Follow Up: CBS / Viacom Merger News: The Saga Continues

The CBS and Viacom saga continues to loom within the media landscape following the sexual misconduct allegations against former CBS Chief Executive, Les Moonves, which led to him being removed from that post recently. This has caused many within the financial sector to have renewed speculation regarding the potential for a CBS merger deal with Viacom to get back on track.

In a follow up to earlier pieces on this topic, the interplay between CBS, Viacom, and their common parent company, National Amusements (NAI) has been a mess over the past couple of years. The struggle between Moonves and Shari Redstone from NAI and the discord that conflict created within the CBS board has shaped most of the news around this merger over the past several months.

The removal of Mr. Moonves from the equation seems to indicate that the merger will take place at some point between CBS and Viacom. This can be simply because no other external entity has indicated any type of interest level in obtaining CBS at this point.

The potential merger of these once-joined media conglomerates (CBS and Viacom were once under the same roof until they split apart several years ago) would make sense from a financial perspective as Wall Street analysts have stated that the merged CBS-Viacom unit would have a better valuation. Some analysts have estimated that the total valuation would increase in value between 20-30% compared to the two remaining single entities.

While that valuation impact is significant, the most critical issue facing CBS at this point is to find a new CEO. The reports have been centered around the likelihood that this candidate will be hired externally to bring a fresh perspective to the network and the corporation.

In my prior work on this topic, the dynamics between Ms. Redstone, Mr. Moonves, and Viacom head Bob Bakish were explored. The interpersonal issues between all of these figures has been at the center of the saga between CBS, Viacom, and NAI. The reports from multiple media outlets are that the new external CEO of CBS will be the individual in charge of the combined CBS – Viacom and not Mr. Bakish.

This added responsibility increases the importance for CBS to find the right candidate on what is probably a very short list of people who have the requisite skills and background to run such a complex, diversified combined media corporation.

The terms of the settlement in court between NAI and CBS stipulate that NAI cannot initiate any offers to consolidate CBS and Viacom for a period of two years. However, the settlement does not preclude either CBS approaching Viacom or vice versa, with a potential merger bid.

The likelihood of that happening after a new chief executive is named at CBS is seen as highly possible. In my prior work within this merger proposal saga, I have always maintained that Verizon would be the “dark horse” that would come out of the woodwork and purchase CBS for some inconceivable amount of money.

The media landscape has evolved though, and my view is starting to shift in thinking that Verizon may not be interested in CBS at all. They may not be interested in the capital outlay and the organizational changes that would need to take place in order to integrate CBS into the Verizon umbrella.

The other major networks and “old media” companies are out of the mix for CBS for mostly anti-trust reasons. Some have rumored that maybe CBS – Viacom combine and then merge again with a major studio such as Lions Gate or another television outlet such as AMC. In my view, that could happen because both CBS and an outlet like AMC would have to grow larger or else be swallowed up by another conglomerate.

The rumor that a “new media” entity such as Amazon, Apple, Netflix, or Google could snap up CBS seems unlikely at this point too. That sort of consolidation is delivered at a significant cost because of the complexity of the merger, the legal proceedings involved, and the integration of the key business units within CBS into an existing corporate and operational structure.

The content that CBS controls is a tremendous asset, and at the end of the day, content is king. The CBS app called All Access is a subscription-based service that has a robust base of viewers. It will be interesting to see if those variables are a motivating factor toward a “new media” entity taking a shot at consolidating CBS, especially if they would also hold the rights to the Viacom content.

The major shifts in the media industry this year have created a climate where CBS and Viacom both must make some sort of strategic growth move in order to stay relevant. It may become a merger of necessity rather than joining together willingly and with enthusiasm. The combined entity of CBS-Viacom would have certain strengths that would help them compete in an increasingly competitive and margin conscious industry.

The content and streaming app as well as other business units could position CBS – Viacom to better meet the demands of viewers that are changing the way they access media, television, and movies. The timing will all be predicated on how long it takes for CBS to complete their search for a new CEO.

The changes in the media and television industry has already seen some incredible M&A activity during 2018. The future for both CBS and Viacom could highlight the industry merger news in the new year ahead.

(Some background information courtesy of CNBC and AP)

Busy Signal: AT&T and Time Warner Proposed Merger

The news today of a potential merger between two giants in the media industry: AT&T and Time Warner brought with it both a wave of enthusiasm and skepticism in the financial markets and the multimedia/telecommunications industry. The enthusiasm was demonstrated on Wall Street, where Time Warner stock trading surged, with their stock price up around 13% at one point in today’s activity.

The skepticism comes on the part of some consumer groups who are concerned about what this merger might mean for costs of internet access, cellular phone and data plans, and satellite television services (AT&T merged with Direct TV previously). There is also some legitimate cause for regulators to reject this deal, so there is some caution in the industry that this merger may eventually come apart.

The proposed deal includes Time Warner’s film division and cable television division which includes channels such as TBS, TNT, CNN, as well as the crown jewel of premium cable networks, HBO. The deal is valued, according to sources, at $300 billion. It would be the largest merger in the media industry since Comcast completed the acquisition of NBC/Universal in 2011.

This trend would continue what I have deemed in other mergers as the “big getting bigger” scenario. Time Warner is a huge company with many different divisions and huge market presence in media of all forms. AT&T has a market cap of $233 billion and provides cellular phone, internet, telecommunications, and satellite television services to millions of consumers. The combined entity would be a goliath capable of competing with Comcast/Universal, which I maintain is one of the goals of this move today.

The trend of the average consumer looking to cut out their cable television service, or “cord cutting” as it is known, is something I have written about in the past, and it is an increasing trend. This trend is damaging the cable television providers and the cable networks from making revenue gains. This has particularly impacted Time Warner’s cable services division, and made this potential merger a way to partner with a larger company to expand their reach.

The trend toward streaming content is also a driving factor in this proposed merger, as AT&T has been actively pursuing the development of their own streaming content service which would be offered via the Direct TV platform. The combination with Time Warner would provide AT&T with more advantageous content streaming negotiations because they would be better positioned to control the content from TBS, TNT, CNN, and most importantly, HBO.

HBO has top rated content that is sought after by competing streaming services and cable and telco providers. This would put AT&T in the proverbial driver’s seat of those negotiations, but is the same reason why regulatory boards will have issues with this deal.

The Wall Street Journal reported that regulators have some regrets over the Comcast merger with NBC/Universal which they do not want to have repeated by this potential media industry transaction. The Time Warner properties in the cable network division also have exclusive rights (or partial exclusive rights) to sports content such as the NCAA Tournament in college basketball, NBA basketball games both regular season and playoffs, and Major League baseball both regular season and playoff games. This made the deal more attractive for AT&T because of the demand for live sports programming, but it will also make the regulatory scrutiny that much more heightened because that content is meant to be seen by everyone and not meant to be restricted to only certain providers.

This proposed merger, should it gain approval, would give AT&T a huge advantage in providing streaming content for their cellular phones and their new service with Direct TV customers. It would provide Time Warner with more outlets for their content and more consumers in parts of the country which they could not reach with their traditional cable television services. It would offset the loss of cable television consumers through the streaming rights agreements for their content that they will gain through millions of AT&T customers.

However, in the end, this media giant would have more control over more content and that should give both the industry and the consumer cause for concern. This merger should be stopped because it will provide too much control to one corporation, we saw what happened with Comcast and NBC, we cannot afford to let that happen again.

(background information and stats courtesy of CNBC, The Wall Street Journal, and CBS News)