CBS Viacom Merger Impact

CBS and Viacom finally completed their merger after rumors over the past few years of joining forces, and more than fourteen years after the two companies had split apart initially. The deal follows about three years of drama around the various power players involved in bringing together two large media companies in an era of increased competition in the industry.

The new company will be split 61% to CBS stockholders and 39% to Viacom stockholders, and is estimated to generate $28 billion in revenue. It will be called ViacomCBS, will integrate content from both companies into the ever-popular area of streaming with the CBS All Access application.

However, the combined company will continue to license their programs to Netflix, Amazon, and others because of the enhanced revenue that can bring to their portfolio as well. The new content library is deep and their audience reach is massive, which will serve the new company well in negotiating for advertising dollars with the Fall TV season ready to begin soon.

The new ViacomCBS can compete in the space, but is dwarfed by Netflix ($136 billion in revenue), Disney ($245 billion in revenue), and Comcast ($193 billion in revenue) and one prevailing theory is that they are positioned now to acquire another media company to keep pace with the rest of the industry.

Some media industry experts have linked the newly merger companies to potentially target AMC Networks for consolidation. Some other reports have ViacomCBS in negotiations with Sony Pictures, Lions Gate (to purchase Starz), and Discovery Networks all as potential acquisitions that would help them compete with Netflix, Disney, and Comcast.

The immediate future revolves around integrating the personnel of both companies and determine who will take on some of the responsibilities of leadership in newly structured business units as well as on the corporate level.

The flipside to this deal is that some politicians have criticized the merger saying that it will limit competition, increase price of cable, satellite or streaming services. This observation is certainly justified based on the backdrop of the AT&T merger with Time Warner which produced some of those same consumer issues. WarnerMedia, the name of the new company, had content pulled from cable providers and available only on DirecTV, which is also owned by AT&T.

This maneuver has caused trepidation whenever media companies are consolidated or merged in the current climate. The CEO of the new company is Bob Bakish, and the Chairman of CBS is Joe Ianniello and they are looking to maximize some of the advertising revenue because they reach over 20% of all television viewers, and their strategy is trying to leverage that better as a combined entity in those negotiations with advertisers and sponsors.

CBS has also an uphill climb ahead of them with the harassment claims and the multiple reports of toxic work environment claims that have made headlines in recent years. The new executive team has promised a climate of “inclusiveness” and the company has made big changes to the CBS News division naming a female to the top executive post there, and installed Norah O’Donnell as the anchor of their flagship evening news broadcast.

CBS and Viacom have so many synergies that make sense in this deal, and the hope from their executive leadership and Wall Street analysts is that this new merged entity can usher in a new chapter for CBS amidst their struggles recently. The upcoming television season and the Fall “sweeps” period will prove whether or not this merger will begin a new day at the company, or if it will remain the status quo.

(Background courtesy of Business Insider, CNN, Vox.com, and Boston Globe)

Follow Up: CBS – Viacom Merger Talks Intensify Again

This follow up piece seems like a recurring dream, something you remember doing and then find yourself doing again, the CBS-Viacom merger talks are back in full swing. The earlier work on this site about the merger focused on a variety of angles: the business implications of the deal, the consumer impact of the deal, the changes in the media industry, the inner workings of the CBS feud with National Amusements, the power struggle at the top of the company, and finally the potential for CBS to be purchased by a tech company.

This piece will look at the current situation as well as why some of those other aspects did not ultimately come to fruition. The power struggle and the resistance of CBS from being merged with Viacom has shifted since Les Moonves was dismissed as CEO last Fall after sexual misconduct allegations mounted against him.

The business landscape has changed as well with Disney obtaining the 21st Century Fox subsidiary units and movie studio, and AT&T merging with Time Warner to create Warner Media. These maneuvers have certainly put some pressure on Shari Redstone and National Amusements to determine how CBS is going to stay competitive in an ever-changing media dynamic.

Furthermore, the situation at CBS has changed since the talks began a few years ago, where the network side of the business was home to huge ratings hit shows. The viewership has moved away from network broadcast programs to the streaming and premium cable channels. This has seen series from Netflix, Amazon, and other streaming providers take ratings share away from the “Big Four”.

In addition, the hit series from HBO such as “Game of Thrones”, Epix, Starz, Showtime, and other premium networks all have produced original content that have siphoned viewership away from the networks, and with that goes a portion of the advertising revenue.

