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Metromedia Company

Metromedia Company

1 Meadowlands Plaza
East Rutherford, New Jersey 07073
U.S.A.
Telephone: (201) 531-8000
Fax: (201) 531-2804

Private Company
Incorporated: 1955 as Metropolitan Broadcasting Corp.
Employees: 29,500
Sales: $1.45 billion (2002)
NAIC: 722110 Full-Service Restaurants; 513210 Cable Networks; 513322 Cellular and Other Wireless Telecommunications; 513310 Wired Telecommunications Carriers; 513111 Radio Networks; 513330 Telecommunications Resellers; 518111 Internet Service Providers

Founded by venture capitalist John Kluge, Metromedia Company is a private holding company for AboveNet, Inc. (formerly Metromedia Fiber Network), Metromedia International Group, Inc., and Metromedia Restaurant Group. AboveNet is a leading provider of fiber-optic network infrastructures enabling highspeed information exchange in 12 key markets along the East and West Coast corridors of the United States as well as in four key European markets. Metromedia International Group provides telecommunications, cable television, broadband networks, Internet access, and other subscriber-based voice, data, and video services to emerging markets in Eastern Europe, the former Soviet Republic, and China. Metromedia Restaurant Group owns and operates nearly a thousand restaurant franchises under the names Bennigan's, Steak and Ale, Ponderosa Steakhouse, and Bonanza Steakhouse, serving more than 160 million guests a year in the United States and abroad.

The Early Business Ventures of John Warner Kluge: 1940s50s

Chairman John Warner Kluge was the driving force behind Metromedia's formation and growth. Kluge (which means "smart" in German) earned a reputation for identifying promising businesses in their infancy, a knack he has modestly attributed to luck. The independent television stations he accumulated in the 1960s and 1970s formed the nucleus of the country's fourth major broadcasting networkRupert Murdoch's Fox holdings in the early 1980s quickly grew into a multibillion-dollar stake. But in the early 1990s, media attention focused on his apparent loss of "the Midas touch," as his investments in budget steakhouses and film wallowed.

Kluge (pronounced "Kloo-gy") was born in Germany in 1914 and immigrated to the United States with his family in 1922. He fostered his moneymaking skills while on scholarship at Columbia University, both in the classroom and at the poker table. By the time he graduated in 1937 with an economics degree, Kluge's combination of skill and luck helped him accumulate about $7,000 in winnings. (He has since gratefully bestowed more than $100 million on his alma mater.) Upon graduation, Kluge went to work at Otten Brothers Co., a small paper company in Detroit. Within four years, he had doubled the firm's sales, earning a 30 percent share of the company as well as its presidency.

After serving in the Army during World War II, Kluge began investing his hoard, purchasing Silver Spring, Maryland's WGAY radio station in 1946 with a partner. Over the next decade, Kluge honed his business skills with a series of wide-ranging ventures. First, he was attracted to businesses with high cash food brokerage. Essentially a manufacturers' representative, he sold goods to supermarkets on a flat 3 percent commission. His brokerage eventually became the largest in the Baltimore-Washington, D.C., metropolitan area, and Kluge maintained a 25 percent interest in the highly profitable business through the early 1980s.

Another hallmark of Kluge's business strategy was his liberal use of debt. Metromedia routinely maintained a higher than average debt-to-equity ratio. Although this tactic was criticized, sometimes strongly, Kluge never got burned. He used leverage in many crafty ways, often as a means to another favorite end, tax avoidance. According to a 1984 Forbes article by Allan Sloan, examples of his anti-tax shuffles included "a complicated saleleaseback of most of the company's outdoor advertising division and the purchase of depreciating rights to 100 million of New York City buses and subway cars." Kluge even moved Metromedia's headquarters from New York City to Seacaucus, New Jersey, to avoid the former metropolis's high taxes.

Examples of Kluge's strong contrarian bent have cropped up throughout his career. For example, whereas other venture capitalists shunned the hotel industry in the early 1990s, Kluge sunk at least $150 million in an aging Manhattan hotel. The most significant aspect of Kluge's contrarianism was that it was more often successful than not.

