Cruise Ship Wars | Making Waves | 2

0:07It's March 1972 in Miami Harbor. Carnival Cruise Line founder Ted Arison stands on the bridge of his ship the Mardi Gras. In front of him, the captain of the ship has his hand on the helm. Next to the captain, a harbor pilot gives him directions. This is standard operating procedure when a ship of significant size needs to make its way through the harbor into open sea. The harbor pilot barks out orders. All right, there's a stiff breeze from the east, so we're going to cut the rudder more aggressively than usual. Roger. Arison's palms are sweaty as he watches the captain intently. This is Carnival Cruise Line's maiden voyage.

0:47A few months ago, Arison got into a dispute with Canute Kloster. Arison and Kloster co-founded Norwegian Cruise Line. When their disagreement reached an impasse, Arison closed out Norwegian's U.S. bank accounts and fled to Europe. With help from an old friend, he purchased the Mardi Gras and started Carnival. Through the porthole, Arison can see onlookers lining the shore and members of the press snapping photos. Arison thinks he sees smirks on the reporters' faces. Compared to the sparkling new ships owned by rival companies like Norwegian and Royal Caribbean, the Mardi Gras is a clunker. It's old and dilapidated.

1:30Many of the cabins still don't have working toilets or electrical outlets and couldn't be booked. Large swaths of the ship are uninhabitable and closed off to passengers. And it's infested with both roaches and vermin, which Erison hopes the guests won't notice. But Erison needs this first voyage to be a success. Kloster's sued to get Norwegians' money back, and Erison knows the courts will rule in Kloster's favor. Soon, he's going to be forced to pay Kloster back. Revenue from Carnival is the only way he'll be able to do that. The ship approaches the channel. The open sea is visible ahead. A jetty pokes out of the water to the right.

2:17The harbor pilot nods, and a small smile comes over his face. Giario Destra! Erison looks over at the captain. The harbor pilot had been giving all his commands in English, so Arison's not sure why he switched to Italian. But the captain is Italian and doesn't have any trouble following the harbor pilot's command. Arison feels the ship start turning to the right. Suddenly, the harbor pilot begins to shout, Hey, what are you doing? Go left, go left! The captain looks at him confused. You said Destra! Yes, left! Destra's right! The captain frantically tries to correct course, but it's too late. A loud groaning sound emanates up from the depths of the ship, and Arison finds himself jolting forward, almost falling over as the ship grinds to a stop.

3:08What just happened? What's going on? The captain glares at the harbor pilot. We've run aground on the sandbar due to an inaccurate command. Can we get off of it? I'm going to see if I can reverse the engines. That might free us. He calls out orders, and crew members hurry to comply. The engine's whirr and sand flies up out of the water, hitting the sides of the ship. But the ship doesn't move. The captain looks back at Erison and shakes his head. It's not working. Now what? We're going to have to get the tugboats out here and see if they can pull us out. How long will it take to get us free? Hours.

3:48Maybe days. Then we'll have to examine the hull, make sure there's no damage before we sail. So we might have to cancel this entire cruise? Maybe. Arison feels nauseous. If they cancel, he'll have to refund every passenger their fee. And Arison will be broke once again. Carnival seems doomed before it's even made it to open water.

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6:31From Wondery, I'm David Brown, and this is Business Wars.

7:02On our last episode, in 1966, businessman Ted Arison and shipbuilder Canute Closter teamed up to start Norwegian Cruise Line, and together they took Caribbean cruising from a niche travel option for retired Floridians to a national vacation trend. Seeing their success, hotel veteran Ed Steffen wanted in on the action. He partnered with two Norwegian shipping families to start Royal Caribbean Cruise Line in 1968. With ships designed specifically for cruising and the goal of becoming the highest quality cruise company, Royal Caribbean made a quick splash. Both cruise companies were seeing their ships fully booked and predicted years of growth.

7:46But in 1971, Arison and Kloster had a falling out when Arison cleaned out the company's coffers. Using stolen funds from Norwegian Cruise Line, Arison started a new company and named it Carnival. Arison was determined to make Carnival the top cruise line in the world. But with only one rickety ship in his fleet and a disastrous start to its maiden voyage, Arison would need the wind at his back to catch up to his rivals. This is Episode 2, Making Waves.

