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Tom Freston and Leslie Moonves, Viacom’s co-chief operating officers, will ring the opening bell at the New York Stock Exchange on Tuesday morning, kicking off a new year on Wall Street and marking the formal separation of the media conglomerate assembled by Sumner Redstone into two separate companies.
The broader question, however, is whether Viacom’s experiment will usher in a wider trend of demergers in the slumping media industry. Since Mr Redstone announced his plan last March, John Malone has made similar moves at Liberty Media. Meanwhile, at Time Warner, a group of dissident shareholders led by activist investor Carl Icahn has been agitating for the break up of the world’s largest media company – possibly into as many as four separate entities.
Whether the movement to downsize media giants gains pace or stalls will depend in large part on the performances of the “new” Viacom, headed by Mr Freston and built around the company’s fast-growing MTV cable networks, and of CBS, led by Les Moonves and featuring more mature businesses, including the broadcast television network, radio and outdoor advertising groups.
In spite of the pending split, Viacom’s shares ended the year down 11 per cent and have lost more than half their value since the heady days of the Viacom-CBS merger in 2000.
“We continue to believe that breaking up the company will unlock hidden value with little strategic downside,” Merrill Lynch’s Jessica Reif Cohen wrote in November.
Yet many investors have dismissed it as financial engineering. There is also a suspicion that once unbound, the two new companies may try to recreate the old Viacom. The speculation intensified after CBS decided in November to acquire College Sports Television, a small cable network that would seem to sit more comfortably in the new Viacom’s portfolio.
“I think you’re going to see Les Moonves getting into cable,” one investor predicted.
CBS executives deny this, and they continue to defend the original merger. According to partisans, the leverage of CBS’s broadcast signal helped MTV Networks win wider distribution and better terms for its cable channels.
The reason for the break-up, they argue, is that the businesses have evolved differently. While the cable networks continue to shoot for double-digit growth, radio and outdoor advertising have slowed.
That, in the view of Mr Redstone, made Viacom’s shares an awkward fit for both growth and value investors.
Ultimately, the wisdom of the split may be judged on how it positions the companies to grapple with the revolution in digital distribution that is poised to transform the broader media industry in the same way that it has already reshaped the music business. In a recent staff memo, Mr Freston argued that Viacom could better respond as two smaller, more nimble companies.
However, Richard Parsons, Time Warner’s chief executive, last month outlined a different vision for the industry’s future when announcing the company’s new online partnership with Google. “As digital technologies continue to drive industries together, the great value and opportunity inherent in Time Warner’s structure and array of premier businesses becomes increasingly clear,” he said.
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