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Media group Viacom slimmed down considerably at the beginning of 2006, spinning off a collection of its broadcast and radio assets into a separate company, now CBS Corporation, thereby effectively unpicking a mammoth merger it had engineered seven years earlier. Viacom is concentrated around the old group's cable networks, biggest of which is pioneering music broadcaster MTV, supported by Nickelodeon, Comedy Central and others. Viacom also kept control of movie studio Paramount Pictures and in 2014 became the first US broadcaster to own a UK terrestrial franchise following a deal to acquire Channel 5. However, unlike CBS, Viacom's performance has been in slow but steady decline for several years. This gradual slump came to a head in 2016, first with an undignified battle over the will of elderly patriarch Sumner Redstone, and then open conflict between the Redstone family and Viacom's board for control of the group's strategy.
Who handles Viacom's advertising? Click here for agency account assignments from Adbrands.net. Including unmeasured media, Viacom declared advertising expenses of $1.3bn in fiscal 2017. In the US, Kantar (in Advertising Age) reported measured expenditure of $475m for Viacom in calendar 2016, out of an estimated total of $785m. Biggest spending brands were Paramount movies & home entertainment (measured spend $394m).
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Following the demerger of Viacom and CBS, it was the former which was seen by most observers as the business with the greatest potential for growth. Yet the opposite has been the case. CBS has performed better than expected, while Viacom has faced a series of challenges, including a slowdown in advertising expenditure on cable, and the emergence of powerful competition for MTV's traditional audience from online social networks and video-sharing portals. At the same time, Paramount has failed to show a significant improvement from its move back into big-budget entertainment. Owner Sumner Redstone moved to tighten his grip on the under-performing business during 2006. However, the elderly billionaire's personal involvement in the business has not always beneficial: he has a habit of stirring up unflattering media stories with his blunt approach to problem-solving. His declining mental health and complicated personal life launched yet another media frenzy towards the end of 2015.
Surely one of the world's highest-achieving senior citizens, Sumner Redstone began building Viacom into what became for a while the world's second-largest media conglomerate in the late 1980s, when he was already aged in his Sixties. He gradually dismantled the business during 2004 and 2005, mainly in an attempt to revitalise its sagging stock price. The Viacom board agreed a plan to divide the group into two separately traded public companies in June 2005. That division was completed in the first week of 2006.
Viacom now houses what were originally considered to be the fastest-growing businesses from the old group. It main unit is the cable networks & digital media division. This is dominated by MTV Networks, an entity which houses not only the world-famous music channel MTV but also sister stations such as VH1, and other youth-oriented cable strands.
MTV Networks' kids & family unit is built around kids' entertainment channel Nickelodeon channel and its evening spin-off Nick at Nite, which together reach an audience of 93m US households. Average total day viewers are well over 1m. It has been the country's #1 basic cable channel since 1994, and Nickelodeon itself is one of the world's best-known children's entertainment brands, responsible for introducing a string of iconic cartoon characters including the Rugrats, SpongeBob SquarePants, Dora The Explorer, Blue of Blue's Clues and more recent hit iCarly. Analyst Trefis estimates total revenues of $1.39bn for Nickelodeon in 2014, comprising advertising revenues of $703m and subscription revenues of $621m. Worldwide, Nickelodeon is seen by a further 550m homes in 130 countries. Other kids and family brands include pre-school network Noggin and its evening counterpart for teenagers, The N. In 2005 the group also bought children's internet site Neopets for an estimated $160m to complement its Nickelodeon properties. That site now has more than 44m registered members.
A third unit, MTV Networks Entertainment, is centred on comedy network Comedy Central, which reaches around 92m households in the US. The channel has captured a high profile as a result of several original shows, which introduced a new generation of comic stars. These include The Daily Show with Jon Stewart, The Colbert Report and long-running low-budget adult cartoon South Park. However, after several years of stellar performance, Comedy Central has struggled to bounce back from the departure of several of its biggest stars since 2015, including Jon Stewart and Steven Colbert. That was partly offset by the explosive rise of Amy Schumer, but overall viewing figures have been under considerable pressure.
