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Sumner Redstone's next move.
Sumner Redstone, who built Viacom into one of the world's
largest media conglomerates through spectacular leveraged
buyouts, is now going to divide it through a stock split
into two separate, publicly traded companies. The company
that is retaining the name Viacom Inc. will be comprised
of the Paramount movie studio (stripped of its television
production); the MTV, VH1, and Nickelodeon cable networks.
The second company, which will return to the name CBS, will
get both broadcast networks (CBS and UPN), all the owned
and operated television stations, the King World TV production
arm, the Infinity radio and outdoor advertising unit (for
which Viacom took a $20 million write-off this year), and
the Simon & Schuster publishing house.
Redstone hopes that this maneuver will dazzle Wall Street
into increasing the share price of both parts of his divided
empire. In fact, both sides will be managed exactly as they
are now: Tom Freston will continue to head the Viacom side,
and Leslie Moonves will continue to head the CBS side. More
important, control will continue to be in the hands of Redstone,
since his personal investment vehicle, National Amusements,
Inc., owns the majority of the special class of voting stock
in both new companies. The split, aside from allowing Redstone's
top executives to cash in their out-of-the-money stock options
(which automatically get vested when there is a change in
corporate ownership), may involve little more than the proverbial
rearranging of the deck chairs on the Titanic.
Meanwhile, Redstone is moving into the video-gaming business,
which he describes in Business Week as "the hottest
part of the entertainment industry." After turning
down a proposal for Viacom to buy Electronic Arts, the world's
largest publisher of video games, Redstone himself has bought
control of Midway Games through National Amusements, Inc.—he
also made his daughter Shari Redstone the vice chairman
and installed his own board. Even though Midway currently
loses a great deal of money, part of the company's appeal
comes from the potential for video games to be platforms
for paid "product placement" or unlabeled advertising
inserted in the game itself.
The logic goes like this: Since Rupert Murdoch's DirecTV,
Time Warner Cable, and Comcast are now equipping their subscribers
with TiVo-type digital recorders, it is only a matter of
time before a significant portion of television viewers
will routinely be able to TiVo-out TV ads. Advertisers will
need to find new ways to reach their audience's eyeballs,
and video games present just such an opportunity. "Unlike
television," Shari Redstone points out, "you know
they're glued to their screen." To this end, Midway
Games has signed licensing deals with Viacom's arch rival,
Time Warner, to develop games based on Warner Bros. animation
such as Happy Feet and Ant Bully.
Midway's development into an alternative advertising platform
raises a possible conflict of interest for Redstone. The
CBS part of Redstone's empire is the largest harvester of
conventional television, radio, and billboard advertising
in America. How will Redstone fit Midway into his twin empire?
The speculation inside Viacom is that first he will take
Midway private by buying up the rest of the shares (indeed,
a wire story today reports that Redstone has increased his
holdings to 89 percent), and then he will resell it to Viacom
at a hefty price (his rapacious buying of the stock has
driven up its price nearly fourfold, even though Midway
itself continues to lose money). To keep the purchase from
appearing to be incestuous self-dealing, Redstone will no
doubt delegate the job of determining the purchase price
to a committee of independent Viacom directors.
Surprisingly, the real concern among Viacom executives is
not that Viacom may wind up paying an inflated price for
a money-losing game company but rather that Redstone's dabbling
with Midway may help fuel an intra-empire competition for
advertising dollars. "Moonves can't wait to launch
CBS cable channels that will compete with MTV," one
Viacom insider suggested. "No one knows, Sumner least
of all, how it will play out." Game-playing often has
unanticipated consequences—even for moguls.
Edward Jay Epstein is the author of The Big Picture: The
New Logic of Money and Power in Hollywood. (To read the
first chapter, click here.)
umner Redstone's next move.
By Edward Jay Epstein
Posted Monday, Nov. 7, 2005
Sumner Redstone, who built Viacom into one of the world's
largest media conglomerates through spectacular leveraged
buyouts, is now going to divide it through a stock split
into two separate, publicly traded companies. The company
that is retaining the name Viacom Inc. will be comprised
of the Paramount movie studio (stripped of its television
production); the MTV, VH1, and Nickelodeon cable networks;
and the Paramount amusement parks. The second company, which
will return to the name CBS, will get both broadcast networks
(CBS and UPN), all the owned and operated television stations,
the King World TV production arm, the Infinity radio and
outdoor advertising unit (for which Viacom took a $20 million
write-off this year), and the Simon & Schuster publishing
house.
Redstone hopes that this maneuver will dazzle Wall Street
into increasing the share price of both parts of his divided
empire. In fact, both sides will be managed exactly as they
are now: Tom Freston will continue to head the Viacom side,
and Leslie Moonves will continue to head the CBS side. More
important, control will continue to be in the hands of Redstone,
since his personal investment vehicle, National Amusements,
Inc., owns the majority of the special class of voting stock
in both new companies. The split, aside from allowing Redstone's
top executives to cash in their out-of-the-money stock options
(which automatically get vested when there is a change in
corporate ownership), may involve little more than the proverbial
rearranging of the deck chairs on the Titanic.
Meanwhile, Redstone is moving into the video-gaming business,
which he describes in Business Week as "the hottest
part of the entertainment industry." After turning
down a proposal for Viacom to buy Electronic Arts, the world's
largest publisher of video games, Redstone himself has bought
control of Midway Games through National Amusements, Inc.—he
also made his daughter Shari Redstone the vice chairman
and installed his own board. Even though Midway currently
loses a great deal of money, part of the company's appeal
comes from the potential for video games to be platforms
for paid "product placement" or unlabeled advertising
inserted in the game itself.
The logic goes like this: Since Rupert Murdoch's DirecTV,
Time Warner Cable, and Comcast are now equipping their subscribers
with TiVo-type digital recorders, it is only a matter of
time before a significant portion of television viewers
will routinely be able to TiVo-out TV ads. Advertisers will
need to find new ways to reach their audience's eyeballs,
and video games present just such an opportunity. "Unlike
television," Shari Redstone points out, "you know
they're glued to their screen." To this end, Midway
Games has signed licensing deals with Viacom's arch rival,
Time Warner, to develop games based on Warner Bros. animation
such as Happy Feet and Ant Bully.
Midway's development into an alternative advertising platform
raises a possible conflict of interest for Redstone. The
CBS part of Redstone's empire is the largest harvester of
conventional television, radio, and billboard advertising
in America. How will Redstone fit Midway into his twin empire?
The speculation inside Viacom is that first he will take
Midway private by buying up the rest of the shares (indeed,
a wire story today reports that Redstone has increased his
holdings to 89 percent), and then he will resell it to Viacom
at a hefty price (his rapacious buying of the stock has
driven up its price nearly fourfold, even though Midway
itself continues to lose money). To keep the purchase from
appearing to be incestuous self-dealing, Redstone will no
doubt delegate the job of determining the purchase price
to a committee of independent Viacom directors.
Surprisingly, the real concern among Viacom executives is
not that Viacom may wind up paying an inflated price for
a money-losing game company but rather that Redstone's dabbling
with Midway may help fuel an intra-empire competition for
advertising dollars. "Moonves can't wait to launch
CBS cable channels that will compete with MTV," one
Viacom insider suggested. "No one knows, Sumner least
of all, how it will play out." Game-playing often has
unanticipated consequences—even for moguls.
Edward Jay Epstein is the author of The Big Picture: The
New Logic of Money and Power in Hollywood. (To read the
first chapter, click here.)
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