By Rachel Chalmers
Read the coverage of the CBS-Viacom merger and you’ll come away with a single word: synergy. The rationale behind the $35.89bn acquisition, the largest media merger yet, is as a marriage between content and distribution, an exemplary exercise in vertical integration and an aggregation of eyeballs on a titanic scale. Among the new company’s cable network assets are MTV, VH1, Nickelodeon, TNN, Showtime and Comedy Central. Throw in the Infinity Broadcasting Company, which sells radio ads and billboard space, Paramount Pictures, Simon and Schuster, Blockbuster Video, CBS Television and a bunch of production houses, and you have what the New York and Los Angeles Times reckon will be the world’s second largest media conglomerate behind only Time Warner. News Corp, watch out. And lest you think this all a little tangential to ComputerWire’s central interests, the behemoth’s internet properties include CBS Marketwatch.com, Sportsline.com, SonicNet and MTV.com.
Obstacles remain. Viacom already has a 5% stake in UPN, and US federal regulations bar a single company from owning more than one broadcast television network. Another regulation prohibits a single media company from reaching more than 35% of US households: the merged company reaches 41%. On Wednesday September 8 1999, Viacom CEO Sumner Redstone and his feisty opposite number at CBS, Mel Karmazin, made a special trip to the Federal Communications Commission in Washington DC to argue for clemency. They said they were ready to sell off offending properties if need be, but obviously they’d rather not. Salon’s Sean Elder predicted that the FCC will bless the marriage. After all, it was that agency’s recent decision to permit companies to own multiple TV stations per market that prompted the original talks that led to the deal. As ComputerWire went to press, the FCC was playing its cards close to its chest. A spokesperson told AP: Our policy is to evaluate mergers to see if they meet the public interest standard.
Assuming, then, that CBS-Viacom is a done deal, what will it mean for the web? For us, the internet is not an add-on – it’s a major, giant new growth business, said Viacom’s Redstone when he announced the deal yesterday. That strategy is enhanced when you marry our internet strategy to their internet strategy. CBS has spent the year on an aggressive web-content buying spree, bartering cross-media promotion for equity in promising startups. Big Entertainment, Jobs.com, Rx.com, Switchboard.com, office.com, Medscape, Hollywood.com and Wrenchhead.com are only some of the sites to have sold themselves for the network’s heady promise of radio, television and billboard advertisements.
As for Viacom, it recently formed MTV Interactive to run the web sites MTV.com, VH1.com, SonicNet and Imagine Radio. Other assets include comedycentral.com, blockbuster.com, JudgeJudy.com and MelrosePlace.com. Viacom is more promotional, whereas CBS properties are more informational and transactional, market researcher Gary Arlen told Reuters. Despite their cultural differences, however, the companies already command a huge presence in the digital downloadable music market. What’s more, both CBS and Viacom have been testing the waters for internet spin-offs. As a separate, publicly traded company, their combined internet units could be worth $1bn or more, Wit Capital’s Jordan Rohan told Variety magazine.
That said, integrating the partners’ web interests is nowhere near the top of their agenda. Right now, the trick will be pulling the merger off at all. The joined company could be worth over $80bn and will clock around $4bn in cash flow. On the upside, duplicated functions will very probably be rationalized, resulting in cost savings as high as $300m per year. And early opinion is that the necessary managerial experience is in place. Redstone remains CEO, but the dynamic Karmazin will become his president, chief operating officer and heir apparent. All mergers should, given the historical record, be greeted with skepticism, acknowledges Slate magazine’s James Surowiecki. But in acquiring the rights to Karmazin’s services and CBS’s assets, Sumner Redstone may have made the best decision of his business career.