8:26It's March 1972 in San Juan, Puerto Rico. Ted Arison stands on the dock with his arms crossed. Across from him is a fuel company employee. His shoulders heave as he laughs uproariously. Harrison scowls. I don't understand what's so funny. Let me get this straight. You want us to extend you thousands of dollars of credit when your very first voyage grounded getting out of Miami and you barely even made it here? The Mardi Gras was stuck in the harbor for 24 hours after it ran aground. They had to remove thousands of gallons of fuel from the ship's tanks to lighten the wait and wait for high tide in order to free her.

9:07Unfortunately, the freighter, which had siphoned out their gas, was not certified to refuel the ship. There was enough fuel in the tank to get the Mardi Gras to San Juan, but not enough to get it back. Arison needs to get this gas, or he and his passengers will be stranded in Puerto Rico, and he'll have yet another disaster on his hands. Look, I'm good for it. With respect, there isn't a person alive who thinks your company is going to last the month. If you want this diesel, you need to pay cash up front. Fine. I'll be back with the money soon. But as Arison walks away, his brave front fades.

9:49He doesn't have the thousands of dollars he needs to purchase tons of diesel. He spent everything he had on the ship. Ted Arison makes his way back onto the ship, where his son Mickey waits at the bar. They speak in hushed voices. So? Are they going to sell you the gas? Ted shakes his head and explains the situation. Are we going to get that kind of cash? I don't know. He cuts himself off, watching a bartender give a customer change. An idea occurring to him. Tonight, after closing time, get a team together and empty every cash register and every slot machine on this ship. You got it? Do you think that'll be enough?

10:32It has to be. Mickey nods. That night, Mickey and other members of the Carnival crew spend the whole night going through the ship, rounding up every spare penny they can find. The next morning, Ted returns to the refueling office carrying bags full of cash. He sets the bags down in front of the fuel company employee who'd laughed in Ted's face the day before. Ted smirks. The cash you asked for. The employee peers into one of the bags and looks up in disbelief. These are dimes and nickels. Cash is cash. The employee glares at Ted. We're counting every last penny, literally. Do what you have to do.

11:19To Ted's relief, he's scrounged up enough to buy the diesel he needs. The Mardi Gras is refueled and completes its maiden voyage. Carnival Cruise Line lives to fight another day. Barely. Despite its inauspicious start, Ted Arison beats the industry's prediction and keeps Carnival going. He's operating the cruise line on a shoestring, and every month he faces bankruptcy. but Arison keeps costs low to survive. He hires workers willing to work for the cheapest pay, often people from developing nations with few employment options. He orders food from military surplus suppliers. Sometimes it's rotting by the time it arrives on board and the crew is forced to throw it overboard.

12:09The vermin problem is tough to solve, and more than once rats make their way into passenger areas. This is not the glamorous experience offered by Norwegian Cruise Line and Royal Caribbean. So, to entice any passenger to take a voyage on a ship with such squalid conditions, Arison prices his cruises 20-30 % cheaper than his competitors. But even with lower prices, Carnival isn't selling out its sailings. And cruises only make money when they sail with a full ship. Within the first 18 months, Carnival loses$8 million. Meanwhile, Norwegian Cruise Line and Royal Caribbean are continuing to sell out, earning tidy profits.

12:56But Harrison's old friend, Meshulam Rickles, who's invested heavily in Carnival, isn't going to stand by and watch as Carnival loses money. So in the summer of 1973, Rickless installs Bob Dickinson, an executive who works for one of his other companies as the second-in-command at Carnival. Rickless tasks Dickinson with figuring out how to sell out Carnival cruises. So the company starts making a profit ASAP. Arison isn't happy about having a new colleague foisted upon him. But Dickinson soon proves himself.

