The sun was dying beautifully over Los Angeles.
The light poured through the floor-to-ceiling windows of Duke's private office at Paramount.
Duke sat on his side of the desk, jacket off, sleeves rolled to mid-forearm. Across from him, in the visitor's chair, Steve Ross sat.
Ross was tall, broad-shouldered, with silver hair. He'd started his career running a funeral ho and a parking lot company, and he'd leveraged that understanding into a dia empire.
Kinney National Services owned Warner Bros. Pictures, Warner Bros. Records, DC Comics, the Looney Tunes library, and a constellation of other assets that made Ross one of the five or six most powerful n in the entertainnt industry.
He was also, in Duke's considered estimation, a man who understood price but not value. And that distinction was about to make all the difference in the world.
"Forty million," Ross said, swirling the scotch in his glass. "Forty million dollars for DC Comics and the Looney Tunes catalogue."
"That's the number," Duke said.
"It's a generous number."
"I think so."
Ross took a sip. The scotch was from Duke's private stock, bought by Jaffe, and Ross had complinted it twice already.
"Let make sure I understand what I'm looking at," Ross said, setting his glass down with a deliberate clink.
"You want to buy DC Comics, a publishing company that has been losing market share for the last few years, and whose flagship character is a man in a cape who fights a bald guy."
Duke said nothing. He let Ross talk. It was one of his most effective negotiating tools, silence.
"And you want to buy the Looney Tunes library," Ross continued. "Which is, what? A collection of theatrical shorts from the 1940s and '50s that we haven't been able to monetize in any aningful way since Jack Warner was running the show."
"We license them to TV networks for Saturday morning reruns and make just enough to keep the lights on in the animation departnt."
"That's a fair description of the current state of affairs," Duke said mildly.
"So help understand, Duke. Why would a man as smart as you, and I an that sincerely, I think you're one of the smartest guys in this town right now, and I don't say that lightly, why would that man pay forty million dollars for a struggling comic book publisher and a library of old cartoons?"
Duke leaned forward, resting his forearms on the desk. "Because I see sothing you don't."
Ross's eyebrows went up a fraction of an inch.
"And what's that?"
"Characters."
"Characters."
"Superman is the most recognized fictional character on the planet Earth. More recognized than Sherlock Hols. There are villages in rural India where people who have never seen a movie know the S on his chest."
Ross tilted his head, conceding the point with a slight nod but not yet buying the conclusion. "Well known assets don't pay dividends."
"They do if you know how to use them." Duke opened a drawer and pulled out a single sheet of paper, a handwritten list, his own cramped script, the ink slightly smudged."
"Batman. Superman. Wonder Woman. The Flash. Green Lantern. Aquaman. The Joker. Lex Luthor. Catwoman."
"That's nine characters that every child in the Western world can identify on sight."
"Now add Bugs Bunny. Daffy Duck. Tweety Bird. Porky Pig. The Road Runner. Wile E. Coyote. Elr Fudd. That's another seven. Sixteen characters, Steve. Sixteen faces that are burned into the cultural consciousness of three generations of Aricans."
"And what do you do with sixteen faces?"
"Everything."
Ross laughed. It was a good laugh, warm, and generous. "I like your confidence, Duke. I always have. But let's talk about what I'm getting in return, because that's the part that interests ."
Duke nodded. "You're getting a ten-year non-exclusive license to Atari's core arcade patents. Every cabinet, every operating system, every piece of hardware and software that makes a Pong machine work."
"For ten years, you can manufacture, brand, and distribute Warner or Kinney arcade cabinets in any venue you own or operate. You can put 'em in your parking lots if you want."
"That's..." Ross paused. "That's a valuable license."
"It is."
"Atari cleared, what, thirty million in profit last year?"
"In that neighborhood."
"And you're giving the right to build my own cabinets using your technology. For ten years."
"Licensing. Not giving. You'll pay a per-unit royalty, and there are territorial restrictions, you can't sublicense to third parties without our approval."
"But yes. For ten years, the arcade business is a shared playground."
Ross picked up his scotch again, but he didn't drink. He held it, staring into the liquid. Duke could practically see the gears turning behind those eyes.
Ross was calculating the revenue potential of thousands of Warner-Atari cabinets in his his bowling alleys, the hotels that Kinney's real estate division managed.
"You're buying sothing weird, Duke," Ross said finally, and his eyes twinkled with the satisfaction of a man who believed, with absolute certainty, that he was winning this negotiation.
