Duke walked into the Paramount Music offices at eleven-fifteen on a Tuesday morning, running on four hours of sleep, and two espressos.
The Sicilian jet lag sat behind his eyes like a low-grade headache.
The music offices occupied a wing of the Paramount lot that had been renovated six months earlier, and the renovation showed. The walls were paneled in dark walnut.
Clive Davis was waiting.
"Duke." Clive rose from behind the mixing console and extended his hand. "You look like hell."
"I feel like hell. But I hear you've got something that'll fix that, I want to hear Queen."
"I've got something that'll fix everything." Clive's voice carried the barely suppressed exhilaration that Duke had heard on the phone in Sicily, the sound of a man who knew he was holding winning lottery tickets. "Sit down. Listen."
Duke settled into one of the leather chairs positioned in the listening room's acoustic sweet spot.
Clive walked to the tape machine, a professional Ampex reel-to-reel, which Duke noted with a private flicker of irony.
"This is a rough mix," Clive said. "Recorded in a studio in London three weeks ago. The lead singer is a man named Freddie Mercury, born Farrokh Bulsara in Zanzibar, raised in India and England."
He pressed play.
The song was called "Keep Yourself Alive."
Duke sat motionless through the entire track. When the final chord decayed into silence, the monitors hummed their ambient hum, and the listening room was still.
"They probably sound even better in a stadium." Duke said still somewhat tired. "What's the current state?"
"They've got an album's worth of material recorded. Most of it is at this level or above. They need mixing, mastering, and a release strategy. And they need exposure. American exposure. The UK is going to discover them on its own. But breaking in America requires resources that I can't provide without your aproval."
Duke leaned forward. "Have a large marketing spend for the U.S. campaign. I want them opening for every major act we have on tour."
Clive made a note, "And the positioning?"
"Market them as exactly what they are, an Stadium Band. Let the audience figure out the rest."
"Done." Clive reached for the tape machine again. "Now. The other one."
'Take it easy, take it easy...' The Eagles.
Duke closed his eyes and let the music engulf him. He loved this song.
The track ended. Duke opened his eyes.
"You decide what to do with this one, Clive."
"I already have a plan... flood the radio. FM stations, college stations, every program director on the West Coast."
"Well, I trust you because you're the best ears in the business, and because these two signings prove it beyond any doubt I might have had, which I didn't." Duke stood and extended his hand.
"Clive, you've just given us two musical acts that I have great hope for. I want you to know that I understand what that means."
Clive shook his hand. Behind the glasses, his eyes were slightly bright.
He had kept Clive at a distance cause of the rumours of being Diddy's mentor in his past life, but as long as he isn't doing weird stuff on company time, there's not really a reason to not let him grow his label.
___
On the boardroom at Lehman Brothers's California satellite office, Duke sat on one side of the twenty-foot table with Stanley Jaffe beside him.
Jaffe had a leather portfolio open in front of him, the pages arranged. His expression was neutral, a face that Jaffe deployed in high-stakes meetings, revealing nothing, concealing everything.
Across from them sat the bankers.
There were five of them.
At the center, directly across from Duke, sat Joseph H. Rosenberg a silver-haired, and lean man.
Flanking him were two senior associates and two analysts.
"Gentlemen," Duke said. "Thank you for making time."
"We always make time for Paramount, Mr. Hauser," Rosenberg said. His voice was pleasant. "Your studio has had an extraordinary year. Shaft, The French Connection, the Oscars for Hacksaw Ridge, all very impressive. We're eager to discuss how Lehman Brothers can continue to support your growth."
"At what rate?" Duke asked.
The question was deliberately blunt. Duke understood the rhythm of these meetings, the elaborate preamble, the mutual flattery, the gradual, ceremonial approach to the actual numbers and he had decided, on the drive over, to skip it.
Rosenberg's smile thinned slightly. "Our current arrangement with Paramount carries a rate of eight percent. Given the continued volatility of the entertainment sector and the broader inflationary environment, we believe that rate remains appropriate."
"Eight percent," Duke repeated. "For a company that is projected to generate sixty million in theatrical revenue by the end of this year, with an electronics division that just cleared 40 million in profit, a publishing and licensing operation that grew a lot since last year."
"We acknowledge the revenue achievements," Rosenberg said carefully. "They're impressive. But the entertainment industry remains, by its nature, unpredictable. A single underperforming slate-"
"Respectfully, Pete, I'm not here to talk about a single slate."
Duke nodded at Jaffe. Jaffe opened his portfolio and began distributing documents, one set for each banker, printed on Paramount letterhead.
"What you're looking at," Jaffe said, "is a comprehensive financial overview of the Ajax Group's diversified revenue streams for fiscal year 1971, with projections for 1972."
He walked them through it. Line by line. Number by number.
The theatrical division $60 million in domestic grosses, with international and ancillary revenue still accruing.
The cost-to-revenue ratio on Shaft alone $500,000 in versus $13 million out, drew a visible reaction from one of the younger analysts.
The electronics division, Atari's domestic revenue, including the new patent pool royalties, the Marriott and Pizza Hut placement contracts, and the projected growth trajectory based on the Atari-Japan joint venture with Namco.
Jaffe presented the Namco deal not as speculation but as a signed, binding agreement, because it basically was, and explained how Japanese manufacturing would feed Asian, Latin American, and European markets.
