By Benjamin Mullin and Joe Flint
The war for CBS Corp. was winding down, and it was time to make
nice.
Shari Redstone and CBS Acting Chief Executive Joe Ianniello, who
had been on opposite sides of a failed legal fight to strip her
family's control of the media company, met for drinks this spring
at New York's Pierre hotel.
He told her he had always been in favor of merging CBS with
sister media outfit Viacom Inc. under the right terms, backing a
deal she had long championed. It was a remarkable about-face: Mr.
Ianniello had earlier stood behind his now-disgraced predecessor,
Leslie Moonves, to oppose a merger, people familiar with the
conversations say.
The rapprochement helped set the stage for a $30 billion deal
announced Tuesday that will join household Viacom names like MTV,
Comedy Central, Nickelodeon and Paramount Pictures with CBS's
broadcast and premium cable brands and its "CBS All Access"
streaming service. Ms. Redstone's father, Sumner, split Viacom and
CBS in 2006 and now she -- along with the directors of both
companies -- is pulling the empire back together.
The companies, to be known as ViacomCBS Inc., are betting that
by reuniting they'll be in a stronger position to weather the
relentless trend of cable TV cord-cutting and ensure their many
channels remain widely available. They're also hoping to build a
content factory that can supply programming to streaming
juggernauts Netflix Inc. and Amazon.com Inc. as well as newcomers
like Apple Inc.
The deal is Ms. Redstone's biggest achievement so far as a newly
minted media mogul, but is unlikely to be her last. Even combined,
CBS and Viacom will be far smaller than the media giants of the day
-- Walt Disney Co., Comcast Corp., AT&T Inc. and Netflix -- and
it is possible Ms. Redstone may need to engineer further deals,
whether as an acquirer or a target, media executives say.
Already, executives at CBS and Viacom have contemplated the idea
of mergers with the likes of Discovery Inc. or premium cable
network Starz and its parent company, Lions Gate Entertainment
Corp., people familiar with the situation say.
The path to the CBS-Viacom merger wasn't straightforward.
Despite the fact that the Redstone family's National Amusements
controls 80% of the voting shares in both companies, Ms. Redstone
couldn't simply order a deal, in part because in the settlement
with CBS, National Amusements agreed not to press for a merger.
Last year, Ms. Redstone and former CBS Chairman Dick Parsons put
new board members in place at CBS who decided to advance the deal
over time.
There was serious skepticism in CBS's upper ranks about the
value of recombining. Viacom has been the weaker of the siblings in
recent years, thanks to how cable TV cord-cutting has ravaged the
ratings of its major networks, including Nickelodeon and Comedy
Central. The threat that major distributors could drop Viacom's big
channels in the near term faded away over the past year, reducing
some of the fears for CBS.
Mr. Moonves's departure in September 2018 from CBS, following
accusations that he sexually harassed and assaulted multiple women
during his career, left a void atop the company. He denies those
accusations.
Just 15 months ago, CBS's management and board were so against
the idea of a Viacom merger that they sought to strip Ms. Redstone
of control of the company by issuing a special dividend. The matter
went to a Delaware court, and threatened to become nasty. Court
proceedings revealed how Mr. Ianniello exchanged private messages
with Mr. Moonves that used references to "The Godfather" to
describe their legal attack on Ms. Redstone.
The settlement in September 2018 led to Mr. Moonves's exit and
cemented the Redstone family's control of CBS and Viacom under Ms.
Redstone's watch.
The day of the settlement, Ms. Redstone called Mr. Ianniello to
congratulate him on his new job of acting CBS CEO. He said he was
putting out a memo to staffers and asked if she wanted to review
it, showing a deference Mr. Moonves generally avoided, according to
people familiar with their exchange. She said that was a good idea
but that she didn't need to review it, suggesting he get the advice
of another board member.
Soon after, Mr. Ianniello called Viacom's chief executive, Bob
Bakish, seeking his thoughts on what it was like to be an acting
CEO, the person said. Mr. Bakish had been through something
similar, having been appointed as interim CEO after Ms. Redstone
and National Amusements overhauled the top ranks of Viacom a few
years ago.
During that conversation, Mr. Ianniello said he had always
believed in the strategic merits of a Viacom-CBS deal. The trick
was getting the terms right, including price and who would be on
the management team, according to a person familiar with Mr.
Ianniello's thinking.
Later in the fall, CBS directors began a search for a new CEO to
replace Mr. Moonves, with names under consideration that included
former Disney Chief Operating Officer Tom Staggs, Time Warner Inc.
veteran John Martin, and Hasbro CEO Brian Goldner, people familiar
with the search process said.
Though Ms. Redstone left the search to a committee within the
board, she spoke with some potential candidates. A major concern
for several contenders: They knew CBS could merge with Viacom and
believed that Ms. Redstone preferred Mr. Bakish to run a combined
company, people close to the discussions said.
Ms. Redstone has been impressed by Mr. Bakish's performance at
Viacom, which has included growing the company's domestic ad sales
after 20 consecutive quarters of decline, restoring the Paramount
studio to profitability and acquiring the ad-supported streaming
service PlutoTV, according to a person familiar with her
thinking.
In January, the CBS board was weighing whether it should bulk up
by making a big deal. CBS ultimately decided to renew its talks
with Viacom, which had failed multiple times in recent years.
By April, with the CEO search stalled, CBS directors opted to
extend Mr. Ianniello through 2019, a move widely interpreted as a
signal that merging Viacom was becoming very likely and that he
would be needed for the integration. Mr. Ianniello has intricate
knowledge of CBS's deals with everyone from cable TV distributors
to digital players and Hollywood studios, and retaining him was
viewed by CBS directors -- including Ms. Redstone -- as a
priority.
