Skip to comments.CBS and Viacom Find Life Tough After the Big Split (Dinosaur Media DeathWatch™)
Posted on 07/23/2006 5:35:40 PM PDT by abb
Infighting and Weak Ad Sales Hurt Both New Companies; Questioning a Media Fad
'I Have No Second Thoughts'
On Jan. 3, Viacom Inc. Chairman Sumner Redstone stood on the balcony of the New York Stock Exchange and heralded the split of his media conglomerate. "The world has changed," he declared after he rang the opening bell.
Seven months later, the world indeed has changed -- but not entirely in the way Mr. Redstone predicted. The decision to separate the fast-growing MTV Networks from the more mature CBS TV and radio operation coincided with a sudden slowdown in cable-TV ad sales. The new Viacom, which owns household names such as MTV, Nickelodeon and VH-1, is falling short of its aggressive profit forecasts. Its stock price has plunged 20% since it started to trade, putting pressure on CEO Tom Freston. The new CBS Corp., for its part, has raised its dividend twice but its shares are up only 1%. [Sumner Redstone]
Compounding the troubles is a fierce rivalry between the two companies, both still controlled by the 83-year-old Mr. Redstone. Messrs. Freston and his CBS counterpart, Les Moonves, have sparred publicly as competition between the two escalates. The companies are also squabbling over a $291 million payment as they attempt to divide the old company's debt between them.
The break-up of Viacom, a conglomerate formed as the result of two decades of acquisitions, seemed to signal the start of a sweeping change in entertainment. Rapid technological change is roiling the business, punishing stocks of big media companies. Investor Carl Icahn waged an unsuccessful battle to break up Viacom rival Time Warner Inc. Tribune Co.'s largest shareholder has proposed the TV-and-newspaper company do the same.
(Excerpt) Read more at online.wsj.com ...
But Viacom's experience suggests that there are no easy solutions to the challenges posed by the Internet and other technologies. Rather than fixing underlying problems, such restructurings may instead be the corporate equivalent of putting old wines in new bottles.
Relations between the two companies, combined in the 2000 merger of Viacom and CBS, had never been particularly warm. Cable networks and broadcasters fiercely competed for both viewers and advertisers. While other entertainment companies combined cable channels and broadcast networks under one roof, Viacom kept them apart, run separately by Messrs. Freston and Moonves.
They so disliked being part of the same company that when CBS's television-station managers met in Las Vegas for the first time after the split, Peter Schruth, the head of CBS's affiliate relations, exulted: "Free at last, free at last, Lordy Lordy, we're free at last."
The split exacerbated the rivalry between Messrs. Freston and Moonves. Unhappy that CBS was portrayed as the slower-growing of the two, Mr. Moonves complained to colleagues and to Mr. Redstone that he was being saddled with Viacom's weaker businesses, such as outdoor advertising and radio, Viacom executives say. He made no secret of his longing to oversee the glamorous Paramount film unit. CBS now oversees Paramount's television production business, but Viacom kept the studio.
Even before the split was final, Mr. Moonves hatched plans to move into cable TV and movies -- Viacom's turf. In November, weeks before the split was formalized, he agreed to spend $325 million to acquire a cable channel specializing in college sports, CSTV Networks Inc. The deal was completed shortly after CBS became a separate company.
Once the split was completed over the New Year's weekend, the public jabs intensified. In explaining the advantage of independence later that week, Mr. Freston told The Wall Street Journal that Viacom would no longer be forced "to fund under-delivery on the other side of the company." Two days after the article appeared, Mr. Moonves appeared on CNBC's "Mad Money" program and countered that his former colleague had "misstated" CBS's position.
A week later, signaling his intention to become even more of a competitor to Viacom, Mr. Moonves began talking about his desire to enter the movie business. In February, the Motion Picture Association of America invited CBS to become a member. In March, Mr. Moonves attended the Academy Awards, rubbing elbows with movie powerbrokers. In June, he started floating to Wall Street the idea of investing in a few films.
The friction manifested itself on the Paramount lot in Los Angeles. The decision to divide the studio's film and TV businesses had created a headache for employees. Paramount TV employees lost their discount on DVDs at the company store as well as their gym discount. They were told they needed new identification credentials to be on the lot. Not long afterward, CBS moved Paramount Television to property it owns in Studio City, Calif.
Viacom says the changes on the lot were necessary because the CBS employees no longer worked for the studio.
Mr. Redstone, who is chairman of both companies, says the reported feuding between his two chiefs is much ado about nothing: "Viacom and CBS compete in certain businesses just as they compete with lots of other companies and that's good for shareholders. But there is no personal competition between Tom and Les. They are longtime friends and have great respect for each other."
Mr. Redstone attributes the drop in Viacom stock to concern over Paramount. He believes investors haven't fully appreciated the studio's turnaround. In addition, it recently acquired the Dreamworks SKG movie studio, a deal questioned by some on Wall Street. Mr. Redstone says he's confident investors will come to appreciate the split. "I always said it would take at least a year to evaluate the split and the performance of the two companies," he says. "I have no second thoughts."
As the two sides squabbled, business conditions in television became tougher. Web sites offering video have exploded in popularity, fueled by the boom in high-speed Internet services. Initially, the danger seemed worse for broadcast networks like CBS, which had been dismissed as a dinosaur for years as it dragged down Viacom's stock. Competition from cable and the Internet sent ad spending on major networks down slightly in 2005 as cable ad revenues rose 11%, according to TNS Media Intelligence, a firm that tracks ad spending.
Yet few anticipated cable networks' own vulnerability to the Internet threat. A raft of Web sites such as YouTube and Grouper, popular with kids and teenagers who are key to Nickelodeon and MTV, has tarnished cable's main allure to advertisers: the ability to deliver narrowly defined audiences. Online startup costs are so low that virtually anyone can start a site. Contrary to conventional wisdom, it's the broadcast networks, with big-ticket events such as the Super Bowl and "American Idol," which appear to have the advantage.
New Web Sites
Under Viacom's Mr. Freston, the cable networks have responded by launching new Web sites offering video, such as MTV Overdrive and TurboNick. Viacom talks of programming that can be offered on television, the Internet and cellphones. Even so, MTV executives said that the Web wasn't eroding viewership because kids watched TV while playing on the computer.
But in the spring, signs emerged that MTV's once-relentless engine was beginning to sputter as advertisers and consumers defected to the Web.
Two Liberal Dinosaur Egomaniacs.
LOL, just think of the mileage you'll put on THIS one!!
It's got that "subtle something" -
God, I love finding this stuff. I been waiting forty-five years for these bastards to die. And I'm enjoying every moment of their suffering and dying. I sometimes worry about myself...
And then I get over it with fits of the giggles...
Subtle is the word, although her expression says otherwise!
LOL, well at least we can give you fits of 'giggles' with our graphics!!
WOW! Trademark!...puerile! cretinous!! hubristic!!!
No, I'm making fun of you but your scroll is very nice. Looks 3-D!!
I love it. The MSM spends its time, energy and any unexpired creativity on how to divide company debt. In contrast, the new media worries about how best to reinvest and distribute living-a-dream profits.
Correction to post #13.
I meant "you" were all wet, referring to the press pool, as in 'swimming'!!
Allow me to tickle you with yet another Schadenfreude Easter Egg from "The State of the News Media 2006"