National Amusements Inc.

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National Amusements Inc.

200 Elm Street
Dedham, Massachusetts 02026
U.S.A.
(781) 461-1600
Fax: (781) 461-1412
Web site: http://www.national-amusements.com

Private Company
Incorporated :1946 as Redstone Management
Employees : 4,500
Sales :$235 million (1997 est.)
NAIC :512131 Motion Picture Theaters, Except Drive-in

One of the ten largest U.S.-based movie theater chains, National Amusements Inc. operates more than 1,200 screens in the United States, the United Kingdom, and in South America. A privately held company owned by Sumner M. Redstone and his family, National Amusements operates as the parent company of Viacom Inc., which includes Paramount Communications, MTV Networks, Nickelodeon, VH1, Blockbuster Video, Simon & Schuster, Showtime Networks, Inc., and other major entertainment properties. National Amusements acquired Viacom in 1987, when the company was generating slightly more than $900 million in annual revenue. By the late 1990s, Viacom was collecting in excess of $12 billion in revenue each year.

Origins of Family Business

The mastermind behind National Amusements was and is Sumner Redstone, whose distinguished professional career represents a rags-to-riches transformation. He was born in 1923 and spent his childhood in a Boston tenement without a bathroom. His father, born Max Rohtstein, changed his name to Michael Redstone and supported his family by selling newspapers on the streets of Boston. Later, the elder Redstone worked as a linoleum salesman, eventually saving enough money to enter the nightclub business. He purchased Boston’s Latin Quarter from Lou Walters, father of Barbara Walters, and did well enough as a nightclub owner to finance other entrepreneurial ventures. Michael Redstone opened the third drive-in theater in the United States and expanded it into a chain that proliferated following World War II. It was a business—Redstone Management—over which his son would later assume control.

While his father created a career for himself as a business owner, Sumner Redstone distinguished himself as an exceptionally gifted student. At Boston Latin School, Redstone won all the academic prizes for his class and led the school’s debating team. He enrolled at Harvard at age 17, becoming a member of the class of 1944, but finished his studies in two-and-a-half years, departing the Ivy League school at the height of World War II fluent in Japanese and conversant in Latin, French, and German. His skills as a linguist led to a position in an elite U.S. Army intelligence team responsible for breaking the Japanese military and diplomatic codes. After the war, Redstone entered Harvard Law School, where he finished his studies in 1947. For the next several years, Redstone practiced as an attorney, serving for three years as special assistant to U.S. Attorney General Tom C. Clark in Washington, D.C. In 1951, at age 28, Redstone was named partner of the Washington law firm Ford, Bergson, Adams, Borkland & Redstone, where he stayed for the next three years. By 1954, the highly successful Redstone was ready to pursue a different profession. “When I found out I wasn’t going to make the world better by being a lawyer,” he explained, “I decided I wanted to be in business for myself.” His logical segue into the business world was joining his father, who, along with Sumner’s younger brother Edward, was busy managing 12 drive-in theaters controlled by Redstone Management, a company later to develop into National Amusements Inc.

As part of Redstone Management, Sumner Redstone used his skills as an attorney to become an indispensable partner in the family business. At the time, motion picture studios wielded supreme authority over theater operators like Redstone Management. “We had to be combative,” Redstone remembered. “These companies [the studios] were predators that didn’t want us to get first-run product.” Redstone flexed his litigative muscles and fought back, suing the studios for access to first-run films. He prevailed, earning recognition within the motion picture industry and proving to be an adept business operator. The theater chain he joined in 1954 and gradually took control of expanded to 59 screens a decade after his arrival and swelled to 129 screens after another decade. At the end of this 20-year expansion period in 1974, Redstone was 51 years old and financially independent, but his greatest fame and wealth still lay ahead. During the next 20 years, Redstone developed into a national figure in the business world and became one of the wealthiest individuals in the United States.

