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Viacom Fights Against Its Own Size

The Viacom chief executive, now 81, spent a decade building one of the biggest and most powerful media companies in the world. With the announcement that he is now considering a breakup of that empire, he has admitted his acquisition strategy did not work.


Investors so far appear to like the idea of breaking apart the troubled entertainment conglomerate to highlight its faster-growing cable network operations and Paramount Pictures, under Tom Freston, Viacom's co-president. CBS, Paramount Television, outdoor advertising and the radio business would be run under the co-president, Les Moonves.

Still, for all the simplification, Mr. Moonves and Mr. Freston face difficult tasks, and that has left some Wall Street analysts skeptical of the long-term value of splitting the company.

"It's unclear to us that a breakup would drive significant value," said Jake Balzer, a media analyst at Guzman & Company. "Although the breakup may create some additional short-term demand for the shares by appealing to two different types of investors, we also believe there is some synergy value in keeping the pieces together."


Some analysts say that Viacom's more troubled assets, including its radio business, are not its only problem. They say Mr. Redstone's management style has at times hampered the company. He fought with his lieutenants - the former chief executive, Frank Biondi, and the former president, Mel Karmazin - and has recently set up an unwieldy competition between Mr. Freston and Mr. Moonves.

"Sumner has made it tough because he does not want to cede power," said one executive who has known him for years. "That inevitably creates management problems."


Aside from the structural advantages of separating Viacom into discreet operations, where TV would be viewed as a value stock and the cable company as a growth stock, the division may make it easier for the two executives to concentrate on the businesses they know best.

"In large conglomerates, size and complexity is the enemy," said Bruce Greenwald, professor of economics at the business school at Columbia University, where he teaches a course on the media. "Often, executives can't focus carefully on each of the businesses, so they don't run as well."

One advantage of the split would be that the top management could better focus. But a second benefit may be that they would not have to be as preoccupied with succession. Mr. Redstone had retained the right to decide which of the co-presidents would become chief executive.

Now, some executives close to Viacom say Mr. Redstone's own power at the newly formed companies could be somewhat curbed if the split goes forward.


"Each new company will have its own corporate staff and those people will report to Tom and Les," said an executive close to Viacom who insisted on anonymity. "They have to please Sumner, but their real bosses will be Tom and Les. That changes the dynamic. It makes it easier to Tom and Les to run their operations."


Although the split could make the unwieldy company easier to manage, it would not come cheap - such a separation would carry investment banking fees. And it would require each company to set up parallel corporate structures, with investor relations executives and other staff.

And executives at Viacom are already "very handsomely rewarded," said Brian Foley, a compensation specialist.


One indication of just how little synergy there was for Viacom is the fortunes of its movie studio. In the era of consolidation, media executives pointed to the advantages of combined studios with TV networks and cable networks.

At Paramount, the combination did not pay off. Viacom owns Paramount Pictures as well as MTV and CBS, but if Paramount made a movie that was poorly received, the film was likely do badly on television and cable. The same was true for television programs.

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