Media Business Strategies

The Blog of David Polakoff

Life is Risk

Posted by David Polakoff on July 6, 2009

The Windmills of My Immediate Mind

Media Business Strategies – David Polakoff

Life is Risk

The following is from Barry Levinson’s (1996) Sleepers:

Danny Snyder:      Well I’m afraid I’ll make a mistake and… say the wrong thing and, ya know, uh, uh, make a wrong turn somewhere. You don’t want to take that risk.

King Benny:          Life is a risk.

Danny Snyder:      I’m sorry?

King Benny:          Life is risk.

Danny Snyder:    Life is a risk.

The Rolling Stone magazine, dated July 9 – 23, that hit my mailbox, coincidentally, on the day of the untimely passing of Michael Jackson, includes an article, Michael Jackson’s Troubled Comeback.  This article cited the woes of concert promoter AEG in attaining all its desired performance cancellation (and other) tour insurances (the London Telegraph later reported that about 20 of the shows had limited insurance; 30 were not insured), based upon Michael Jackson’s cancelled performance history (I recall my HBO days when the 1993 Michael Jackson: One Night Only concert from Singapore never materialized).  Fred Goodman’s Rolling Stone piece notes that even England’s betting parlor bookies increased the odds of cancellations by Michael Jackson.

AEG viewed the upside (of the current tour and the potential for European and USA tours) as too good to reject versus the downside of uninsured losses from a percentage of show cancellations.  AEG accepted this upside along with the risk and potential for financial loss; not all companies would make the same decision.   The London Telegraph reports the estimated losses at GBP 300 million.  Will AEG shoulder this burden or seek remedy with the estate remains a question (a question on which I’ll withhold editorial comment).  However, AEG knew the risks of pursuing this project, a clean medical exam of Michael Jackson has been cited (I’d like a second opinion!), and therefore AEG has to live with the downside, just as they were anticipating the tremendous upside.

I learned in the money management side of table gaming, you should have the same winnings upside limit as is your downside limit (i.e., walk away from the table when you’ve won the amount that is the same as what you’d be willing to have lost).  I can’t universally apply this precept to all business decisions; it is just not realistic.  Was AEG’s vision and allure of huge upside too far reaching to rationally reject the downside risk?

The entertainment business wins and loses with the inherent risk of creativity; and with the risk of extrinsic marketplace forces.  A successful creative project, combined with favorable market forces can still produce only average or mediocre results.

In my days with HBO and Granada Television, I’m aware of situations where talent had personal histories that if repeated, would put the project’s completion in jeopardy. Beyond procuring insurance, at a higher premium, the talent was subject to contractual restrictions with financial penalties for infringement.  It was the talent’s price to pay for past indiscretions and the desire to resume/continue a career.

A wildly creative film (or album, book, television series, etc) still needs to past muster of an acceptable assessment of how it will interact with marketplace forces.  An appealing treatment for a television show but that will attract a negligible audience is not bankable.  A Michael Jackson concert tour was, no doubt, a homerun concept, creatively speaking. The outside forces, mostly Michael Jackson’s behavioral demons, would cause anyone to debate the merits of a tour investment and its favorable return.  The insurance industry found the extrinsic forces unacceptable and would not take the risk.

If the eyes in the AEG (or any promoter) conference room turned to me, I’d have required the artist share in the posed risks; an equitable proposition since he was partaking in the rewards – though the probability of securing such a deal would be difficult.   I’m not familiar with the terms of the artist’s deal with AEG; perhaps there were accommodations to AEG for the uninsurable uncertainties of the tour.  It would be unlikely that AEG could have commanded a bond from Michael Jackson to self-insure a portion of the upfront tour costs.  I would have a tough time, on this one.  I’ve previously written about being an executive who doesn’t just live by the numbers. But in this case, I’d have voted “no” in that AEG conference room.  The downside would be just too great to justify the massive upside.  I just could not have put AEG (or any promoter) at such a likely risk of failure.

We’ve seen what happens when people get drunk with greed and act irresponsibly and without regard to fiduciary duty (see “Wall Street;” see “Madoff”).  Someone has to voice the pragmatic answer.

Life is risk – But when I’m out sailing and I see lightning, I don’t put my tongue on the mast and a foot in the water.

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4 Responses to “Life is Risk”

  1. Rashke said

    Thanks David for a very insightful piece of work.
    When I’m out sailing and I see lightning, I don’t pull out a silver compact to check my lipstick and clip my hair up (being the proud owner of basic brains).

    Rashke

  2. Great read.

  3. “But when I’m out sailing and I see lightning, I don’t put my tongue on the mast and a foot in the water.”

    Good analogy! Thanks for the laugh.

  4. Stu Seltzer said

    Good read. I still think AEG made a brilliant move in going after the Michael Jackson tour. High risk- Yes, High potential return-Yes…

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