It is not like CBS does not have series programs that capture viewers. However if you look at the ratings for the 2018-19 television season, CBS series have performed at a downward trend. The following data supports that and is most definitely driving CBS and Viacom back to the negotiating table:
“Big Bang Theory” 18 to 49-year-old demographic down 17% year-over-year and down 8.2% of viewers overall.
“Young Sheldon” 18 to 49-year-old demographic down 21.7% year-over-year and down 11.3% of viewers overall.
“NCIS” 18 to 49-year-old demographic down 11.1% year over-year and down 6.6% overall viewers.
“Mom” 18 to 49 -year-old demographic down 15.2% year-over-year and down 7.7% of overall viewers.
That is alarming when the top four shows on the network are down in the coveted 18 to 49 and overall metrics. The network has other shows in the top ten shows of their lineup including “NCIS : Los Angeles” and “Man With A Plan” that are also down significantly in both categories.

The other issue is that aside from “Big Bang Theory”, which is in its final season, all of the other series mentioned have been renewed for next season. The network introduced just eight new series this TV season so far, and most of those concepts are cancelled already. The reality is that CBS has had a great run at the top of the ratings book for a while, but they need fresh new concepts. The whole lineup needs to be revamped.

The business is changing and they have to adapt with that in order to stay relevant. The network has also been struck with a stretch of bad luck. The Super Bowl this past February was the lowest scoring championship game in history, and viewers checked out of it, so ratings were down for the biggest television event of the year.

The network also has the rights to the NCAA men’s basketball championship and those ratings were down because the two teams in the championship (Virginia and Texas Tech) were not a ratings draw for the average viewer.

The internal politics of the dynamics there, which has been covered previously on this site, adds another layer of turmoil. The parent company of both CBS and Viacom is National Amusements International (NAI). The dismissal of Moonves means that CBS needs to appoint a new CEO, these new negotiations over the Viacom merger will hold up that process.

The speculation is that the merged CBS and Viacom would most likely be run by Bob Bakish, who currently runs Viacom because he has a close relationship with Shari Redstone who runs NAI in place of her father who is ill and not in the picture. The combined company would either continue to grow using the content and synergies between the two entertainment entities, or they could fetch interest by a larger investor who could buy the whole combined company.

In prior coverage of this topic, CBS was reluctant to merge with Viacom because they were hopeful that a larger “new media” company would purchase them from NAI. They even had a window negotiated to get that type of deal done. In my view, I had speculated that CBS would be purchased by Verizon to propel their expansion into the content that every media company is looking to capture.

There were others who speculated that Amazon would purchase CBS because of their existing business relationship/partnership for streaming of certain content on Amazon Prime Video. That also did not materialize. The fact is that the “new media” or tech companies are focusing on developing their own content and they are not interested in purchasing the assets of another company.

It is similar to football and getting a quarterback, most teams do not want to acquire another team’s guy that has already been in another system, the team would rather draft their own guy and build them up from the foundation according to the principles and techniques that they coach as an organization. The tech companies do not want someone else’s productions, they want to build up their own productions.

It is in this light that the jump-started negotiations between CBS and Viacom should be viewed. The reality is that CBS would have been purchased already if a potential buyer was interested. The combined unit would bolster the content holdings of the company as a single entity with much more cable television content from BET, MTV, CMT, Comedy Central, Nickelodeon, among others.

The reality is that while this merger might not be the ideal one for either side because of all of the history and the bad blood between the two companies (made complicated by the fact that they are both underneath the same parent company in NAI) it is the only deal on the table right now. Both entities are heading toward a scenario where they will not survive as separate units.

The impact for the consumer if the two companies should merge could go either way because CBS/Viacom could potentially negotiate better deals with advertisers and for cable rights carriage fees which could lower the cost of some cable or satellite packages.

However, it could go the opposite direction and the combined entity could decide to park streaming content into CBS All Access, which is a subscription based streaming application and they could hike up the membership fee. The combined CBS/Viacom could also create their own apps for each network or put them all on a combined stand-alone streaming application for the Viacom properties and then charge a membership fee for that content.

In the end, the next few weeks to the next couple of months could yield some big news in the media industry. The board members opposed to this deal have been removed, these negotiations seemed poised for a completed merger between two companies with a deep history of resentment. The dust will settle and then we will know whether this combined company will help or hinder the average viewer. We will also know whether this merger will have limited or significant impact on the industry overall.

Stats, some background information courtesy of Fox News, TV Series Finale.com, Nielsen)

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)

Follow Up: CBS, Viacom, A Lawsuit, & Verizon

In a follow up to the earlier coverage on this merger, the drama around CBS and National Amusements (parent company of both CBS and Viacom) took a disastrous turn on Monday. The board at CBS took a harsh tactic in the negotiations by suing National Amusements in a Delaware court to block the potential merger with Viacom.

The suit seeks to dilute the authority that National Amusements has in CBS by reducing their voting stock percentages and other high level business machinations which are involved in certain situations when a company is going into a defensive mode to avoid consolidation.

