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{{Aside from the fact that the stock is hovering around $70 this week, are there other aspects of Viacom that a couple of "engineering types" could get excited about?}}

Hi Kathleen. The (much delayed) answer to your question on the Motley Fool Viacom board is "No, not really."

If you are looking for an investment "for engineering types", or for something with which you have a greater familiarity than "media", then this one isn't for you.

I, too, worked at Westinghouse (Broadcasting division), and we were rarely in the forefront of anything "engineering." Oh, we did petition the FCC about the oversampling rate for CD's (we thought it was too high), and we did set up some of the best satellite backhaul business in the business (Stamford: Group W Satellite Communications was a standout both in terms of quality, reliability, margin, and growth), but other than those two examples, I would be hard pressed to mention any spectacular engineering initiatives. (I had nothing to do with either; I was in station management.)

That said... As an investment, you could do a lot worse. For starters, "media" as a sector has outpaced the growth of GNP in every single year since the end of World War II. (And perhaps before as well, I haven't tracked it back that far.) In other words, "media" has an ever increasing percentage of an increasing pie - recessions or not, and that's not a bad place to start.

The outright collapse of "major media" have been rare, as it is considered a glamour industry (and clean, and relatively unregulated too!), with plenty of eager buyers waiting for weakness and hoping for the chance to come in and resurrect. Larry Tisch and CBS, are perhaps the best case in point. Tisch, in his shortsightedness, broke up the company he was handed by Paley into its discreet parts, made a bloody fortune selling "music", "publishing", and eventually "broadcasting" to others, completely missed the arrival of cable TV and the internet, and still did mightily well.

The "new" management is Mel Karmazin, one of the most noted (and unforgiving) managers in the industry, but one who is candid, forthright, and has only one mission: to increase the value of the company. He has done it twice before, both times with "Infinity" radio, which he amalgamated, took public, took private, took public, took private (seeing a trend here?) always to the benefit of shareholders, himself included of course.

That he has joined with Sumner Redstone of Viacom, another "self-made" is both remarkable (by taking a subservient position) and unremarkable (by grooming himself for the giant job to Sumner's late '70's age) and together, they have coupled two media giants into one, and one with significant power in a couple of industries:

Radio: CBS is a major factor around the country. Radio is an industry which is also outpacing the growth of GNP, which is relatively recession proof (at least in past recessions, as TV dollars drop down to radio), and which is the business from which Mel arrives.

Music: CBS and Viacom now own the only significant cable music channels: MTV, MTV2, VH-1, Country Music Television, the Nashville Network. Combined with their power in radio, you can see how this might give them significant leverage in this industry. That said, they are weak in the "internet" component here, but they are allied with AOL which may be some benefit.

TV: They will go up and down as they find the "Survivors" and "Millionaires" of the genre (for a look at what a single hit show can do, take a look at Disney's operating results over the past year thanks to "Millionaire") The CBS network has bounced back - a little - and has a lot farther to go before planting the victory flag. Even more important, TV networks are not generally the profit centers of, er, TV networks. That honor devolves to the locally owned (as opposed to the vastly more, but more rural "affiliated") stations. CBS owns a nice swath of population: New York, Los Angeles, Chicago, Philadelphia, etc. but almost without exception those stations are not doing well. That is a culmination of years of Tisch's neglect and the Oprah factor, which ABC recognized early and grabbed as a lead-in to the local news.

Oops, Oprah is distributed by King World, which is now owned by, you guessed it, CBS. (Whether Mel will switch Oprah, in her remaining few years to the CBS stations, or will be content to milk the syndication fees from the ABC stations, thus making money from both ABC and an improving CBS remains to be seen, but you can imagine the infighting there!)

Anyway, the CBS owned and operated TV stations have a terrific upside, and frankly, probably can't get much worse. That's damning them with faint praise, I know, but that's the reality.

Internet: Shortly after Mel took over CBS (in a beer hall putsch; he doesn't mess around) he was asked by some analysts "What's your internet strategy?" He replied "We don't have one." Well, at least he was honest. Since then he has partnered with AOL, developed CBS Sportsline, CBS Marketwatch, and has several other initiatives in the works. They're off to a late start, but they're coming. I know less (almost nothing, really!) about the Viacom sites, but I'd wager than the music-channel sites do fairly well.

Of course there are some downsides. Moving the ratings at local TV stations is heavily dependent on the fortunes of the network, and that's a tough business. The Viacom "brand" means nothing, as does the CBS brand. That's why the Viacom Stores were unsuccessful while Disney's were. But Viacom has many successful and meaningful "sub-brands" (I would argue that those are the brands) such as MTV, Nashville Network, Howard Stern, Dan Rather (just kidding). And there is no guarantee that the two companies will integrate smoothly, or that Mel and Sumner will hit it off, or that CBS's recent "Survivor" success is more than a flash in the pan, or that Oprah won't resign tomorrow, or that GAC (Great American Country) won't eat Country Music Television's lunch, or that... well, you get the idea.

But in summary, I'll tell you that a few years ago, with the stock hovering at a bit below twenty, I did a "back of the envelope" analysis that showed the breakup value of just CBS (pre-Viacom, pre-King World, pre-billboards) at near $50 a share. Using just the fairmarket value of the radio stations, TV stations, satellite backhaul, production company, etc. it was a no-brainer. Since then they have combined with an even larger company, added King World and more radio stations and significant holdings in outdoor advertising (i.e. billboards) to the portfolio, and while I haven't run the pencil against it, my surmise is that there is still a lot of upside to this stock, just in mere breakup value. Mel knows how to extract that value, and I believe he will continue to do so.

That said, and in the nature of full disclosure, I have sold off several thousands of shares over the past few years, and have many thousands left (thanks to deferred comp, bonuses, etc.) and so have a vested interest in seeing them continue to do well. I exited the company in a dispute with upper management before Mel entered, and I surely would have exited under him as well (I don't need the aggravation!) I'm trying not to be overweight in this one sector - and failing - (I also have a bunch of AOL and DIS, which puts me very heavy, too heavy, really, in the "ad supported media" game) but I don't really fear for the future of this one.

Good luck.
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