Former Universal Studios head Frank Biondi Jr. has settled into the role of venture capitalist, funding a variety of firms aimed at shaping the way entertainment is produced and delivered
Frank Biondi Jr.
Title:
Senior Managing Director
Organization:
Waterview Partners LLC
Born:
New York City, 1945
Education:
B.S., Princeton; MBA, Harvard
Career Turning Point:
Making the jump from the banking business to the media and entertainment business in the early 1970s
Most Admired Person:
AOL Time Warner CEO Gerald Levin
Hobbies:
Tennis and skiing
Personal:
Married; two daughters
The marriage of Hollywood and technology is best characterized by one word: bust. But no one is giving up on the nuptials. And if anyone is poised to get it right, it’s Frank Biondi Jr.
Biondi is head of an investment company with a $250 million fund and an eye towards media convergence. But Biondi isn’t just any VC scouring the digital landscape for a hot model. He’s a VC with pedigree.
Biondi ran Home Box Office, a unit of Time Inc., prior to Time’s merger with Warner Communications. He was CEO of two international media giants, Viacom Inc. and Seagram Co.’s Universal Studios Inc.
Biondi left Universal in 1998 after Seagram’s owner-boss Edgar Bronfman Jr. fired him and formed Waterview Partners with Wall Street veterans Richard Reiss Jr. and Augustus Oliver.
Waterview is focused broadly on investments in media, telecommunications and entertainment, but devotes about 15 percent of its fund to Internet companies.
Biondi is Waterview’s pointman on those new-media startups at a time when media conglomerates like the ones he used to lead are increasingly consolidating, tightening belts and viewing the digital world with suspicion and doubt.
Question:
Have you been at all surprised by the way the media business is consolidating and evolving today?
Answer: Ten or 15 years ago, we used to talk about digitalization, deregulation and globalization, and they are still happening today. Aside from the bubble of the past few years in the Internet marketplace, the driving forces are still globalization and deregulation in terms of real revenue generation. Clearly, the big change factor at the doorstep of the industry is digitalization. It includes almost every aspect of the industry from how product is produced to how it’s saved, moved around, edited, preserved and distributed. All of those changes are in the early stages or just about to happen. As usual, it’s probably being driven more by entrepreneurs pushing technology. The owners the studios, the labels are being more cautious, which is understandable because they have more to lose.
Q: What’s holding the studios and the labels back?
A: The people that hold the copyrights want to control their own destiny. They see the digital world as providing them with a direct path to the consumer, so they don’t think they have to deal with network television, cable television or the Blockbusters. They can create direct distribution capabilities, and they’re about to do that. Content owners want to make sure that they control their content. They also want to make sure that the system works, because once you put a digital file out there, it’s gone if it’s unprotected, as we know from Napster. Those are the two principal forces framing the entrepreneur vs. the establishment. Right now, the entrepreneurs aren’t winning, because they’re running out of money.
Q: What does that mean for Waterview? After all, you’ve said that you were compelled to come into this space because of your hopes for the online entertainment world.
A: Like everybody, we’ve been disappointed by the pace. Fortunately, very little of our investment capital is invested in portions of the new media that are being affected. We have a lot of positions, but they are a lot of small positions. We said from the beginning that we were going to put a segment of our portfolio in the new media, because we believed that the new media was going to have an impact on the media as a whole.
Q: What percentage of the Waterview portfolio is devoted to new-media companies and how are they performing?
A: It depends on what you count as a new-media company, but it’s probably around 10 to 15 percent. At the beginning, we felt it was going to be closer to 20 percent. Even before the market began to wither, we realized that wasn’t going to happen. I think there are a lot of companies that are doing quite well. But since none of them have liquidated at a big premium, it would be presumptuous to say they are doing more than quite well. They’re raising money privately at significant premiums over what we started. Having said that, they all probably have to raise additional capital, and that’s always a risk.
Q: What lessons have you learned from some of the Waterview-backed companies that have gone belly-up?
A: The lesson is basically the old lesson. The business plan has to be solid. You can’t rely on the capital markets to support your company for the long-term. It has to reach cash-flow-positive status in some reasonable period of time. Management is really key. In an environment when there was enormous deal-flow, it was easy to overlook the importance of vetting management.
Q: There’s a lot of talk at the labels about the post-Napster model. What’s that model going to look like?
A: Napster is a classic example that if the price is free, then the demand is humongous. So far, the labels seem to be resisting the idea of price elasticity price it low, demand will increase. I believe that if you lower the price, you can stimulate unit demand. Music is a slightly different model, because the industry has been traditionally selling 10 or 12 cuts packaged in a CD or album. The labels have said religiously that the single is dead. Napster has proven that to be bull. People are very interested in singles, and they’ll do it if the price is right. Now, what we’re all debating is what’s the right price. The industry has a good point in saying that it can’t exist if its content is free. The question is: where do we reach some kind of stasis where the consumer is interested and not tempted to file-share for nothing and the industry can make some money? Whatever the labels do, they’re ultimately going to figure out how to do it and that will be a model for film.
Q: What exactly are the studios looking for?
A: There’s this enormous temptation on the part of the studios to say, “Hey, I can get it to the TV or the computer just as easily as the middleman can.” The problem is that the middleman is buying product from everybody, so he can offer something the consumer really feels is valuable. Individual studios have trouble working with other studios, and when two or three do (work together), the government gets interested really fast. The consumer could care less where the movie comes from. There’s not a lot of brand identity attached to them. Also, the studios are very conservative. They don’t make U-turns or severe right turns. They sort of migrate. They know they control a very serious percentage of world-class entertainment. The train ain’t leaving the station without them. So if they decide they’re not ready to go, the train doesn’t leave until they’re ready to go. If you’re a studio executive, you know that there is simply no penalty for being late.
Q: So the studios are just going to wait for the labels to take the punches and pave the way?
A: Music is going to have to solve these questions sooner than the movie business. The movie business probably has 12 to 24 months more than the music business before illegal movie file-sharing becomes very noticeable. My own judgment is that a lot of the activity by the studios is being driven more by fear of being Napsterized than the proactive search for a business model. If it were just about building a business and making some money, then it would take quite a bit longer for these nascent, movie-based services to start.
Q: There was a lot of speculation about why Edgar Bronfman Jr. asked you to leave Universal. What happened?
A: When you work for an owner, they can do whatever they want. You have to ask him what his rationale is. There were obviously things we didn’t see eye-to-eye on. When you don’t see things eye-to-eye with the guy you work for, you generally don’t win that one.