The lawsuit also involves CBS seeking the protection of the CBS Board of Directors from being altered by National Amusements at any point now or in the future. This is a maneuver intended on preventing Shari Redstone from removing certain board members at CBS who have indicated that they are against the Viacom merger, and having her “stack the deck” with people aligned with her in pushing through the merger.

Furthermore, the suit also seeks protection for CBS so that they essentially do not have to accept a “bad merger” deal. This news on the lawsuit comes from Forbes, CNBC, and USA Today. Redstone, has stated that she had no intention of making changes to the CBS board, and both sides are pointing fingers.

This situation is getting ugly, to say the least, and it is unusual too because National Amusements has a hand in both entities already. The normal circumstances of other mergers or acquisitions are between two sides that have no prior affiliation. The ruling of the court in this situation will provide some insight into the potential path that this merger will take in the months ahead.
The court ruling will also provide a legal precedent for the future for M&A activity of this type. In my earlier feature length piece on this merger, the variables were presented regarding the differences of strategic vision that Ms. Redstone and Les Moonves (who runs CBS) had regarding the future of the company.

The merger makes some degree of sense because the assets of Viacom, particularly the cable television outlets, would provide CBS with more content to control and also a wider footprint in cable TV. The recent industry report that was published yesterday touts that cable television revenues have increased by about 10% nationally would seem to indicate that this potential merger is timely for CBS.

However, in my experience covering M&A activity, I kept returning to the rationale behind why CBS would take the option on Monday to sue National Amusements (which some in the media call “the nuclear option”). The only scenario that made sense to me was that CBS had another deal forthcoming or another potential partner for a deal they were trying to work out in back channels.

The one potentially fit in my mind was Verizon, because it had been rumored before, and I wrote about that possibility in an M&A “roundup” type piece I did on media companies. The synergy between Verizon and CBS makes sense for both parties given the other acquisitions and consolidations surrounding both of those entities.

Verizon is under pressure from AT&T, who is attempting to merge with Time Warner, and the federal government has a lawsuit in place currently to block that merger. Comcast is in the process of a bidding war with Disney over the assets of 21st Century Fox as well.

In fact, some within the financial news media suggested that Verizon may have backed off from making a formal proposal to CBS because of the federal government response to the AT&T deal with Time Warner.

The news broke about three hours ago today that Verizon has had contact with CBS and that there is some renewed interest in a potentially deal. That makes sense given the steps that CBS has taken with the lawsuit here against National Amusements. They may not want to take the Viacom deal if they have a better deal with Verizon.

The rather limited cable presence of CBS (Showtime and a couple of smaller channels) would be enhanced by a partnership with Verizon. The network shows on CBS are tremendous ratings drivers, which along with the NFL and other sports content, makes CBS a desirable commodity for Verizon as they seek to keep up with their competitors in the marketplace.

The Verizon potential involvement could be the “wrench” that gets thrown in the CBS – Viacom negotiations that causes a rift that cannot be repaired. The decision of the court will loom over this merger and will be pivotal to which direction it takes in the months ahead.

In the meantime, if the AT&T lawsuit with the government gets resolved that will determine the strategic direction that Comcast will take in the bidding war with Disney over Fox and will provide guidance to Verizon as they determine their commitment to acquire CBS. It is similar to a giant game of dominoes, except that billions of dollars are at stake as well as the careers of many seasoned industry executives, and the fate of consumer choice hangs in the balance.

Follow Up: CBS Merger With Viacom Gets Contentious

The back and forth nature of the proposed CBS merger with Viacom has taken a turn that is very contentious. The discord centers around Shari Redstone, who controls National Amusements which owns Viacom, and Les Moonves the current top guy at CBS.

Redstone and Moonves had initially discussed, according to CNBC that Moonves would run the combined new entity for a period of two years. The reports widely distributed point to the source of the contention being control over the top management team selections. Moonves wants the authority to assemble his own team of people to run the newly combined company.

In addition, Moonves wants his longtime colleague, Joe Ianniello , to be his second-in-command at the combined venture. However, Redstone wants Bob Bakish (the current Viacom CEO) as the second-in-command to Moonves at the newly merged CBS-Viacom.

This comes down to relationships, which frequently is the lowest common denominator in these situations but also the most important one. Shari Redstone holds a great deal of authority here in this situation and she obviously feels strongly that Bakish deserves a “seat at the table” in the new entity.

The view and position of Les Moonves is also understandable, he and Bakish do not work together every day. Moonves and Ianniello work together daily at CBS and have a loyalty to each other that would most definitely serve the combined company well.

Furthermore, the rumor mill is swirling with media reports of Shari Redstone being prepared to let Moonves go and create a whole new CBS board. These developments make an already turbulent situation even that much worse. The executives at CBS have thought from the onset of the negotiations that the Viacom offer for CBS is undervalued.