National Amusements served as Redstone’s private investment arm and the parent company of a host of businesses acquired by Redstone. He gained the financial wherewithal to purchase the properties owned by National Amusements by demonstrating exceptional skill as an investor. Impressed by the movie Star Wars, Redstone began accumulating stock in Twentieth Century Fox in 1977. He eventually acquired five percent of the company, paying an average of $8 per share. When he sold his stake in 1981, Redstone’s shares sold for $60 each, netting him at least $20 million. In 1980, Redstone began investing in another motion picture studio, acquiring ten percent of Columbia Pictures. Two years later, he recorded a $25 million profit when his shares were sold to the Coca-Cola Company. Redstone repeated his pattern of investment success with an interest in MGM/UA, which he sold to Kirk Kerkorian in 1985 for a $15 million profit.

1987 Acquisition of Viacom

Redstone orchestrated a number of other lucrative investment deals, giving him the financial clout to entertain the possibility of completing the biggest deal in his life. National Amusements, which was operating roughly 400 screens by the mid-1980s, served as the corporate entity through which Redstone made his bid to become a media mogul. On February 2, 1987, Redstone drew a hailstorm of national press when he made a tender offer for Viacom International, comprising cable, television, radio, and distribution properties that generated $919 million in 1986 revenues. Prior to making his bid for Viacom, which was in the midst of a management-led leveraged buyout, Redstone had accumulated 9.9 percent of Viacom’s stock. During the five months preceding his offer for the company, Redstone increased his stake to 19.6 percent, just below the level Viacom’s corporate bylaws would trigger defensive measures. In June 1987, Redstone completed the deal, acquiring 83 percent of Viacom in a transaction valued at $3.4 billion. With his majority stake in the company, Redstone gained control of a host of properties, including five television stations, eight radio stations, and cable systems serving more than one million customers in 150 communities. Redstone also assumed ownership of other Viacom properties, including Viewer’s Choice, a pay-per-view network, basic cable networks in MTV, Nickelodeon, Showtime, and The Movie Channel, the syndication rights to the “Bill Cosby Show,” and a worldwide television program distribution business.

With Viacom, Redstone had a sizeable foundation to build an even larger media empire, one that would be publicly held yet have National Amusements, a private company, as its parent company. The movie theater chain operated by National Amusements, meanwhile, continued to expand, but in a different direction. By the beginning of the 1990s, the company was operating approximately 600 screens, primarily located at major intersections in the urban Northeast. Real estate during the late 1980s had become a scarce commodity, however, forcing Redstone to look elsewhere to expand his theater chain. He began expanding internationally in England, where he focused on less economically robust cities such as Birmingham, Leeds, and Liverpool. Between 1988 and 1990, Redstone spent approximately $25 million to open seven massive movie theater complexes, housing more than 70 screens. From England, Redstone continued his overseas expansion into Scotland, Chile, and Argentina.

Although National Amusements ranked as one of the smallest components of Redstone’s developing media empire, it represented an integral facet of his long-term objective of controlling filmed and recorded entertainment to be distributed through cable, broadcasting, retail outlets, and movie theaters. Around National Amusements, the more prominent components of Redstone’s empire were added, particularly during the 1990s when Redstone took his skills as a dealmaker to the next level. In 1994, Redstone unleashed his acquisitive might in full force, spending nearly $20 billion in two, industry-shaking transactions. In July 1994, Viacom acquired Paramount Communications Inc., paying $10 billion for the movie studio and its numerous properties. Redstone wanted the movie studio and its expansive film library—the assets that prompted the deal—but he also gained ownership of a host of other properties, many of which he later sold. Paramount owned theme parks, television stations, book publisher Simon & Schuster, the USA television network, Madison Square Garden, the National Basketball Association’s New York Knicks, and the National Hockey League’s New York Rangers. Two months after closing the Paramount acquisition, Redstone paid $8 billion for Blockbuster Entertainment Corporation, the largest videotape retailer in the United States. As part of the Blockbuster acquisition, Redstone also acquired Spelling Entertainment Group, a publicly traded television production company.