A final noteworthy facet of Kluge's strategy was his passion for cost-cutting. Although he spared no expense on his own lavish lifestyle, strict on-the-job cost controls were sometimes criticized as cheap. In her captious 1988 book, Too Old, Too Ugly and Not Deferential to Men, Christine Craft, an anchorwoman at one of Metromedia's midwestern television stations, attributed a general lack of upkeep to corporate stinginess. Notwithstanding such criticism, Kluge's combination of strategies served him well.

The Emergence of the Metromedia Empire: 1960s to Early 1980s

The budding entrepreneur laid the foundation of what would become a billion-dollar media empire in 1959, when he and a group of investors bought Paramount Pictures' 24 percent interest in Metropolitan Broadcasting Corp. for $4 million. The company's interests included independent television stations in New York and Washington, D.C. (two of the country's leading markets), as well as four radio stations.

After assuming leadership of the company, which had been spun off from Allen B. DuMont Laboratories in 1955, Kluge took it public, retaining a 12 percent stake. At the time, Metropolitan was generating about $12.4 million in annual revenues, but its profits were practically nil.

Renamed Metromedia, Inc., in 1961, the company specialized in independent television stations, those not affiliated with one of the three national broadcasting networks. Although some observers judged several of his purchases overpriced (especially since independent television was widely construed as a dead end), the stations were bargains in comparison with their networkaffiliated counterparts. Once Metromedia accumulated the FCCmandated limit of seven television stations, Kluge started "trading up" to stations in ever larger and more influential markets.

But Metromedia's upward climb was not uninterrupted. The company struggled through the 1960s, when many of Kluge's ideas proved too far ahead of their time to suit shareholders and analysts. Hoping to build a multimedia empire, he bought a magazine, bus and subway poster concessions, and attempted to form a fourth television network. (His concept, in fact, came to pass in the form of Rupert Murdoch's News years that started in 1969. When, in 1971, one reporter snidely wrote that he had turned "a helluva company into a shelluva company," Kluge launched a rarely suspended personal press blackout.) A mid-1970s recession took Metromedia to its 1974 nadir, when the company's stock sank to $4.25 a share. Kluge tightened cost controls and shed the magazine and other extraneous holdings.

His notoriously good luck combined with Metromedia's retrenchment to pull the company out of its slump shortly thereafter. In 1976, advertisers loosened their purse strings to the benefit of independent as well as network television stations. Metromedia's revenues grew by one-fourth that year, and its profits doubled. By 1980, the company's $450 million annual revenues were generating $55 million in profits.

Kluge the contrarian eschewed the hoopla surrounding cable television and focused instead on programming in the late 1970s and early 1980s. Although his own production efforts proved less than successful, Kluge was good at picking off top shows going into syndication. He even applied his contradictory logic to programming, employing "counter-programming," instead of going head-to-head with network schedules, Metromedia stations slated something different, such as putting a sitcom against the evening news. During this period, the company acquired the rights to perennially popular syndicated shows including All in the Family and M*A*S*H, as well as such first-run syndicated programs as Thicke of the Night and Too Close for Comfort. Metromedia's success was reflected in its stock price, which skyrocketed from $4.50 in 1974 to more than $500 by 1983.

Key Dates:

1955:
Metropolitan Broadcasting Corp. is established.
1959:
Venture capitalist John Kluge and a group of investors buy Paramount Pictures' 24 percent interest in Metropolitan for $4 million.
1961:
Having assumed leadership of Metropolitan Broadcasting Corp. and taken it public, Kluge renames the company Metromedia, Inc.
1984:
Kluge and a group of investors take Metromedia private in a $1.6 billion deal.
1988:
Kluge buys the Ponderosa Steak House chain, the first of two major acquisitions that would become Metromedia Steakhouses Inc.; Kluge also invests $78 million in Orion Picture Corp., gaining a 70 percent interest in the company by the end of the year.
1990:
Kluge enters into an Eastern European cable television business venture called International Telcell; he also re-enters the outdoor advertising segment with Metromedia Technologies, the world's only computerized billboard-painting company.
1993:
Metromedia Communications Corp. merges with Atlanta's Resurgens Communications Group Inc. and LDDS Communications Inc., moving the resulting companywhich, in 1995, would become WorldCom Inc.into the top tier of long-distance providers.
1999:
Metromedia Fiber Network acquires San Jose, California-based AboveNet Communications.
2002:
Metromedia Fiber Network files for Chapter 11 bankruptcy protection in May; John Kluge resigns from the Metromedia board of directors.
2003:
Metromedia Fiber Network emerges from Chapter 11 under the new name, AboveNet, Inc.