Therefore, in addition to feeling “low balled” on the offer, they also feel like they are under attack by Redstone, and they are getting defensive in their posture of response. These are natural human emotions that are taking place with a mega-merger hanging in the balance.

The sticking point, from a business perspective and a public relations/investor relations perspective is to have an experienced executive at the helm of such a large and complex operation as the proposed entity of CBS-Viacom would represent. The analysts on Wall Street have confidence in Les Moonves in that spot, with Bob Bakish in that position or someone else with less experience, that would not produce a favorable response from Wall Street.

The other scenario at play here behind the scenes is the sentiment that Viacom needs this merger more than CBS does at this point. This notion has degrees of truth because Viacom has the need for a partner for their basic cable networks in order to gain better leverage in negotiations with cable and satellite providers. Viacom also has the Paramount movie studio which is losing money seemingly by the minute.

Conversely, CBS needs to position itself to compete within an ever-changing climate in the television industry. The merger would provide CBS with more content to drive on their CBS All Access streaming platform. It would also provide CBS with more “pull” with advertisers that are looking to gain exposure for their brands across multiple cable networks as well as national broadcast programing.

The faster they realize that they need each other, the faster this deal will come together. They need to solve this acrimony which exists around the selection of key appointments to the management team of the new entity. The two sides should consider some type of compromise because the experienced leadership Moonves could provide to the new combined company is not easily replaced. I would think they could find some type of important role for Bakish to play in the combined new company.

These connections, the loyalty, and the relationships that these key people have with each other could serve to make this merger be one of great success. It can also have the reverse effect and create a massive mess for a merger deal of this type and carry over through the initial years of the new entity. It remains to be seen which direction that this situation will head down in the weeks ahead.

CBS & Viacom Explore Merger Again

The news on Wednesday that CBS and Viacom were once again exploring a merger opportunity should come as no surprise given that the same person, Shari Redstone, is “running the show” at both corporations because her father, who is the chairman of CBS is very ill.

The potential merger is being driven by a strategy to get ahead of the likely merger of AT&T and Time Warner which would create an enormous media conglomerate. The recent merger that is likely to meet full approval between Disney and FOX is another reason for CBS and Viacom to view each other as a potential “port in the storm” scenario.

The combination of the two entities would combine television/media content creation and broadcasting with the expertise Viacom has in distribution of that content. The ability to have expertise in both areas is becoming a necessity in the mainstream media in order to be able to negotiate profitable distribution agreements.

Furthermore, the synergy of content creation/broadcasting and distribution is becoming crucial for the smaller players in the industry to be able to stay relevant with the competition from Disney/FOX and AT&T – Time Warner (AT&T also owns DirecTV).

This is especially relevant when you consider that AT&T has a market cap of over $200 billion and CBS has a market cap of $23 billion. In the event that AT&T merges with Time Warner that number could be close to $300 billion. The Disney and FOX deal will put that combined corporation at around $250 billion in market cap.
The CBS – Viacom deal might become a necessary move to ensure their own survival in the changing media landscape. The distribution of content is critical, and control of content is also an integral part of the connection between content and profitability. The two companies have several areas of cross-compatibility which is suitable for a merger opportunity.

The merger, if approved, would potentially bring together a more robust stable of networks that are widely available on basic cable packages that would provide leverage for CBS & Viacom when negotiating the carriage fee agreements.

This same principle would apply outside of the U.S. domestic market where a combined entity would be a serious player in the international media / television broadcasting space. My own depth of knowledge is not in the international market but plenty of coverage is out there on that area of this potential deal.

The streaming service that CBS operates called CBS All Access would gain a significant increase in content by merging with Viacom. CBS would also obtain the control of the Viacom owned Paramount movie studio, which should be noted is struggling at this point.

Wall Street is not keen on this deal, according to Forbes they do not see the synergies or the market caps of the combined entity being significant enough to make a difference in the media industry at this point. It also notes, as other major financial news outlets have noted, that CBS is a ripe target for being obtained themselves by Verizon.

The Verizon-CBS rumor has been long running now and it remains to be seen if Verizon wants to take that strategic dive into the network television arm of the industry. The resources of Verizon would be a significant deal within the media industry that would create some serious ripple effect.
However, for now, at least for the next few weeks the focus will remain on CBS and Viacom and if they can determine the parameters of a deal. The combination will not reshape their industry segment but it will have an impact on the way content is controlled and distributed. In that sense, this deal is significant because with the meteoric rise in streaming television programs, content rights are king. CBS would hold the keys to some important properties. Stay tuned.

(some background provided by CNBC, Recode, Forbes, CNN Money.com)