Comedy Central is partnered by men's entertainment channel Spike (91m households) and golden oldies channel TV Land (91m household). Its internet properties include movie clips portal iFilm, as well as short films producer Atom Films and gaming community Xfire, acquired in 2006 for $102m. Worldwide, the MTV Networks channels reach around 520m households in 160 countries. They are also involved in a variety of entertainment businesses that extend their profile into films, books, online, and consumer products. The group acquired youth channel Awesomeness.tv in 2018 for $300m.
MTV is partnered within Viacom by a second cable unit, BET Networks. Acquired in 2000 for $3bn, Black Entertainment Television Holdings controls a number of entertainment, music and new channels targeting an African-American audience. The BET family of channels reaches more than 87m homes in the US, and many more in Canada and the Caribbean.
In 2009, Viacom launched Epix, an online HD movies-on-demand service, in a partnership between Paramount, MGM and independent studio Lions Gate. Movies can be streamed online or through delivery partners including Verizon FiOS and Netflix. It also distributes some of its content, including hit shows from Comedy Central and MTV, via the Hulu service.
In May 2014, Viacom made a surprise move back into free-to-air broadcasting for the first time since the spin-off of CBS, but not in the US. Instead, the group agreed to buy UK broadcaster Channel 5 from Richard Desmond's Northern & Shell for £450m. That deal closed in Sept 2014. Channel 5 is the UK's youngest and smallest terrestrial broadcaster. It was originally launched in 1997 by media groups Pearson, UBM and CLT, before being acquired in several stages by German media giant Bertelsmann. UK audience share peaked in 2006 at almost 7%, but then fell back sharply. That poor performance prompted Bertelsmann to sell on the business in 2010 to Northern & Shell, which stripped out costs and returned the channel to profit. However audience share remains low at around 4.0%. Traditionally, the channel is known for locally produced documentary and reality TV, often veering towards the sensational, and US drama imports. It owns the semi-scandalous Big Brother reality franchise in the UK.
The group also controls a number of other international broadcasting brands. These are mostly cable channels, but Viacom added to its free-to-air portfolio at the end of 2016 with the acquisition for $345m of one of Argentina's biggest terrestrial stations, Telefe, from Telefonica.
Although it remains the group's most important business, the performance of Viacom's media networks has been mercurial in recent years. A key problem in 2009 and 2010 was a slump at its videogames subsidiary Harmonix. Its lead game Rock Band suffered a dramatic plunge in sales in 2009 as consumer interest in rock-themed software slumped. That unit was sold in 2010, with a write-off of almost $260m in impairment losses, plus subsequent legal costs of $350m relating to a dispute with the software company's founders over earn-outs.
For the year to Sept 2016, divisional revenues slipped 6% to $9.94bn, as a result of declines in both advertising and affiliate fees. The media networks division now contributes all the group's profits. Operating income slumped 16% in 2016 to $3.48bn.
The cable networks division is partnered within Viacom by filmed entertainment. The key unit in that division is legendary movie studio Paramount Pictures. Despite its worldwide profile, revenues from Paramount are considerably lower than those of the group's media networks, and profits are traditionally low. They got even worse in ye 2016 as a result of disappointing performance for a string of releases and a huge write-off against fantasy comedy Monster Truck. Paramount reported an operating loss of $445m on revenues down 8% to $2.66bn.
The group's music publishing arm, Famous Music, was sold to Sony/ATV for around $370m in 2007. Famous Players, the largest movie theatre chain in Canada, was sold in 2005 to #2 chain Cineplex Galaxy for $400m. Until 2004, Viacom also owned video rental and retail giant Blockbuster. It was spun off to shareholders towards the end of 2004.
Viacom Plus was a separate unit tasked with cross-selling across the group's various media properties. It was formed in 2001 under the old Viacom structure, scoring its biggest success in 2002 with a mammoth $350m deal with P&G. Following the Viacom/CBS split, the unit continued to serve both companies, charging its services to CBS on a fee basis. As if to demonstrate its relevance, it sealed a substantial deal in January 2006 with Masterfoods to promote a variety of the marketer's confectionery and petfood products across a broad range of new Viacom and CBS media channels. However subsequent deals were harder to negotiate, and by the end of the year Viacom Plus was reported to have suspended its relationship with CBS. The unit rebranded for a while as MTV Networks Plus, and eventually morphed into Viacom Velocity.