By the early 1980s, Metromedia had stations in seven of the top ten markets: New York; Washington, D.C.; Los Angeles; Boston; Houston; Minneapolis-St. Paul; and Cincinnati. His stable of stations was outranked only by network holdings. The company also held the legal limit of 14 radio stations, the Foster & Kleiser billboard company (which had 42,000 billboards by 1982), the Harlem Globetrotters exhibition basketball team, and the Ice Capades figure skating show.

Kluge and a group of investors took Metromedia private late in 1984 with a $1.6 billion deal. The leveraged buyout (LBO) team borrowed the vast majority of the money needed to pay off shareholders, pledging future cash flow and projected asset sales to retire the accumulated debt. The terms of the transaction offered public stockholders about $40 per share ($30 in cash and $10 in debt): an 80 percent premium over its normal trade. Although the deal went through, Kluge found himself in a difficult position, as he was expected to begin liquidating Metromedia's holdings in order to meet the terms of his heavy debt load. He was faced with a stagnant market, however, where low prices for his prime media properties compelled him to sit tight. With the help of famed (and later discredited) junk bond wizard Michael Milken, Kluge bought some time with a "more favorable" debt refinancing.

The Metromedia "garage sale" started in 1985, after Capital Cities Communications' acquisition of the American Broadcasting Corporation heated up the media market. The company raised $2 billion with the sale of six television stations to Rupert Murdoch and the seventh to the Hearst Corporation. In 1986, Metromedia added more than $1 billion more to its coffers with the sale of the billboard subsidiary, nine radio stations, the Globetrotters, and the Ice Capades.

Kluge's contrariety helped boost that already massive payoff by billions. Against a prevailing opinion that gauged a ten-year payoff period for car phone investments, he had guided Metromedia's expansion into cellular telephony with a $300 million investment in 1983. Writing for Forbes in 1990, Vicki Contavespi called it "one of Kluge's best bets." He sold most of those properties to Southwestern Bell for $1.65 billion and divested the rest for $3 billion in 1990. Within less than two years, the LBO and subsequent sell-offs transformed Kluge's 25 percent, $250 million interest in the publicly owned Metromedia into a multibillion personal fortune and made him the second richest American.

Wide-Ranging Diversification in the Late 1980s and Early 1990s

Kluge began using the proceeds of his media sell-off to amass a restaurant empire. In 1988, Metromedia bought the Ponderosa Steak House chain from Asher Edelman. Edelman had bought the 20-year-old business barely a year before, but bailed out to relieve himself of the hefty debt incurred during the LBO. Kluge then bought Dallas-based USA Cafes, operators of Bonanza steakhouses, from the founding Wyly brothers for $83 million in 1989. These two chains formed Metromedia Steakhouses Inc.

The steak segment's top two chains were very different. Ponderosa was concentrated in the Midwest and was dominated by company-owned units. Bonanza's stronghold was in the Southwest, and the chain had operated as a "pure franchiser," with only two company-owned locations. After an initial period of criticism, both from Bonanza franchisees and restaurant industry observers, several major Bonanza franchise owners converted to the Ponderosa format. There did not, however, appear to be a concerted effort to compel a wholesale changeover. Metromedia also added S&A Restaurant Corp., franchisers of the Steak and Ale and Bennigan's chains, to his stable of steak shops. These more upscale steak restaurants were operated separately from the budget chains, as S&A Corp.

Although Kluge was said to have invested more than $1 billion in the 1,000 units, they lost more than $190 million from 1989 to 1994. To top it off, by 1993 Ponderosa had slipped from number one to number two, and Bonanza dropped to sixth place in annual sales. Industry analysts blamed the problems on everything from high competition to scanty capital improvements, but no one seemed to know how to turn them around.