"A comic book company that can't outsell a newsstand magazine and a cartoon library that peaked when Truman was president. And you're paying for it with the most profitable technology in the entertainnt industry."
Duke t his gaze and held it.
Ross held his gaze for another mont, then broke into a wide, delighted grin. "God damn, Duke. You are a piece of work."
He stood and extended his hand across the desk. Duke stood and took it. The handshake was firm.
"I'll have my lawyers draw up the terms," Ross said, pulling on his jacket. "We should be able to close in Sixty days."
"Sixty days works."
Ross paused at the door and turned back, scotch glass still in hand. "For what it's worth? I hope you're right about the Characters. I genuinely do. Because if you manage to make money off Bugs Bunny in 1971, you'll be the first person in twenty years to pull it off."
"I don't want to make money off Bugs Bunny just in 1971," Duke said. "I want to make money off Bugs Bunny in 1991. And 2001. And 2021."
Ross shook his head, still grinning, and walked out into the hallway.
Duke stood at the window and watched the last of the sunset bleed out over the Hollywood Hills. He picked up the handwritten list from his desk and looked at it one more ti.
2 Fundantal IP's were now basically in his hands
---
The next morning arrived with an early eting in the form of Barry Diller and Frank Yablans, who entered Duke's office without knocking, without greeting, and without any apparent intention of sitting down.
Diller ca first. He was carrying a manila folder that looked like it had been assembled in a hurry, papers jamd in at odd angles, sticky notes bristling from every edge.
Diller's jaw was set. His eyes were narrowed.
Yablans was a half-step behind.
"Tell this isn't real," Diller said, slapping the folder onto Duke's desk. "Tell you didn't just give Steve Ross a ten-year license to the most valuable patent portfolio in the entertainnt industry."
"Good morning, Barry."
"Don't 'good morning' , Duke. I've been up since four o'clock trying to make these numbers make sense, and they don't. They categorically, empirically, mathematically do not make sense."
Duke leaned back in his chair and folded his hands across his stomach. He didn't reach for the folder. He didn't look at it. He looked at Diller, and then at Yablans, and he waited.
Yablans took the baton. "Here's the picture, Duke. I'm going to paint it real simple, because I think maybe the altitude up here has gotten to you."
He snatched the folder from where Diller had thrown it and pulled out a spreadsheet. "PULSE Comics. Your baby. Your cultural phenonon. Seven hundred fifty thousand in monthly circulation. Critics love it. Fans love it. The New York Tis did a feature on it. Congratulations."
"You know what it nets after you pay for the paper, the printing, the distribution through 7-Eleven, the talent, which, by the way, you're paying top dollar for, because God forbid Archie Goodwin's writers have to eat with food stam-"
"Frank."
"— after you pay for all of that, you know what PULSE nets? Barely enough. It is a break-even operation dressed up in a pretty dress."
Diller jumped back in, his voice lower but no less intense. "Now look at the other side of the ledger. Atari. Thirty six million in profit. In one year."
"With a growth trajectory that makes the rest of this company look like it's standing still. And you just gave Steve Ross a ten-year license to the core technology that generates that profit."
"I didn't give him anything," Duke said calmly. "I licensed it. There's a royalty structure, territorial restrictions for example we control California, Texas and so others, and a reversion clause. If Ross defaults on any —"
"I don't care about the reversion clause!" Diller's composure cracked. He took a breath. "Duke. Listen to . I respect you. You know I respect you. You've done things at this company that I didn't think were possible."
"But this deal, it's giving away the keys to the mine to buy a comic book company that doesn't make enough to pay for itself."
"And a cartoon library," Yablans added, "that hasn't been relevant since my parents were babies."
"You're done?" Duke asked.
They looked at each other. Diller straightened his tie. Yablans crossed his arms.
"We're done," Diller said.
"Good. Sit down."
They sat, and Duke pulled his chair closer to the desk, and for the next forty minutes, he disassembled their panic piece by piece.
"First," Duke said, "the arcade license. You're right that Atari's arcade business is enormously profitable. You're right that the patents are valuable."
"And you're right that Steve Ross is going to make a lot of money with those cabinets in his locations. All of that is true. And none of it matters."
Diller opened his mouth. Duke held up a hand.
"It doesn't matter because the arcades are not the future. The arcades are the present. They're a service business. We place machines. We collect coins. We service the units. It's profitable, it's growing, and I love it."
"But there is a ceiling to how fast we can grow on our own, and we are approaching it. There are a finite number of bars, bowling alleys, and restaurants in the United States. We will saturate that market within three to five years, and after that, growth flatlines."