The publishing and licensing division, PULSE Weekly at 1.1 million copies. The DC Comics acquisition. The Looney Tunes library. The emerging toy and merchandise licensing conversations that Jaffe had been conducting with major manufacturers.
"Toy licensing," Jaffe said, "Is the single most predictable, most liquid, most bankable revenue stream in the consumer products industry."
The room was quiet. The bankers were reading. Rosenberg's expression hadn't changed, but his eyes were moving across the documents with the rapid, focused attention.
Duke let the silence hold for exactly ten seconds. Then he spoke.
"Joseph, Paramount is a nascent diversified entertainment and technology conglomerate that happens to make the best movies in the world. Our revenue streams are uncorrelated, a soft theatrical quarter can be offset by strong electronics sales, and vice versa."
"Our growth sectors, Atari, licensing, international distribution are expanding at rates that outpace every other entertainment company in America. And our competitive position, in gaming, and in publishing is either dominant or rapidly approaching dominance."
He paused.
"Seven percent is the rate you normally charge a movie studio. But I now have the position to ask for a better deal."
"What would that 'better deal' entail?" Rosenberg asked.
"Five percent."
Silence followed.
Rosenberg's associates exchanged glances.
One of the analysts actually opened his mouth, thought better of it, and closed it again. Rosenberg himself was unnervingly still, his fingers steepled in front of his face, his eyes locked on Duke's.
Then he laughed.
"Five percent," Rosenberg said. "Mr. Hauser, five percent is what we charge IBM, or General Electric. Companies with fifty years of consecutive profitability and balance sheets the size of small countries."
"And in ten years," Duke said, his voice unchanged, "Paramount will have a balance sheet that makes GE's look small."
"In ten years. But we're talking about today."
"We're talking about today and ten years."
Duke waited, before continuing.
"I should mention," Duke said, "that I've had informal conversations with Chase Manhattan about our financing needs. And I've had somewhat more formal conversations with several Japanese financial institutions Mitsubishi UFJ, through my relationships with Matsushita Electric. They're very interested in the growth trajectory of a company with our dominant Arcade portfolio and our successful slate."
The temperature in the room dropped.
Duke was not bluffing. The Japanese conversations were real, preliminary, exploratory, not yet at the term-sheet stage, but real enough that the names could be verified.
And the Chase Manhattan mention was not a lie so much as an aspiration, Duke had met a senior Chase executive at a dinner party in Manhattan and had discussed, in the vaguest possible terms, the possibility of a banking relationship.
Rosenberg's steepled fingers separated.
"Five is not possible," Rosenberg said. "Not in this rate environment and specifically not for this industry."
"Then give me a number that acknowledges what we have."
Rosenberg looked at Jaffe's documents. He looked at the Atari revenue. He looked at the Namco deal. He looked at the toy licensing projections.
"Five point five," Rosenberg said.
"Five point two," Duke said. "On a full debt restructuring. Extended terms. Reduced covenants. And a revolving credit facility that we can draw against for acquisitions."
"The revolving facility will require additional documentation."
"Stanley will have it on your desk by Friday."
Rosenberg looked at his associates. The associates looked at each other.
"Five point two," Rosenberg said, and extended his hand.
Duke shook it. The handshake lasted for around two seconds.
They signed the preliminary term sheet twenty minutes later.
In the elevator afterward, Jaffe loosened his tie, such an unprecedented informality that Duke actually looked at him twice to make sure he wasn't having a medical event.
"Five point two," Jaffe said while giving a full smile.
"Five point two."
___
Duke set down the bourbon in his hotel room in New York and picked up the phone. He dialed from memory.
Jaffe answered on the second ring. He was in his own hotel room, three floors below, and he'd clearly been waiting.
"Stanley."
"Duke."
"It's time."
Two words. But Jaffe understood them completely, the months of analysis, the legal preparation, the financial engineering, the strategic positioning that those two words represented.
He'd been preparing for this call since the first time Duke had described a "Video Home System".
"The tender offer," Jaffe said. It wasn't a question.
"Twenty million dollars. All cash. I want the Ampex board of directors to see the offer on their desks before the market opens on Monday morning."
"Twenty million." Jaffe's voice was steady, "Below their current market cap by approximately thirty percent."
"Their market cap is not their real value."
"And if they reject?"
"They won't reject. The board is divided, Goldstein says at least three members are ready to sell immediately, and two more are persuadable. The management team has been running the company into the ground for three years, and the shareholders know it."
"A cash offer at this level gives the board a clean exit and the shareholders a premium over the sixty-day trading average. Nobody has to explain to their investors why they turned down twenty million in cash to keep riding a sinking ship."
"I'll have Lloyd Rich's firm prepare the tender documents. Filing with the SEC tomorrow afternoon. The offer hits the board Monday morning."
"Good. The tone of the offer letter should be respectful, professional, and absolutely clear about what we intend to do with the company."
"Which is?"
"Cut most of the failing consumer electronics division. Increase the patent licensing revenue by agressevely suing internationally. And redirect the R&D toward a consumer video recording device that will be ready for market by 1975 and to the VHS project with Panasonic."
"The VCR."
"The VCR. Built on Ampex patents, designed by Atari's consumer electronics team, and loaded with Paramount content from day one."