By the time the two acquisitions were completed, National Amusements operated 950 movie screens worldwide, with the bulk of the expansion during the first half of the 1990s derived from new theater openings in the United Kingdom and South America. National Amusements’s pace of expansion during the latter half of the 1990s equaled its growth rate during the first of the decade, enlarging the chain until it ranked as one of the ten largest motion picture circuits in the United States. Meanwhile, the assets majority-owned by National Amusements, which thoroughly dwarfed the theater chain’s stature, underwent significant change. Viacom’s stock reached its peak in 1995 and then began a two-year precipitous slide that saw it devalued by approximately 50 percent. “It was the bottom of a period of deep gloom,” Redstone reflected. “We lost complete credibility.”

Late 1990s Recovery of National Amusements’ Companies

Viacom was laden with debt, which Redstone went to great lengths to reduce, divesting more than $7 billion worth of assets to buoy Viacom’s financial position. He sold Madison Square Garden for slightly more than $1 billion, half of USA Networks for $1.7 billion, and most of Simon & Schuster, gaining $4.6 billion from the deal. The divestitures greatly reduced Viacom’s debt, but the company was also burdened by the anemic performance of Blockbuster. To cure Blockbuster’s ills, Redstone used his persuasive skills as a negotiator, taking an approach that harked back to his early years with Redstone Management.

The 6,000-store Blockbuster chain was suffering from profound problems. “The marketing was terrible. The T.V. ads were ridiculous. There weren’t even enough tapes in the stores,” Redstone told Forbes in June 1998, rattling off several of the chain’s problems. At the heart of the difficulties, as Redstone saw it, was a power struggle between movie studios and videotape rental companies, similar to the dynamics involved in Redstone’s fight to give his father’s drive-in theaters access to first-run Hollywood films. “Year after year the studios kept raising the price of tapes to companies like Blockbuster,” Redstone complained. “When the price of tapes got up to about $65 each, we realized we couldn’t afford to buy enough tapes to sufficiently stock the shelves.” After failing to obtain sharp discounts for Blockbuster’s volume purchases, Redstone took another approach. Movie theaters, as he well knew, did not pay a flat price for the right to show movies; they shared the revenue they collected with the studio. Video stores, which served the same purpose as movie theaters by bringing entertainment products to consumers, should operate under a similar arrangement, as Redstone explained to movie studio operators. Warner Bros, disagreed, refusing to share revenue in return for selling Blockbuster its movies at greatly reduced prices. Redstone did succeed, however, in convincing Walt Disney’s chairman, Michael Eisner, to agree to his proposal. Under the terms of the agreement, Walt Disney sold its videotapes to Blockbuster for roughly one-tenth their previous price in exchange for 40 percent of the rental revenue. After a particular movie’s popularity waned and Walt Disney’ share of the revenue diminished, Blockbuster sold the used videotape, generally recouping its original investment. The deal enabled Blockbuster to stock more copies of popular movies and started an industry trend. One by one, studios agreed to Redstone’s proposal. “Blockbuster’s happy,” Redstone to Forbes, “the studios are happy, and the customers are happy because they get what they want.”

The deal brokered with the movie studios turned Blockbuster’s performance around, with the company’s market share increasing from 25 percent to 30 percent by 1998. Before Blockbuster surged forward, however, Redstone displayed his shrewd investing talents again, having National Amusements purchase an additional $250 million of Viacom stock while it languished on the market. By the late 1990s, nearly everything under Redstone’s control was performing admirably. Paramount had teamed up with Fox to produce Titanic, the greatest grossing film ever, and joined forces with DreamWorks SKG to produce two other late 1990s hits, Deep Impact and Saving Private Ryan. Viacom’s cable systems had increased its household coverage from 15 percent to more than 24 percent and its various cable television networks were airing highly popular programming obtained from Paramount’s vast library of entertainment. National Amusements had expanded as well, enlarging to more than 1,200 screens in 12 countries. As Redstone prepared for the 21st century, further growth of his dominant media empire was expected, with National Amusements serving as the privately held investment arm to facilitate future expansion.

Principal Subsidiaries

Viacom Inc.; Blockbuster Entertainment Group; Cinamerica Theaters; Computer Curriculum Corp.; Paramount Pictures Corp.; Spelling Entertainment Group; Paramount Parks; Silver Burdett & Ginn Co.; Hamilton Projects Inc.; Showtime Networks Inc.; World Vision Enterprises Inc.