Kluge entered a completely different milieu in 1988, when Orion Pictures Corporation was threatened with a hostile takeover from Sumner Redstone's National Amusement Corp. Orion was then headed by Arthur Krim, who called on friend Kluge to act as a "white knight." Kluge's investment of $78 million not only staved off the threat, but also gave him a 70 percent interest in the company by the end of the year. But in spite of producing award-winning films including Platoon, Silence of the Lambs, and Dances with Wolves, Orion ran into trouble in the late 1980s. A string of "box office bombs" combined with Orion's heavy debt load ($500 million debt to $485 million in annual sales) to drive the company into bankruptcy by the end of 1991. Orion emerged from bankruptcy in 1992, but lost $250 million from 1990 to 1994.

In an effort to maintain the studio's viability, Kluge took the unusual step of merging it with Actava Group, maker of Snapper lawn mowers, and Metromedia Inc., the group's investment arm, to form Metromedia International Marketing Inc. in 1994. This company expanded into Eastern European radio with the early 1995 acquisition of stations in Moscow and Bucharest.

Notwithstanding his apparent missteps into steakhouses and moviemaking, Kluge had his fingers in other, perhaps more promising "pies" as well. In 1990, he bought into a venture called International Telcell, an Eastern European cable television business. He also re-entered the outdoor advertising segment with Metromedia Technologies, the world's only computerized billboard-painting company.

Having acquired International Telephone & Telegraph Corporation's long-distance service division in 1989, Kluge used it as the basis of a strike into the long-distance telephone industry. The September 1993 merger of Metromedia Communications Corp. with Atlanta's Resurgens Communications Group Inc. and LDDS Communications Inc. moved the resulting company into the top tier of long-distance providers, behind American Telephone & Telegraph Company, Sprint Communications Company L.P., and MCI Communications Corporation. With Kluge as chairman, the publicly held company (of which Metromedia Companies retained a significant stake) changed its name to WorldCom Inc. in mid-1995.

Some analysts speculated that Kluge would need to rid himself of the troubled restaurant and movie businesses to concentrate on the long-distance interests. But Joseph Weber of Business Week noted, "Metromedia's chief has often been quoted as saying he would be bored with just one business to worry about." There was no question that Kluge had the patience to wait out lean times; he juggled independent television stations that others derided as "dogs" for more than two decades before cashing in. Whether the octogenarian still had the stamina to see these projects to profitability was another question entirely.

Although Kluge retained control of Metromedia into the mid-1990s (and the company had no mandatory retirement rule), his general partner and Executive Vice-President Stuart Subotnick emerged as a likely candidate for succession. Subotnick, who was nearly three decades younger than Kluge, had been with Metromedia since 1967. Thrust into the position of chief financial officer upon his superior's untimely death, Subotnick came to the fore in the early 1980s, when Kluge made him a member of his "office of the president" troika. In the late 1980s he had been one of the participants in Kluge's failed LBO venture. Some sources said that he had been a chief (albeit behind-the-scenes) negotiator since the early 1980s. His status as a trusted personal tax advisor to John Kluge, as well as his survival of several upper management purges, appeared to clinch his role as successor.

Rapid Expansion for Fiber-Optics in the Late 1990s

Under increasing pressure from investors to exit the entertainment business, in mid-1997 Metromedia sold off its 2,200-title film and television library and other film assets to Metro-Goldwyn-Mayer for $573 million in cash. Throughout the remaining years of the decade, the company honed its focus on the rapid expansion of its fiber-optic division, Metromedia Fiber Network.

On the domestic front, a key area for this expansion was the Northeast corridor, where Metromedia began to develop a single fiber-optic infrastructure connecting Chicago, Philadelphia, Washington, D.C, New York, and Boston. Using state-oftheart technology, Metromedia pioneered a new concept in network infrastructure called dedicated dark fiber infrastructure, which offered customers many advantages over the customary, leased capacity service. Indeed, many hailed dedicated dark fiber as a revolution in the broadband market: its dense, meshed network "trunks" gave customers the ability to increase their capacity, or bandwidth, according to business demands, without any increase in service cost. That is, with dedicated dark fiber, Metromedia could offer its customers unmeteredand virtually unlimitedbandwidth at a set cost. As such, Metromedia established itself among a new breed of fiber-optic provider, the "carrier's carrier," selling its services primarily to corporate, carrier, and government customers.

