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Has it been 10 years already? A look back at the Viacom-CBS vows and a case for renewal

September 8, 2009 |  9:45 am

REDSTONEKARMAZIN  

It was 10 years ago yesterday that Sumner Redstone and Mel Karmazin walked down the aisle together at the tony St. Regis Hotel in Midtown Manhattan and unveiled the $36-billion marriage of their respective companies, Viacom and CBS.

"Our union will be king," Viacom's Redstone said in the announcement of the deal. Karmazin added that the new Viacom "will be the first 21st century media company ... the future is virtually unlimited for this new and exciting company." 

Wall Street ate it up. "It's just perfect," Merrill Lynch analyst Jessica Reif-Cohen gushed to Time.

It sure sounded good on paper. Viacom had the cable networks -- MTV, VH1, Nickelodeon and a movie studio in Paramount Pictures. CBS had the iconic broadcast network, 200 radio stations, a huge outdoor advertising company, lots of TV stations and even Oprah Winfrey.

We all know what happened next. After the Sept. 11 attacks and the first Internet bubble burst, advertising went into the toilet and media stocks tumbled.

Inside Viacom, Redstone and Karmazin didn't function well; in fact, they didn't function at all -- rarely speaking. Karmazin, who everyone thought was the one guy who might outlast Redstone, was out the door in 2004 when his four-year contract was up. About a year after that, frustrated by stock trading at about $34, compared to the $75 it was trading at not long after the merger closed, Viacom and CBS split, Redstone over both. In announcing the move, Redstone said it "recognizes the inherent diversity of our assets" and he later cracked to reporters (including this one) that "divorce is sometimes better than marriage."

Once again, Wall Street cheered. "Breaking up the company could unlock hidden value with little strategic downside for the company," Reif-Cohen raved to The Hollywood Reporter.

REDSTONEMOONDAUMAN Now 4 1/2 years later, the stock of the two companies combined is trading at roughly what Viacom was trading at before the split. CBS is still seen as holding a bad hand, with the bulk of its assets in advertiser-dependent mediums (broadcast television and radio). Viacom has some powerful brands in cable networks MTV and Nickelodeon, but they too are not as strong as they once were and on the movie side the shrinking DVD market is hurting Paramount.

Ironically, the reasons touted 10 years ago for the merger are still in place today. A rapidly changing media environment led Redstone and Karamazin to bet that bigger was better. Of course, the reasons cited when the company subsequently broke apart -- that the traditional entertainment industry was under siege from new media and the two companies would fare better on their own than together -- are also still in place.

So why not try it again? CBS is still the No. 1 network in viewers and Viacom has those big cable channels. Yes there will be clashes between Viacom CEO Philippe Dauman and CBS CEO Leslie Moonves over who gets to sit closest to Redstone at board meetings. But ultimately in this case the sum is greater than the parts.

And we're pretty sure Jessica Reif-Cohen will love it.

-- Joe Flint

Photos: Top: Sumner Redstone, left, and Mel Karmazin at a press conference announcing the Viacom-CBS merger. Credit: Suzanne Plunkett/Associated Press.

Bottom: Redstone with Leslie Moonves, center, and Philippe Dauman. Credit: Mark Van Holden/Associated Press.

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