In Jan 2018, the group bolstered its in-house marketing resources with the acquisition of social media and influencer agency Whosay, which specialises in matching up advertisers with entertainment, sports and online celebrities to promote brands across social media platforms. Viacom has already partnered with Whosay for several cable specials, including awards shows for its MTV, BET and Comedy Central channels.
Viacom's performance has continued to be patchy since the CBS demerger, dented by poor performance by the Harmonix videogame business and its subsequent divestment, and then by weakness in the filmed entertainment business. That was subsequently overshadowed by declining audiences for its various cable strands. Revenues peaked in 2011 at $14.5bn. For the year to Sept 2013, revenues faded by 0.7% to $13.79bn, although attributable net earnings edged up 3% to $2.41bn. Topline was flat in 2014, before falling to $13.27bn in ye 2015. Attributable net earnings fell 20% in the latter year to $1.92bn, slipping below $2bn for the first time in at least five years.
For the year to 2016, group revenues slipped 6% to $12.5bn, while earnings shed 25% to $1.4bn. The group is nursing a substantial amount of debt, totalling $11.9bn by Sept 2016, generating interest expense of $616m during the year.
Viacom is controlled by National Amusements, Sumner Redstone's privately owned company via a large majority shareholding. National Amusements retains around 80% of voting shares. National Amusements also has the similar controlling shareholding in CBS, and separately operates around 1,000 motion picture screens in the US, UK and Latin America, mostly under the Showcase brand, as well as slot machine company WMS. It is also a partner in the online ticketing service, MovieTickets.com. However National Amusements came under considerable financial pressure at the end of 2008. The steep fall in the share price of CBS and Viacom put the group's bank covenants at risk of default. As a result, Redstone was obliged to sell almost $1bn in non-voting shares in both companies as well as some of his movie theatres. It also sold its 87% holding in games software publisher Midway Games for a huge loss.
Sumner Redstone remained executive chairman of Viacom until January 2016, and the court hearings over his metal acuity. Philippe Dauman, already president & CEO of Viacom, added the role of chairman as well. However the subsequent battle between Dauman and the Redstone family led to his ouster later the same year. Former COO Tom Dooley was named as interim CEO but he too departed in Nov 2016, to be succeeded as CEO by Robert Bakish, previously CEO, international media networks. He was in turn replaced at international by David Flynn. Tom May is non-executive chairman.
Sumner Redstone celebrated his 90th birthday in 2013. Forbes estimated his wealth at $2.4bn that year. His daughter Shari Redstone is non-executive vice chairman of both Viacom and CBS as well as president of holding company National Amusements, and is expected to become his eventual successor. However, relations between the cantankerous father and daughter have been stormy in recent years, and this situation came to a head in summer 2007 when Redstone attempted to oust Shari Redstone from the family business, offering terms to buy back her 20% shareholding in National Amusements. Those negotiations were overtaken by the economic downturn. The slumping share price of both Viacom and CBS put Redstone into default in respect of banking covenants and he was forced to sell shares of his own to reduce his debts. Shortly afterwards his second wife, almost 40 years younger than him, filed for divorce. Redstone subsequently embarked on a series of relationships with other women half his age. However, the relationship between father and daughter appeared to improve since then, and Shari Redstone retains her shares and her position, and is widely considered to be the main power behind the group. Her brother Brent has no involvement. In 2006, he sued his father, claiming he had been frozen out of the family business. Sumner Redstone eventually settled, buying out his son's interest in National Amusements for $240m.
In 2015, Redstone's mental competence became the subject of a lawsuit brought by his former girlfriend and carer. Viacom CEO Dauman and Redstone's lawyers argued that he remained fully "engaged" with the workings of both Viacom and CBS, but no independent witness was able to verify this fact. Redstone's resignation as chairman of both companies defused some of the increasing pressure for an independent examination of the elderly controlling shareholder. At the end of 2016, it was announced that Redstone would resign from the Viacom board as well in 2017, though he retains the title of chairman emeritus.