"So we need to move protect the monopoly—" Yablans started.
"No. You force a monopoly. You move from the bar to the living room." Duke opened his own desk drawer and pulled out a black box.
"This is what the future looks like. The Atari Ho System. A console that connects to any television in Arica. You don't go to the bar to play the ga anymore. The ga cos to you."
He set the photo on the desk between them. "There are sixty-three million television households in the United States. Every single one is a potential custor. When this console launches, and it will launch for Christmas 1972, we will not be competing for bar floor space anymore."
Diller picked up the black box and studied it. His expression didn't change, but Duke could see the gears engaging behind those sharp, dark eyes. Diller was a pragmatist, not a pessimist.
He'd co in angry because the numbers as he understood them didn't add up. If Duke could change his understanding of the numbers, Diller would follow the logic wherever it led.
"Now," Duke continued, "here's where the license to Ross becos not just acceptable but strategic. What does Steve Ross do with those Warnercabinets? He puts them in every bowling alley, and every venue he controls."
"Millions of Aricans who have never touched a video ga walk into a parking lot or a restaurant, and on the way in, they see their kid playing Pong. They watch for thirty seconds. They think, 'Huh. That looks fun.'"
"They don't think about it again, until Christmas, when they see the Atari Ho System in the Sears catalog for ninety-nine dollars."
He let that sit.
"Steve Ross is making money but he will spread our technology to the mass market while paying us. He's doing our marketing for us. Every Warner cabinet in Arica is a billboard for the ho consoled."
Yablans uncrossed his arms. That was a good sign.
"But there's a second layer," Duke said, leaning forward. "And this is the one that keeps up at night, in a good way. The license is for the arcade patents. Not the console patents. Not the ho technology."
"The console is a completely separate patent portfolio, and it belongs to us exclusively. Which ans that when the arcade market matures and every competitor in the world tries to follow us into the living room, they will run headfirst into a wall of intellectual property that we control."
"A litigation wall," Diller said quietly.
"Anyone who tries to build a ho console without licensing our patents will be sued into the Stone Age. And who's our biggest potential competitor in the hardware space?"
"Ross," Diller said.
"Ross. Who just signed a ten-year agreent that explicitly limits his license to arcade applications. If Steve Ross tries to build a Warner ho console using anything derived from the technology we just licensed him, he's in breach. And he knows it."
"He just doesn't care, because right now, he doesn't believe the ho console market is real. He thinks arcades are the endga."
The room was quiet for a mont.
"He thinks he just fleeced us," Yablans said.
"Let him thinks that," Duke confird.
Diller had settled into sothing resembling calm, but he wasn't finished. He pulled the PULSE financials from his folder and laid them on the desk.
"I accept the arcade argunt," Diller said. "The console strategy is sound. I'll grant you that. But this."
He tapped the PULSE spreadsheet. "This I still don't understand. You're pouring money into a publishing operation that is functionally break-even. Top-tier talent, premium paper stock for the solo runs, the 7-Eleven distribution deal that eats fifteen percent of every sale."
"And now you've just bought another comic book company, DC which is in even worse financial shape. Explain to how this makes sense on a balance sheet. I was thinking we should maybe raise price to 25 cents like everybody in the industry is doing."
Duke stood and walked to the window. He looked out over the lot for a mont, gathering his thoughts.
"PULSE was never designed to be a profit center in my view," Duke said. "Not in 1971 at least. And anyone who expected it to be wasn't paying attention to what I said when we launched it."
"Then what is it?" Yablans asked.
"It's a comic for creating and developing intellectual property."
He walked back to the desk and sat on the edge of it.
"Let ask you both sothing. How much does it cost to develop a character in film? To take an idea from concept to screen, writing, developnt, pre-production, production, marketing? What's the floor?"
Diller didn't hesitate. "Half a million. Minimum. And that's for a modest picture unless we're talking about TV movies or B-tier films."
"And if the film flops, if the audience doesn't connect with the character, that money is gone. No return, no residual, no second chance. The character dies on the screen and goes into a vault sowhere and nobody ever thinks about it again."
"That's the business."
"That's a business. Now let tell you about a different business. A comic book — a single issue, costs approximately five thousand dollars to produce. Writing, artwork, lettering, printing, distribution."
"And in return, you get twenty-two pages of story that go out to seven hundred fifty thousand readers who have already chosen to engage with your characters. They're not a passive audience sitting in a dark theater. They're an active audience. They buy the book. They read it. They write letters. They argue about it with their friends. They form opinions."
