It is a drama worthy of its own prime time show. Thirteen years after Sumner Redstone split his media empire in two, CBS and Viacom have agreed to recombine. The deal to create a $47bn enterprise value company follows years of intrigue and an ugly legal battle pitting the ailing billionaire’s heir Shari against former CBS boss Les Moonves.
For Viacom, the benefits are clear. The rise in cord-cutting and the proliferation of streaming services have resulted in stagnating growth and a collapse of more than 60 per cent in the share price from the 2014 peak. Combining with CBS should help stop the rot. The combined group should have greater heft negotiating ad sales, cable fees and content licensing.
For CBS shareholders though, the case for getting back together is more muddled. True, it is paying no premium for Viacom’s vast content library. The addition of hit Paramount franchises such as Mission Impossible and Transformers would broaden its offering and boost plans to create a viable streaming channel.
The flip side is that the deal will increase CBS’s exposure to traditional television. It will also be adding Viacom’s $8.2bn debt load to its own $9.2bn.
Since its split, CBS has had the stronger growth trajectory. Hits such as The Big Bang Theory and Survivor helped turn it into one of the country’s most-watched TV network. Bernstein analysts, in arguing CBS is better off as an independent, likened the deal to CBS “harvesting a melting ice cube”.
Target cost cuts of $500m are eye-grabbing. But only a sliver may fall through to operating profits if the company invests heavily in content. New programmes will need to be more imaginative than the company’s new name — ViacomCBS — for the latter to prosper.
The business will be a minnow compared with rivals such as juggernauts Amazon and Netflix. To survive, media groups need huge content libraries to lure consumers and cable operators. The steady state that benefited CBS and Viacom ended long ago. This deal may not deliver the Big Bang needed to keep the combined group expanding.
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