The acquisition of CBS in 1999 was the culmination of a series of deals by which movie theatre owner Sumner Redstone climbed the ladder to become of one of the world's foremost media moguls. The actual Viacom business didn't exist until 1970, but Sumner Redstone's business interests date back much further. He trained at Harvard to be a lawyer, but his career plans were sidetracked by the outbreak of Word War II. He joined the armed forces and was recruited to Army intelligence, part of a team which intercepted and decoded Japanese military secrets. Redstone joined a Washington law-firm in 1945, but soon began to look for a keener challenge.
This came in 1954, when he joined the family business. National Amusements, founded by his father Mickey Redstone in 1936, owned a small chain of night-clubs and drive-in movie theatres in and around Boston. Redstone Jr applied a fierce determination to his new role, disposing of the nightclubs and expanding the chain of drive-in theatres, then enjoying huge popularity. In the 1960s, Redstone started building new indoor cinemas, and arguably invented the concept of the multiplex, dividing up a single cinema into multiple screens. Despite the damage inflicted on the theatrical industry by the popularity of television, National Amusements stayed on top. Sumner Redstone became president of the company after his father's death in 1967, and continued to expand the business until the chain numbered more than 1,100 screens by the late 1970s.
At the end of that decade, Redstone endured an experience which has passed into corporate legend. The Boston hotel in which he was staying one night in 1979 was consumed by a huge fire. Despite severe burns, Redstone survived by hanging by his fingertips from a window ledge on the fourth floor while the building was engulfed. Both supporters and critics point to the story as evidence of Redstone's steely determination, as well as the catalyst for a breathtaking series of business gambles which turned National Amusements into a multi-billion dollar business.
While Redstone's cinema business was enjoying the peak of its success in the 1970s, a new company was establishing a reputation as a powerful force in the rapidly developing US cable television market. In 1970, US regulators ruled that television networks could not own cable systems and television stations in the same local markets, and broadcast TV giant CBS was forced to spin off its developing cable operations into a new entity, which it named Viacom. The new business went on to develop a loose network of its own, buying up local TV and radio stations in areas where it didn't own cable, and also taking over CBS's programme syndication business.
In 1978, Viacom launched pay-TV channel Showtime, grouping it with other cable interests as the Showtime Network in 1982. Four years later the company acquired ground-breaking music channel MTV. In 1987, Viacom was targeted by corporate raider Carl Icahn, who mounted a substantial bid for the business. This was countered by Viacom's management team, who made their own bid. Almost all industry observers were stunned when National Amusements also entered the bidding war. Redstone, then aged 64, put his entire business on the line to mount a $3.4bn bid and succeeded in winning Viacom. Most observers suggested at the time that Redstone, then already past retirement age, would not hang onto the company for long. Defying his critics, he then topped the Viacom purchase with two even more daring deals.
In 1994, Viacom announced it would acquire Paramount Communications, the conglomerate (formerly known as Gulf Western) that comprised the Paramount movie studio, publishers Simon & Schuster, and a clutch of local US television stations as well as the sports teams the Knicks and Rangers and legendary arena Madison Square Garden. The price agreed was $8.2bn, mostly to be paid in stock. However, Viacom's offer was quickly topped by a higher cash offer from home shopping TV network QVC, run by former Paramount Studios boss Barry Diller. Both sides spent the next five months in a bruising bidding war, upping the stakes by bringing on a host of corporate partners. Viacom recruited cable operator Nynex to back its bid, and added firepower by announcing a second mega-deal. In January of 1995, with the Paramount takeover still unresolved, Viacom announced it would spend a further $8.4bn to acquire video retail chain Blockbuster, and also upped its bid for Paramount to over $10bn.