Still, hammering out the details of a management team at a
combined Viacom-CBS was thorny. Mr. Ianniello wasn't keen to report
directly to Mr. Bakish, and at one point suggested that he report
to the board of the combined company, according to people familiar
with the deliberations. The idea had support from some CBS
directors, another person said.
On July 8, Mr. Bakish was invited to make his case to be CEO of
the combined company to a small group of CBS directors over dinner
in a private room at the '21' Club in Manhattan. Days later, he
presented to the full board, and quickly got a call telling him he
had the job.
By early August, talks heated up and the contours of the team
became clear. Viacom wouldn't have a No. 2 under Mr. Bakish and Mr.
Ianniello would stay on to run CBS-branded assets. A joint news
release by the companies on Tuesday didn't spell out who Mr.
Ianniello will report to.
In some ways, the arguments Ms. Redstone is making now about the
merits of building up scale by joining CBS and Viacom echo what her
father said when he first joined them in 1999 with Viacom's
acquisition of CBS. "The breadth of our media operations will be
unmatched by our competitors," Mr. Redstone said at the time. (Mr.
Redstone, now 96, has had difficulty speaking recently due to his
declining health, but he is still a director of National
Amusements.)
But those early years when CBS and Viacom were under one roof
offer some cautionary notes about the benefits and synergies of the
latest deal that reunites the empire.
There was a presumption back then that Viacom's Paramount
Television production arm would become a key supplier of shows for
CBS, for example. CBS instead focused on its own shows and
licensing content from outside suppliers such as Warner Bros. TV.
When a Paramount show was made for CBS, negotiations were often
tense and acrimonious, a former CBS executive said.
Other attempts at synergy also fell flat. For six years, the
Viacom children's network Nickelodeon provided content for CBS's
Saturday morning schedule to less than stellar results. Months
after the two companies split in 2006, CBS discontinued carrying
Nickelodeon shows.
The most notable example of synergy between CBS and Viacom may
have been the 2004 Super Bowl halftime show MTV produced for CBS in
which Justin Timberlake tore off Janet Jackson's top, resulting in
the infamous "wardrobe malfunction" that exposed her breast to a
huge audience.
Mr. Redstone split up Viacom and CBS in 2006 on the belief that
CBS's older media assets, like broadcast TV, were a drag on the
Viacom stock, which was powered by a growing cable TV business. But
the tables turned. CBS started accelerating several years later,
fueled by hit prime-time shows and lucrative carriage fees from
local TV stations. Under the leadership of Mr. Bakish's
predecessor, former CEO Philippe Dauman, Viacom's cable channels
suffered a ratings bloodbath as consumers began cutting the cord in
greater numbers.
Mr. Redstone also split the company in part to give two top
executives, Tom Freston and Les Moonves, their own respective
fiefs.
Now, both companies are in danger of being left behind. The
formula for survival in media increasingly looks to be owning vast
portfolios of content and channels that can entice traditional
distributors to pay a premium, while also appealing to consumers
who are willing to pay for a subscription streaming service.
Disney, AT&T and Comcast have all done deals that make them
large, integrated conglomerates and all are readying streaming
services to rival Netflix.
Executives at both CBS and Viacom are optimistic about the
benefits of a pairing. While they don't have the iconic brands of
Disney or Warner Bros., together they still would have strong
assets for a solid direct-to-consumer streaming offering.
CBS has already made some headway in that arena with its "All
Access" platform, which has about 4 million subscribers and
successful shows including "The Good Fight" and "Star Trek:
Discovery." CBS's Showtime streaming service also has 4 million
subscribers. CBS has said the two services combined will reach 25
million consumers by 2022. Viacom says its ad-supported Pluto TV
service has 18 million monthly active users.
The addition of Viacom's cable networks such as Comedy Central
and Nickelodeon and movies from Paramount Pictures' library could
enhance All Access, people close to the companies said. CBS has
already said it is adding children's programming to the digital
platform.
At the same time, there is concern at CBS that adding Viacom
content into CBS All Access would significantly raise its cost, a
person familiar with the situation said. All Access costs $5.99 a
month with ads, and $9.99 a month without them.
In the traditional cable TV business, Viacom and CBS hope that
together they'll have a stronger bargaining position with
distributors, which are increasingly looking to rein in programming
fees as they lose subscribers.
For CBS and Viacom, "coming together in 2019 is the right thing
to do, but the question is does it matter at this point," said a
former Viacom network chief.
Breaking down fiefs inside CBS and Viacom so they can truly join
forces will be challenging.
"Bob won't let whoever runs CBS run his own little shop," said
another former Viacom senior executive, referring to Mr.
Bakish.
A person close to Mr. Bakish said that when he started as acting
CEO of Viacom, he immediately set about trying to break down silos
between divisions and repairing the company's frayed relationship
with pay-TV distributors.
There are promising opportunities in joining up the CBS
Television Studios unit and Paramount Television, including the
expansive library a combined company would have, from "Star Trek"
to "Dora the Explorer" to "Survivor."
The studios share a similar strategy: Beyond producing for their
in-house networks, they also produce actively for outside platforms
including streaming giants.
CBS has made successful shows for Netflix including the new
comedy "Dead to Me" and has shows in development at Apple and
Disney's Disney+ streaming service. Paramount made the teen drama
"13 Reasons Why" for Netflix and "Jack Ryan" for Amazon.
As Disney and Warner Bros. focus increasingly on making content
for their own television and streaming platforms -- part of a trend
of vertical integration in Hollywood -- a combined CBS-Paramount
studio could become a go-to supplier for rival TV networks and
streaming services.
Write to Benjamin Mullin at Benjamin.Mullin@wsj.com and Joe
Flint at joe.flint@wsj.com
(END) Dow Jones Newswires
August 13, 2019 17:04 ET (21:04 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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