To this end, in 1998 the company signed major agreements with Northeast carriers, including a $6.1 million contract with Hyperion Telecommunications and a $33.2 million contract with Internet service provider PSINet. That year Metromedia also formed a joint venture with the United Kingdom's Racal Telecom to create a fiber-optic infrastructure between the United States and Britain, and announced plans to extend its dark fiber network infrastructure to a strategic West Coast corridor including the San Francisco Bay area and Silicon Valley. Industry experts lauded Metromedia's strategy, even when the company reported continued losses for 1997, insisting that it was positioning itself well for an anticipated boom in customer demand. With the company boasting an 875 percent increase in salesto $11.7 millionfor the third quarter of 1998, these predictions appeared to be accurate.

Continuing to bolster its fiber-optics capabilities, in 1999 Metromedia Fiber Network acquired San Jose, California-based AboveNet Communications in a deal estimated to be worth $1.55 billion. AboveNet, the designer and owner of the "AboveNet Global One-Hop Network," became a wholly owned subsidiary of Metromedia. Together, the companies planned to develop an unmatched optical platform for Internet connectivity in the 21st century.

On the international front, in late 1999 Metromedia announced plans to bring its dark fiber networks to 11 new European markets: Paris, Brussels, Hamburg, Dusseldorf, Munich, Berlin, Hanover, Vienna, Zurich, Geneva, and Milan. The addition of these major corporate, financial, and government hubs would bring Metromedia's infrastructure to a total of 16 key European marketsand pave the way for penetration of the entire continent.

An Inauspicious Entry into the 21st Century

Despite its strategic successes, however, trouble was brewing for Metromedia by mid-2000. Investors had become increasingly impatient with the Metromedia International Group's faltering stock pricewhich had plummeted 400 percent since the spring of 1998and its less-than-transparent management practices. Under scrutiny by Lens Investment Management, a Maine-based shareholder activist firm, the company was called upon to turn over its books for inspection and sell or spin off various noncore assets, especially Snapper Inc. By November 2001, under continued pressure from investors, Metromedia International Group announced a sweeping reorganization of its senior management, including the resignation of President and CEO Stuart Subotnick, who was replaced by Carl C. Brazell, Jr. The Snapper unit was finally sold in 2003 to Simplicity Manufacturing, in a deal valued at $73 million.

The situation had turned equally sour for Metromedia Fiber Network, which entered the 21st century staggering under the weight of a massive debt and scrambling to secure a $150 million credit facility necessary to avoid a bankruptcy filing. Even after receiving a $611 million funding package led by Citicorp USA in October 2001, however, the company, which had never reached profitability, found itself filing for Chapter 11 bankruptcy protection in May 2002. Matters continued to spiral downward in 2002: in November the company alerted the Justice Department and the SEC to possible misconduct by its executives in their eastern European dealings, and in December John Kluge resigned from the company's board of directors. After 16 months in bankruptcy, Metromedia Fiber Network emerged from Chapter 11 in September 2003, having assumed the name of its subsidiary, AboveNet. It remained to be seen whether, and how, this company, and Metromedia as a whole, would regain its once prominent stature.

Principal Subsidiaries

AboveNet, Inc.; Metromedia International Group, Inc.; Metromedia Restaurant Group.

Principal Competitors

Deutsche Telekom AG; Level 3 Communications, Inc.; Outback Steakhouse, Inc.

Further Reading

Baldo, Anthony, "Orion: Is Kluge Dancing with Wolves?," FW, December 11, 1990, p. 14.

Benjamin, Jeff, "Metromedia Under the Lens," Investment News, November 6, 2000, p. 45.

Benjamin, Matthew, "Metromedia Fiber Network Inc.," Investor's Business Daily, December 29, 1998.

Bernstein, Charles, "Conglomerate Menace Stalks Chains," Nation's Restaurant News, August 14, 1989, p. 3F.

"Billion-Dollars-Plus Buyback at Metromedia," Broadcasting, December 12, 1983, p. 2.

Brooks, Steve, "Round Up: Can an East Coast Billionaire Corral a Herd of Restaurants into One Rugged Team?," Restaurant Business, October 10, 1992, p. 86.

Carlino, Bill, "Ponderosa Ropes Bonanza," Nation's Restaurant News, September 11, 1989, p. 1.

, "Wild Ride May Not Be Over for Metromedia and Its Steak Chains," Nation's Restaurant News, February 25, 1991, p. 8.

Cecil, Mark, "Will Metromedia 'Snap' Out of It?," Mergers and Acquisitions Report, June 12, 2000.

