one that may be more plausible. After all, as one prominent director observes, if a corporation wants to keep an executive, that executive usually can be kept. A couple of veteran Warner insiders believe that the departures happened too abruptly to have been planned. And one executive at the studio says that Semel had talked about finalizing his contract and had discussed future business at the studio as if he had every intention of being there.

Sources close to the company say that, contrary to the official version of events, there had been an ongoing contract negotiation and that Time Warner was not slicing the pie according to Daly's and Semel's specifications. For one thing, the sources say, a decision had been made to find a new chief for the company's faltering music division, and Daly and Semel were being asked to cut back on their generous share in Warner profits. This version of the story has it that Levin, when told that these terms would be deal breakers, coolly replied, "I assumed you'd say that." It also includes reports of a "talk" between Semel and Levin on the Saturday night before Silver's wedding. If that occurred, says another guest, it was absolutely invisible to outsiders. Daly and Semel adamantly deny this version of the story. The rumored negotiations "never, ever, ever" happened, says Semel. He acknowledges that he spent an hour alone with Levin before Silver's wedding, but describes it as a warm visit.

"You never, ever saw a crack between the two of them," a source says of Semel and Daly.

What is not in dispute is that after the wedding Semel picked Daly up in France, and as the two flew home on Sunday, they painfully reached their decision.

One member of the Time Warner family credits what a producer calls "the cynic's view" of the events. "When Mr. Levin called me, although he talked about how sad this all made him, he was not sad," says this source. "I know him very well. I went through [a lot] with him. He's not a man afraid of telling you his real feelings about things.... He was talking about the future. It was 'I love Bob and Terry, but we're moving on.'"

And that makes sense, says another top producer with ties to Time Warner. In a changing world of mega-mergers between AT&T and TCI, he says, distribution counts more than anything. The power of the guys who make the "product" is at low ebb. "Why would these huge conglomerates provide people who are simply supplying content with deals like Bob's and Terry's?" he asks. "The hardware is carrying

the [industry] economy, not the software."

But Daly and Semel say that the cynical view is nonsense. When they told Levin that they were leaving, Semel says, "he was unprepared, and the three of us stood up and started hugging each other, and, frankly, we were all very tearful."

In many ways, the Daly-Semel marriage was highly complementary. Daly, who calls himself "the spoiled baby" in a large working-class Irish family, started at CBS in 1955, as an office boy making $41 a week—and giving $20 of that to his mother in Brooklyn. He put in 25 years at CBS before joining Warner in 1980. "There were two things Bob liked: baseball and Warner Bros.," says Leslie Moonves, former head of Warner Bros. Television. (Daly kept a pocket device that constantly apprised him of the Los Angeles Dodgers' scores.) When the corporate machinations at Time Warner put him in charge of music, he seemed utterly out of his element. "What are you doing here?" a former colleague used to ask Daly when he'd see him at the Grammy Awards. "You're the least hip person in the world."

Throughout their partnership, Daly put his emphasis on television while Semel focused on film. As he rose from distribution to Daly's top lieutenant—and, ultimately, his partner—Semel approved every promotional poster that emerged from the film side. Each Tuesday he and Daly would have a "go picture" lunch with executives working on current productions. "You wore a coat and tie that day and you brought your list and you hoped you'd get the floor," says former Warner production head Bill Gerber.

Both were consistently polite—a rarity in Hollywood. And Semel often managed to make negative decisions acceptable. "He was very charming in that way," says a former executive. "As bad as the news was, he had a way of making you feel O.K. about it. We used to call it getting Semelized."

A director who has made many films at Warner describes the process of Semelization: "He will stand and pace around the room, and he lifts up his index fingers, almost like he has wool for knitting between them, and he'll repeat something over and over and over again. It's not because he thinks you haven't heard it. He's ruminating. He will say ... it ... in ... a ... very ... slow ... methodical ... way. If you're not schooled in it, you can get into a kind of hypnotized [state] ... When you left, you didn't get an answer, and all he's done is lay out a bunch of interesting speculations. You can be very confused. 'Did he say yes? Did he say no? What am I supposed to do?"'

Even during his early days as a relatively junior executive, Semel had a reputation for living large. Others in the industry wondered how he afforded his life—at least until his ascent at Warner made the answer self-evident. While Daly was uniquely steady at the wheel, Semel was more complicated. He built a Michael Gravesdesigned house in Malibu with his wife of 22 years, Jane. Every time a studio had a vacancy at the top, he was inevitably rumored to be filling the position. In the early 90s, when Levin was struggling with a debt-laden, unwieldy corporation, Semel was said to be angling to take over. He appeared to be creating an image for himself on Wall Street. He bought a $12 million, 18-room apartment at 820 Fifth Avenue. In 1993, he considered taking over the flagging MGM studio.

Some Semel traits were said to be hard for his bosses—particularly Time Warner vice-chairman Ted Turner—to digest. Semel was famous for not returning phone calls and for starting meetings two hours late. As the studio struggled during the past couple of years, these habits became increasingly problematic, especially as other studios started pursuing talent more aggressively. "There were other people who were smart, who had planes, who could charm movie stars, and it wasn't just Warner Bros.' town anymore," says a veteran Warner executive. "They didn't welcome the Adam Sandlers, the Mike Myerses, the Chris Tuckers."