13:39It's August 1973 in Miami, Florida. Ted Arison walks into a conference room in Carnival Cruise Line headquarters. His new second-in-command, Bob Dickinson, stands at the head of the table. He wears large glasses, sports a thin mustache, and a jacket that looks like it should be picnic cloth. Arison bites his lip. There's an entertainer who performs on board the Mardi Gras with a puppet who wears the exact same jacket. Arison can't believe he has to work with someone who dresses like a marionette. Across the table are brochures from every cruise line operating out of the United States. The big ones like Norwegian Cruise Line and Royal Caribbean.

14:21But also many of the smaller ones, which have popped up, like Holland America, which sails to Alaska, and Princess, which goes to Mexico. Arison takes in the array of bright colors and glossy paper. What's all this? Inspiration. Arison looks at him confused. Dickinson doesn't mince words. Your marketing stinks. He picks up a carnival brochure from the table and reads from it. Sail aboard the Mardi Gras, the flagship of our golden fleet? He lowers the brochure and gives Arison a withering look. Give me a break. You have no fleet and your one ship sure isn't golden. It's called advertising. You dress up your product to convince people to buy it.

15:06Sure, but your ship's a turd. And it's a turd people spend a lot of time on since it sails very slowly. Do you know how much fuel costs? Sailing slowly is how we conserve costs. Besides, we've made a lot of improvements. We figured out the rat problem, for instance. What do you want, a gold star? Have you seen Royal Caribbean ships? They're so clean you could eat off the floor. Now they have a golden fleet. All right, all right, so what's your grand idea? Just say, hey, hey, here's Crappy Boat, come on board. No, of course not. We need something that's not so easily disprovable. I mean, people step on board the Mardi Gras and they know right away they were sold a load of goods.

15:51Dickinson surveys the brochures he has spread out on the table. His eyes gravitate toward one for a small cruise company called Commodore. He picks it up. The happy ship. Hmm, I like that. We need something like that. Besides being happy, what else do people want to feel when they're on vacation? Relaxed? The relaxing ship. No, that's weak. Let's see. He drums his fingers on the table and looks up at the ceiling, thinking. Got it. Fun. They want to have fun. We'll be the fun ship. We can turn the fact that we're less stuffy than Royal Caribbean and Norwegian cruise line into a good thing. Also, if the ship's fun, people won't mind that they spend more time at sea than they do aboard the other cruise lines.

16:40Erison nods. He hates to admit it, but it's not a bad slogan. Dickinson looks back at Erison. Of course, you'll have to make the ship actually fun. Arison and Dickinson decide that what the Mardi Gras needs in order to live up to its new title as the fun ship is more attractions on board. They go about adding a disco, lounges, and more bars. But what they think it really needs is a full casino. The ship has slot machines on board, but they want it to have a wider array of games, including blackjack and roulette. But they soon run into a roadblock.

17:24It's late 1974 in Miami, Florida. Ted Arison paces his office, extending the cord of his phone until it's taut before turning and watching it spiral again. He's talking to his old friend Meshulam Rickless. Carnival is a subsidiary of Rickless' company, American International Travel Service. Arison pleads his case. We need this, Rick. A full casino is going to take Carnival to the next level. Come on, you're a businessman. You have to see the sense in this. Besides, it was your man Bob Dickinson who came up with the whole funship slogan, and that's what... I'm not saying it doesn't make sense. I'm saying I can't do it.

18:02I just bought a casino in Vegas. Yeah, the Riviera, I know. Well, I'm still doing my hearings with the Nevada Game Commission, and it's going to complicate things if I have to say I own a cruise ship that has an unregulated casino on it. Arison sighs, frustrated He's pretty sure that Rickless primarily bought the Riviera to provide a stage for his wife The singer and actress Pia Zadora And now Arison's business is going to suffer because of it So, where does this leave us? If we don't get this casino, I truly believe that Carnival will stay in the red To be frank with you, I think Carnival's going to stay in the red with or without the casino I know Bob's made some improvements, but you're still not turning a profit.