Cohen, Laurie P., "The Man with the Midas Touch Meets His Match in the Nation's Steakhouses," Wall Street Journal, January 3, 1994, p. 9.

Colodny, Mark M., "Jack Kluge's Other Divorce," Fortune, June 4, 1990, p. 265.

Contavespi, Vicki, "Tips from Winners in the Game of Wealth," Forbes, October 22, 1990, p. 32.

Craft, Christine, Too Old, Too Ugly, and Not Deferential to Men, Prima Publishing & Communications, 1988.

Denitto, Emily, "Investors Access Rising Stock of Growing Fiber-Optic Company," Crain's New York Business, March 30, 1998, p. 4.

Heuton, Cheryl, "Kluge's Return to Radio," MEDIAWEEK, April 3, 1995, p. 14.

Lazaroff, Leon, "Desperate Metromedia Caves in to Bondholders," Daily Deal, August 29, 2001.

, "Metromedia Sinking Again," Daily Deal, March 18, 2002.

"Metromedia on a Roller Coaster," Newsweek, August 22, 1983, p. 48.

Noer, Michael, "Stu Is Running the Show," Forbes, October 24, 1994, p. 284.

Reed, Julia, "The Billionaire Who Just Won't Quit," U.S. News & World Report, June 28, 1988, p. 41.

Romero, Simon, "Metromedia Fiber Files for Bankruptcy," New York Times, May 21, 2002, p. C2.

Rudnitsky, Howard, "The Play's the Thing," Forbes, June 8, 1981, p. 71.

Sloan, Allan, "The Magician," Forbes, April 23, 1984, p. 32.

, "Metromedia Revisited," Forbes, December 17, 1984, p. 32.

, "Two Paths Diverged: Warren Buffett and John Kluge Investment Activities," Forbes, June 3, 1985, p. 40.

Sherman, Strat, "Why Metromedia's Stock Went from $4.25 to $175," Fortune, April 5, 1982, p. 96.

Weber, Joseph, "The Millstones at Metromedia," Business Week, March 1, 1993, p. 68.

April Dougal Gasbarre

update: Erin Brown

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Metromedia Company

Metromedia Company

One Meadowlands Plaza
Sixth Floor
East Rutherford, New Jersey 07073
U.S.A.
(201) 804-6400
Fax: (201) 804-6432

Private Company
Employees: 19,000 full-time; 33,000 part-time
Sales: $2 billion
SICs: 4813 Telephone Communications Except Radiotelephone; 7312 Outdoor Advertising Services; 7011 Hotels & Motels; 4812 Radiotelephone Communications; 5812 Eating Places

Metromedia Company has emerged over the past decade as one of the largest private concerns in the United States, with varied interests in fields of technology, entertainment, telecommunications, and the restaurant industry. Guided by its founder and president, billionaire John W. Kluge, Metromedia has grown from a minor player in broadcasting to a major force in many areas of business. Throughout its history, the companys philosophies and business strategies have reflected the instincts and interests of Kluge, who is generally regarded as one of the richest individuals in the world.

John Kluge was born in Chemnitz, Germany. He and his family moved to the United States when he was eight years old, settling in Detroit. After a brief stint at Wayne State University, Kluge received a scholarship from Columbia and finished his schooling there. Even in college, Kluges ambitious and risk-taking character was in full bloom. Kluge supplemented his scholarship money with income from three different jobs and skillful card playing. He graduated in 1937 and returned to Michigan, where he accepted a position with the Otten Brothers Company. He quickly acquired part-ownership of the companys paper conversion business.

With the advent of World War II, Kluge joined the U.S. Army, where he quickly rose to the rank of captain with the War Department General Staff in Military Intelligence. After the war, Kluge sold his interest in Otten Brothers and remained in Washington.

In 1946 Kluge purchased a radio station in Silver Spring, Maryland, for $15,000. Over the course of the next dozen years he acquired a number of additional FM radio stations, which at the time were regarded as an unappetizing alternative to AM stations. Over time, however, FM radio became the preferred medium for popular music and other programming and advertising revenue for FM stations rose in corresponding fashion.