Semel says that he occasionally lost track of time and simply didn't return calls that should have been taken by other executives. And Daly says that he and Turner clashed early on over a proposed sale of rights to a package of Warner films to CBS. But Daly and Semel insist that they generally got along well with Turner, who wept at their departure. Still, Turner has conspicuously declined to contradict reports of friction among them. "I would have if I were him," Semel says. "I would have set the record straight."

Meantime, underlings—even very highlevel underlings—were caught between the embrace of the comfortable Warner "family" and frustration at being shut out of the privy council. One thing was apparent: No matter how talented, you could rise only so high at Warner. If it was up or out, the answer was always out. It was true for Rob Friedman, who served at the studio for 27 years before becoming vicechairman of the motion-picture group at Paramount, and it was true for Moonves, who ran the studio's enormously successful television operation for six years before taking over at CBS. It was also true within the film studio, where a series of executives served and departed over the years: Mark Rosenberg, Mark Canton, Bruce Berman, and Bill Gerber.

On the other hand, those who reined in their ambitions had a home for life. Executive vice president and chief operating officer Barry Meyer has been there for 28 years; Warren Lieberfarb has run home video for 14 years. "Someone said it's like working for the post office," says a former Warner executive. "You had to kill somebody to get fired."

"If I were him," Semel says of vice-chairman Turner, "I would have set the record straight."

Levin, however, did not apply that philosophy from his perch on the 29th floor of the Time Warner headquarters at 75 Rockefeller Plaza. Five years ago, when he was nearing his low point, he began a corporate purge by pushing out the beloved Mo Ostin as head of the Warner Music Group. More casualties turned up: Robert Morgado ran the music division for four months before he was expensively fired; Michael Fuchs, the successful head of HBO, was then put in charge, only to be axed when his manifest ambitions became too much for Levin. (Each received a multimillion-dollar severance package.) In November 1995, Daly and Semel were put in charge of both music and the studio—a move that no one in the industry considered especially logical. But, for a time, Daly and Semel seemed untouchable.

Then came the last couple of years, during which Daly and Semel took a protracted turn in the barrel. The problems were with music and, more publicly, with film, though there was never a hint that Daly laid any of the blame on Semel for the latter. "You never, ever saw a crack between the two of them," says one of the film studio's departed executives. "Not a word."

There was a string of flops, including Sphere, The Postman, and The Avengers, based on the 1960s TV show. (The three cost a combined $245 million, but grossed only $78 million.) Still, these failures hardly seemed overwhelming. First, the studio had its powerhouse television division. The WB—bitterly opposed by Turner—was the fastest-growing of the new netlets, with hits such as Buffy the Vampire Slayer and Dawson's Creek. And Semel, having vowed to work harder at the movie business, had bounced back with the recent comedies You've Got Mail and Analyze This and the futuristic Keanu Reeves thriller The Matrix.

But then there was another dip in the studio's fortunes, thanks to Wild Wild West, the wildly expensive and bitterly disappointing reteaming of Will Smith and director Barry Sonnenfeld. Meanwhile, there was what insiders call "the New Line factor"—a reference to the production entity acquired when Time Warner bought Ted Turner's entertainment assets in 1996. New Line—as noted in Time Warner's recent glowing earnings report—has been cranking out hip winners such as Austin Powers: The Spy Who Shagged Me, and doing it for a price. "They're making hit after hit," says a former Warner executive, "and they make them for $35 million, with talent like Chris Tucker, and they do it without the planes and the palaces."

Meanwhile, Levin's much-criticized gamble on cable had paid off handsomely, and Time Warner was riding high. So, if Levin had a long memory about those who had reportedly angled for his job in his darkest days, Daly and Semel's recent difficulties may have presented a tempting opportunity. It might have been awkward to attack them after the Ostin-Morgado-Fuchs debacle, and the industry outcry following Ostin's dismissal may have taught him that dumping icons can be a costly proposition.

But it is easy to imagine that Levin may have bided his time—waited until, say, Daly and Semel had their contracts up for renewal—to give a quiet turn to the screw. And then, with deep regret, he could allow them to slip away, apparently of their own volition.

Daly and Semel offer a different story. When they spoke during their unpublicized farewell with the Warner Bros, staff, Semel pointed out that he had started at the studio when Jack Warner was running it. He described a lifetime of slipping out of bed on Saturday mornings to check the fax machine for the previous night's grosses. The rest of the weekend would be colored by what he read. "It's not the easiest way to wake up every Saturday," he said.

Daly could barely speak through his tears. "I started working when I was 18, right out of high school," he said in a quavering voice. "I have never taken more than two weeks' vacation at any given time in my life.... I left the studio, I left CBS, every weekend with bags of mail, scripts— whatever." He paused to regain his composure. "I thought to myself, I'm 62 years old. I don't want to retire—I could never retire—but I don't want to kill myself. I thought CBS was Chapter One in my life, Warner Bros, was Chapter Two. If I did another five years, that's the last chapter. I said, 'There has to be another chapter in my life.'" Daly said he discussed the matter with his wife and family. "My children begged me to leave," he said. "I thought about it. The power. That chair. Is that important to me? It is the chair. It is the chair. I had the president of the United States wanting to call me the other day. Do I care? Do I care? ... The bottom line is: I have a very small, tight group of friends that really doesn't give a shit if I work at CBS or Warner Bros."

Daly vowed that the next chapter in his life has yet to be written. Both he and Semel have remained mum on the future. "I want to be clear in my head," Daly says. "I don't even want to think about it, because you know what? My brain couldn't tell me what's the right thing to do right now. I'm still too worried about the third quarter."