The Trouble With Viacom: It Wasn’t Tom Freston

Michael Hedges September 7, 2006

Viacom Chairman Sumner Redstone let the entire media world know, once again, who is in charge.

CEO Tom Freston “resigned,” Redstone said, after years of service to the company, 26 years to be exact, counting several in the pre-Redstone era running that little cable channel called MTV.  Trusted Redstone confidantes and oft-time board members Philippe Dauman and Tom Dooley will take over: Dauman as CEO, Dooley as chief administration officer. Both are considered master dealmakers. And Mr. Redstone is said to be nostalgic for days when his companies made history-making deals.

Viacom ex-CEO Tom Freston

But it was less than a year ago when Redstone split the company in two in order to “unlock shareholder value.” There would be Viacom and there would be CBS. Sumner Redstone would control both.

Freston would take leadership of Viacom. Viacom, with Paramount Pictures, DreamWorks, MTV and other hit cable channels and new media. These would be the high-growth companies.

CBS, like an ugly sister, was given to Les Moonves, in the hopes that make-up and weight loss at local radio and television stations would stop the red ink. CBS also owns the CBS television network (including CBS news), publisher Simon & Schuster, an outdoor advertising company and King World. These would be the slow growth – but steady – companies.

Conventional wisdom – those five short months ago – held that Moonvies would be caught up in the tidal wave of red ink and be swept away, probably to spin-off land, while Freston would shine on brightly and, in the inevitable occurrence of Sumner Redstone’s retirement, find himself in the big seat.

Mel Karmazin, a Wall Street favorite, thought he actually had the big seat until Redstone gave him the boot, prompting the most recent division of labor. Before that it was Frank Biondi, booted from Viacom 1996 with help from the two guys who’ve moved in to replace Tom Freston. Before that Jeff Katzenberg, Roger Ailes, Barry Diller, among the more well known, felt Redstone’s boot.

Viacom shareholders, and their brothers on the trading floor, have the patience of five year olds. Mr. Redstone, in every possible way, made clear to investors that his strategy – simple and clear – is improving shareholder value. The investment bankers seem to view Viacom as an investment bank, expecting mergers, acquisitions, deal flow. It came then as no surprise that Freston’s two replacements – yes, two! – are investment bankers on the Viacom board with production experience but great credentials in mergers and acquisitions plus the enduring trust of Mr. Redstone. 

Hopefully, for the shareholders, this will cover up the recent Tom Cruise blunder. Firing Paramount’s top billing actor just because he’s a bit weird was not a business decision. Anyway, Redstone employed Howard Stern for years. That’s weird.

If anybody is taking the long view of Viacom – and shareholders certainly do not – Freston’s departure and replacement with Redstone’s back room buddies telegraphs a message. There’s no long view; except, maybe, a succession plan anointing daughter Sheri Redstone.

Les Moonves over at CBS has made all the right moves. He’s put poorly performing stations up for sale. He fired 160 from the executive ranks. Nothing excites investors more than people getting fired.

And he hired Katie Couric as the first permanent anchor of a nightly US network news program for $15 million a year. Her debut this week is considered a major break from “old, white guys” delivering news, the bad and the good, with authority. The best view of this decision is that Ms Couric will likely be the last nightly news anchorperson on US television as this anachronism of the 1950’s finally succumbs to the reality of modern media. None of that is important to the stock traders, too far in the future. But Ms Couric’s audience draw – in the first few days – has been impressive.

Sumner Redstone’s search for legacy is the least impressive of his many attributes. No star will outshine his, as Tom Cruise discovered. And Tom Freston, Mel Karmazin, and all the rest.

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