By the mid-1950s Kluges business activities began to take on a level of diversification that would be a hallmark of his for decades to come. In 1956 he and former competitor David Finkelstein merged their food brokerage businesses in Baltimore. In 1959 Kluge delved again into the field of broadcasting, acquiring a minority interest in the Metropolitan Broadcasting Corporation (formerly the Dumont Broadcasting Corporation), taking control and changing the companys name to Metromedia in 1960. Again, Kluge defied conventional wisdom, purchasing a number of independent VHP stations and ignoring stations affiliated with the three major networks. As Kluges long-time business associate Stuart Subotnick noted in Electronic Media, we do have a penchant for making passed-over visibles valuable. Operating under the banner of Metromedia, Kluge purchased and sold stations in progressively larger markets, trading up on a tax-deferred basis. Innovative programming, coupled with a lean operating style, enabled Metromedia to achieve operating margins that far outpaced those of stations associated with the major networks. At its height, the company boasted television stations in many of the countrys major media markets, including New York, Los Angeles, Chicago, Dallas, Boston, Houston, and Washington, D.C.

In the 1960s Metromedia entered the realm of outdoor billboard advertising. The company acquired Foster & Kleiser, a regional outfit based in the western United States, as well as businesses in Chicago and New York. Metromedias initial investment of $14 million in the industry enabled it to consolidate a variety of fragmented markets into an established national company. By the early 1980s Metromedia owned approximately 45,000 outdoor advertising displays in 19 major metropolitan areas.

Under the direction of Kluge, Metromedia also established a presence in a wide array of other areas of business and entertainment. Metromedia business interests have included music publishing companies; recorded music; direct mail advertising; television production and syndication, including the syndication of the Merv Griffin Show; Playbill magazine; the Harlem Globetrotters; and the Ice Capades.

The 1980s marked a dramatic shift in emphasis for Metromedia, as it divested itself of long-held concerns in advertising and broadcasting and launched itself into the new territories of telecommunications and the restaurant industry. This change in direction was due in no small part to a major change in the companys status. In 1984 Kluge took the company private through a leveraged buyout of the companys stockholders, a maneuver that cost him $1.6 billion. Armed with more than 90 percent ownership of Metromedia, however, Kluge was free to take the company in whatever direction he pleased.

Kluge sold his outdoor advertising interests in 1986 for more than $700 million in cash and preferred stock, a significant return on his initial investment of $14 million. He also sold his six independent television stations and one network station in 1986 for more than $2 billion. These stations, primarily purchased by Rupert Murdoch, served as a cornerstone of his fledgling Fox Broadcasting Company. In addition, Metromedia disposed of its radio broadcast holdings, divesting itself of nine stations and the Texas State Networks system through a management buyout of approximately $285 million.

During the early 1980s Metromedia began exploration of the cellular telephone industry. Intrigued by the business potential of the industry, Metromedia spent $300 million in the purchase of paging companies. The company quickly moved to consolidate its holdings, creating the countrys largest paging and cellular business. Metromedia sold the majority of its holdings in the cellular industry to Southwestern Bell in 1986 for $1.3 billion, but Kluge remained a significant player in the industry. In 1990 and 1992 Metromedia sold its remaining cellular holdings for an additional $2.2 billion.

John Kluge also established a presence in the film industry during the 1980s, acquiring majority ownership of Orion Pictures Corp. in 1988. This was done at the behest of Orion co-founder Arthur B. Krim, a friend of Kluges. Krim and the rest of the Orion group were concerned about the takeover threat of Viacom and its chairman, Sumner Redstone. As Kluge himself has admitted in Electronic Media, the investment in Orion was not exclusively a business decision: This was an investment that was made as a personal favor in a white knight situation.

Orion remains a troubled studio, however, despite significant contributions from Kluge. The company filed Chapter 11 bankruptcy proceedings in December 1991. In 1992 the company emerged from bankruptcy with a debt of approximately $400 million, and the terms of the bankruptcy reorganization, which earmarks all excess cash after expenses to creditors for the next three to six years, have hamstrung the company in its efforts to create new product. Despite the companys need for capital, most observers feel that Kluge is reluctant to sink any more cash into Orion.

Metromedia made several key acquisitions in the late 1980s, purchasing the Ponderosa, Bonanza, Steak & Ale, and Bennigans chains. Ponderosa and Bonanza are operated by Metromedia Steakhouses Company, L.P., and Steak & Ale and Benni-gans are operated by S&A Restaurant Corp. While the Steak & Ale and Bennigans chains have remained profitable (if susceptible to decreasing market share), the Metromedia Steakhouses chains have lost $190 million since 1989.