18:50And the price of fuel is through the roof. Okay, so what do we do? Well, I want out. So I tell you what, I'll sell Carnival to you for a dollar. But you have to take on the five million dollar debt load. Arison leaps at the opportunity to be in full control of the company. Deal! You really believe in this company, huh? I really do. All right, then. It's yours. If you ever make any money with it, send me a present. You got it. Arison grins from ear to ear. For once, he feels like fortune is on his side. Arison's belief in Carnival is proved right. In January 1975, three years after its ill-fated maiden voyage, Carnival turns its first profit.

19:45And by the mid-1970s, Carnival, Norwegian Cruise Line, and Royal Caribbean are all turning a profit. But several other cruise companies have popped up in Miami and in various ports along the West Coast. Industry experts are starting to get nervous about just how many ships the market can support. The majority of cruise customers come from Florida, California, and New York. and none of the companies feel like they are profitable enough to launch a major nationwide marketing campaign. Fortunately, Hollywood decided to launch one for them.

20:28It's early 1975 in Los Angeles, California. Television producer Douglas Kramer walks into a crowded restaurant and scans the room until he finds Aaron Spelling, the producer he's meeting. Kramer nods and weaves through the crowded restaurant until he reaches Spelling's table. Kramer drops a book on the table. Say hello to your next hit TV show. I read the review in the LA Times yesterday and sent my assistant out to the nearest bookstore to buy me a copy. I stayed up all night reading it. I read that review. The author certainly made it sound like cruise ships are assorted affairs. The Times didn't print the half of it.

21:06She talks about them like they're just giant floating sex parties. Okay, so tell me, how do you turn a giant floating sex party into a hit network television show? It's a weekly series where we follow the crew of the ship. We create a dynamic cast of characters, including the peppy cruise director, the playboy doctor, the fatherly captain, and so on. And every week, we meet a new set of passengers with problems that will be solved. You know, marriages will be reconciled, family feuds will come to a head. There'll be a wide array of romantic entanglements between the crew and the passengers. He leans back in his seat.

21:45We'll call it The Love Boat. Huh. You know, I think it's going to be a smash. The Love Boat premieres first as a made-for-TV movie in 1976, and then as a weekly show in 1977. With its funny and sexy portrayal of life on board a cruise ship, It serves as millions of dollars worth of product placement for the cruise industry. At the start of the 1970s, around 500 ,000 people go on cruises each year. But by the end of the 90s, it's around 5 million. And the love boat gets credit for much of that boost. And with this new boom, Carnival, Norwegian Cruise Line, and Royal Caribbean enter into fierce competition over who will entice the most passengers.

22:36On board.

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24:54It's 1978 in Miami, Florida. Please welcome to the stage Carnival CEO Ted Arison. Ted Arison makes his way through a small convention room. He's attending an industry conference and all of his competitors are here. Arison hopes that what he's about to say is going to strike fear in their hearts. With Bob Dickinson's help, and bolstered by the success of The Love Boat, Arison has struck on a winning formula for Carnival. They offer cheaper fares and a more casual, wilder experience on board. They host events like belly flop contests and beer pong competitions, and have dropped the formal dress code for dinner.

25:36Since 1975, Carnival has turned a profit. Arison paid back what he owed to Norwegian Cruise Line and invested the rest of the money back into Carnival. And as soon as he had the funds, he bought two more ships to expand Carnival's fleet. They were older ships that Arison was able to get a good deal on. But that's about to change. Arison steps in front of the microphone. Good afternoon. It's good to see everyone. I'm here today to make an historic announcement. Just a short while ago, Carnival signed an agreement to build a brand new$100 million cruise ship. It will be called the Tropicale, and it will be the best, most advanced ship on the market.

26:23A man in the front row is so surprised by Arison's announcement, he chokes on his drink, causing himself to cough. Arison looks out into the stunned crowd and grins. He understands their shock. Carnival isn't even worth$100 million. Arison is taking a big risk building this ship. He's going to be juggling bills and stalling suppliers for years to pay for it. But he's convinced this is the only way forward. As new passengers are tempted to test out cruising after watching The Love Boat on TV, bigger, better ships are going to be essential to winning them over and becoming the largest cruise company in the world.

27:05Harrison's big bet on the Tropicale may seem brazen to the leaders of other cruise companies, but it kicks them into action.