Viacom clinched the deal and then spent the next year digesting this mammoth combination of three similar sized businesses. The first asset to go was Madison Square Garden, sold for $1bn later the same year. In 1996, the group combined its TV stations in a joint venture with fellow local operator Chris-Craft to form United Paramount Network (UPN), effectively a fifth US TV network. It also sold off its radio stations and its 50% share in programme-maker USA Networks to Seagram for $1.7bn. In 1998 it sold the business and educational arm of Simon & Schuster to Pearson for $4.6bn. Meanwhile the purchase of Paramount proved more successful than that of Blockbuster. A series of poor business decisions by Blockbuster's new management led to a massive $300m write-off in 1999. Viacom spun off an 18% stake in Blockbuster Entertainment to the public that year, and announced that the rest would be floated when the share price hit $20.
By now Redstone was hungry for a new challenge. In 1999, Viacom announced a $45bn merger with a somewhat reduced version of the old CBS. The key factor in the deal was a relaxation in regulatory rules over station ownership, effectively a reversal of the rule that had forced CBS to spin off Viacom in the first place. This development reportedly inspired CBS boss Mel Karmazin to approach Viacom with a proposed reunification of the former empire. The deal was completed in mid 2000. Karmazin was named president and COO of Viacom after the CBS merger, but his relationship with Redstone was marked by simmering tension for the following four years. Kamarzin finally resigned from the group in June 2004. Following his departure, MTV Networks head Tom Freston and Leslie Moonves, CEO of CBS, were named co-presidents and co-COOs. Also that year the group finally spun off troubled video chain Blockbuster.
Meanwhile, despite strong growth in several of its units, Viacom's stock price continued to languish between 2002 and 2004. When the disposal of Blockbuster failed to fix this problem, Sumner Redstone began developing an even bigger restructuring plan designed to kickstart an improvement by splitting more traditional businesses such as broadcast TV and radio from what was seen as high-margin, fast-growth cable. The separation of CBS Corporation from Viacom was first announced in summer 2005, and following approval from the board, was completed in January 2006. In its last results as a single group for fiscal 2004, Viacom reported sales of $22.5bn, up around 11%. However a mammoth impairment charge against its radio stations and outdoor activities led to a $15.1bn net loss. Despite this, the group agreed lavish payments totalling almost $160m to Redstone and co-presidents Leslie Moonves and Tom Freston, triggering a subsequent lawsuit from two angry investors. In 2006, a US judge ruled that this case could proceed through court.
Despite the fact that it had been considered the most promising of the two companies formed in the demerger of the old Viacom, the slimmed down company faced a series of challenges during 2006. Online sites MySpace and YouTube appeared to capture the attention of what was considered to be the traditional MTV audience, and the cable business seemed to have lost much of its momentum. In addition, Paramount's move back into big-budget movies - primarily in the shape of Mission Impossible III - was slow to deliver results. Towards the end of the year, Viacom CEO Tom Freston was also ousted, replaced by long-serving Redstone advisor Philippe Dauman. Redstone suggested in subsequent interviews that he held Freston responsible for losing hot internet properties MySpace and YouTube to other purchasers.
Reacting to the increased prominence of video-sharing service YouTube, Viacom issued a lawsuit in 2007 against its new owner, search giant Google, for copyright infringement. The two companies had earlier agreed a groundbreaking alliance to stream Viacom's video content to members of Google's extended search network, but the search company's acquisition YouTube created a potential copyright clash. Although Google and YouTube had successfully negotiated licensing deals with several mediaowners to cover content uploaded by YouTube users, talks with Viacom stalled without agreement. Viacom subsequently ordered YouTube to remove over 100,000 illegally uploaded clips, and then issued a $1bn claim for damages. That move was widely interpreted as little more than a bargaining tool, and the two sides were ultimately expected to reach an amicable settlement. Those hopes proved unfounded and the legal battle was still raging three years later. It finally reached a conclusion in June 2010, when a judge ruled against Viacom, deciding that Google could not be held liable for any infringements of copyright committed by its users. Yet following an appeal from Viacom, the suit was reopened in 2012, even as Viacom's Paramount agreed a separate deal allowing YouTube to offer around 500 titles from its movie library for streaming rental.
Last full revision 29th September 2016
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