Both Ponderosa and Bonanza had historically served as low-priced alternatives to other restaurants, offering customers low prices in exchange for cafeteria atmosphere and cheaper grades of beef. Industry trends, however, indicated that both chains were losing customers. Moreover, Kluges almost simultaneous purchases of the two long-time competitors aroused fears on both sides of forced conversions, territorial disputes, and second-class treatment. After a tense period of time, more than 100 former Bonanza franchise owners have voluntarily converted to the Ponderosa scheme. Metromedia has subsequently embarked on an expensive effort$29 million over two yearsto upgrade the chains. Metromedias interest in its restaurant holdings was also indicated by the abrupt departure of Ponderosa president and chief executive Mike Jenkins in March 1992. As Jenkins himself stated in Nations Restaurant News, restaurants have become a major part of the company, and John [Kluge] and his staff probably want to get more personally involved. Indeed, Metromedias restaurant holdings currently account for approximately 60 percent of its annual earnings.

Metromedia remained a major force in the telecommunications industry throughout the 1980s and into the 1990s, despite its 1986 divestment of cellular and paging interests. Kluge created the Metromedia Communications Corp., which currently ranks as one of the leading second-tier, national long-distance carriers in the United States with $400 million in annual revenues. Hoping to increase its market share, Metromedia announced in February 1993 that a letter of intent providing for the merger of Metromedia Communications Corporation, Resurgens Communications Group, based in Atlanta, and LDDS Communications, Inc., based in Jackson, Mississippi, has been signed. According to the Wall Street Journal, the merger would create the fourth largest long-distance company, with annual revenues of 1.5 billion.

Metromedia has also become heavily involved in several high-technology ventures. Axon Systems Inc. is a profitable medical technology company that produces advanced brain-wave monitors for medical use. Stanadyne is a producer of state-of-the-art diesel fuel injectors. Finally, Metromedia Technologies, which utilizes computer printer technology to create billboards and theatrical stage sets, boasted revenues of $25 million in 1992.

Kluge is also examining the business possibilities that have presented themselves with the changed political landscape of Russia and Eastern Europe. As part of the International Telcell Group consortium, Metromedia is poised to establish itself as a major provider of wireless cable, cellular and paging services throughout Russia and Eastern Europe. Metromedia hopes to recoup its initial investment in Telcells first full year of operation.

Metromedia remains a healthy company, with a variety of profitable interests in many different industries. John W. Kluge, commonly viewed as the richest man in the United Stateshe has donated $110 million to his alma mater, Columbia Universitycontinues to guide the company on a daily basis.

Principal Subsidiaries

Metromedia Steakhouses Company, L.P.; S&A Restaurant Corp.; Metromedia Technologies Inc.; Metromedia Communications Corporation.

Further Reading

The Man Who Buys Red Ink, Forbes, February 15, 1967; Metromedia Presents Over Their Dead Bodies, Starring John Kluge, Forbes, April 1, 1971; Kluge, John, The Metromedia Story, The Newcomen Society, New York, 1974; Rudnitsky, Howard, The Plays the Thing, Forbes, June 8, 1981; Sloan, Allan, The Magician, Forbes, April 23, 1984; Stevenson, Gelvin, Metromedias Blockbuster Bid to Stretch out its Debt, Business Week, November 26, 1984; Rupert Murdochs Big Move, Business Week, May 20, 1985; Maremont, Mark, A Daring Gamble on Mobile Phones, Business Week, July 8, 1985; Anderson, Kevin, No. 1 Kluge Treasures Taking Risks, USA Today, October 9, 1991; Coleman, Lisa, Whats Up, John? Forbes, November 25, 1991; Mermigas, Diane, Behind the Billions, Electronic Media, February 10, 1992; Carlino, Bill, Bonanza franchisees seek direction; urge parent Metromedia Steakhouses to take action on chains future, Nations Restaurant News, May 25, 1992; Sawaya, Zina, Overcooked? Forbes, June 8, 1992; Weber, Joseph, The Millstones at Metromedia, Business Week, March 1, 1993.

Scott M. Lewis

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