He let that opinion land.
"For five thousand dollars, I can introduce a new character, test them with a real audience, and know within sixty days whether that character has legs. If Storm connects, I develop Storm. If she doesn't, I retire her quietly and try soone else."
"The cost of failure is five thousand dollars. In film, the cost of failure is half a million."
Yablans was leaning forward now, "Okay. I hear you on the introduction side. But introduction for what? What's the revenue model beyond the comic itself?"
Duke smiled. It was the smile of a man who'd been waiting for exactly that question.
"Have either of you heard of a Japanese manga called Astro Boy?"
Diller looked at Yablans. Yablans looked at Diller. Neither of them had.
"It's a comic book. A very popular comic book, published in Japan since the early '50s. The character, a robot boy with jet boots is the most beloved fictional character in Japanese culture."
"More popular than Mickey Mouse over there. And here's the thing that should interest you, the comic itself is modestly profitable. The comic was never the point."
"The point is that Astro Boy has generated, conservatively, several millions of dollars in licensing revenue. Toys. Animated television series. rchandise. Branded food products. The park attractions."
He walked to a newly installed whiteboard on the wall and picked up a red marker. He drew a circle in the center and wrote "IP" inside it.
Then he drew lines radiating outward, like spokes from a hub, and at the end of each spoke he wrote a word.
FILM. TV. TOYS. GAS. PARKS. LICENSING. ANIMATION.
"This is the model," Duke said. "This is what we're building. Every character that cos out of PULSE, every character we acquire through DC, every Looney Tune, each one can generate revenue in seven, eight, ten different categories simultaneously."
"A single character, let's say Batman. Batman can be a comic book. Batman can be a film. Batman can be an animated television series. Batman can be an action figure that sells million of units at Christmas."
"Batman can be the anchor of a the park ride that generates revenue for thirty years. Batman can be a video ga on the Atari console. Batman can be a lunchbox, a Halloween costu, a bedsheet, a breakfast cereal."
He turned back to face them. "And all of those revenue streams flow from a single source, the character, which exists on paper, in the hearts of millions of fans, and which costs us almost nothing to maintain."
"The character doesn't age. The character doesn't demand a raise. The character doesn't get arrested at three in the morning. The character is permanent, and its revenue potential is functionally infinite before it enters the public domain."
The room was very quiet.
"Now," Duke said, capping the marker, "let's talk about what I just bought from Steve Ross. DC Comics gives us Superman, Batman, Wonder Woman, the Flash, Green Lantern, and a big bench of villains and supporting characters in the history of Arican fiction."
"The Looney Tunes give us Bugs Bunny, Daffy Duck, and the most recognizable animated characters outside of the Disney stable. Combined with PULSE, Blue Beetle, Captain Atom, the Question, the X-n, we now control the largest portfolio of iconic characters in the world. Larger than Disney's. Larger than anyone's."
"We just had to develop them."
He walked back to the desk and sat down. "PULSE doesn't need to make money today. It needs to make characters today."
"Because within fifteen years and I want you both to hear this clearly, within fifteen years, the revenue from toys, gas, animation, and licensing will exceed the total box office of every film on our 1971 slate. Combined."
There was a long silence.
"You're saying the movies are basically advertisents," Diller said slowly.
"I'm saying the movies are the most expensive, most spectacular, most effective advertisents ever created. A two-hour comrcial that people pay us to watch."
"And when they walk out of that theater, in love with a character they've just spent two hours getting to know, they walk into a world where that character is everywhere, on their kid's T-shirt, on their television every Saturday morning, in a video ga on their Atari console."
Diller looked down at the PULSE financials still spread on the desk. He picked them up, studied them for a long mont, and then carefully, deliberately, placed them back in the folder and closed it.
"I owe you an apology," Diller said.
"No, you don't. You did exactly what I pay you to do. You saw numbers that didn't make sense, and you ca in here and said so. That's your job. If you ever stop doing that, I'll fire you."
"Fair enough." A ghost of a smile crossed Diller's angular face. "But for the record, if this works the way you're describing, it's not a business model. It's an ecosystem."
"Now you're getting it."
Yablans stood up, shaking his head slowly, but his eyes were bright. "Parks," he said, almost to himself. "You said parks. Paramount Parks. With Batman and Bugs Bunny."
"And Blue Beetle. And the X-n. And whatever else Chris Claremont dreams up in the future."
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make this chapter to explain so things for people
are you guys liking these longer chapters?
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