The CBS-Viacom Merger: A Media Giant Pops Up

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The new Viacom comprises a panoply of media, ranging from talk radio to roadside billboards and including just about anything and everything that can carry or broadcast an advertisement. That's what has Wall Street applauding the deal. "It will be a one-stop shop," says PaineWebber analyst Chris Dixon. "Ad buyers can come to them for TV time, billboards, radio ads." CBS has also developed a significant Internet presence. That kind of concentration will give Viacom pricing power too. Dixon, like most analysts, forecasts 18% to 20% increases in cash flow to $5 billion in 1999, and combined revenues above $20 billion. Both CBS's and Viacom's stock rose on the news, finishing the week at $51.81 and $47.19 respectively. "It's just perfect," says Merrill Lynch analyst Jessica Reif Cohen. "It gives them all the key assets they need."

Those assets include household names like CBS, Paramount, MTV, VH-1 and Nickelodeon in addition to properties such as UPN, TNN, Showtime, Simon & Schuster publishing and others, giving the company cradle-to-grave demographics. For example, CBS draws the 50-plus crowd, which will be more than offset by Nickelodeon's and MTV's decisively Gen Y and younger constituency. "My kids will respect me more because I'm involved with a channel [MTV] they actually watch," says CBS president Leslie Moonves.

Several factors determine the strategy and tactics of the eyeball biz. First, the economics of recession-proofing a media business: ad revenue tends to decrease in business-cycle downturns, while movie-theater ticket sales increase. Second, the marketing possibilities of leveraging between brands and media: for example, network promos plugging websites; TV shows syndicated to sister stations. And with broadband Internet access looming, media companies feel compelled to lock up as much brand-name content and distribution as possible so they will have product and expertise ready for the digital age. "In order for these big companies to stay competitive, they have to do that," says producer Jerry Bruckheimer. "Warner has had success with the WB, Fox has their network, and now Paramount has theirs."

Time Warner, parent company of TIME, is currently the biggest media company in the world, with assets including cable, broadcast, a movie studio, book publishing, a magazine division and the fledgling WB network. And the Viacom-CBS deal has again piqued the longstanding yearning of Time Warner vice chairman Ted Turner (who once made a run at CBS) to buy NBC, the only major network not affiliated with a Hollywood studio. That's not likely to happen, since Time Warner chairman Gerald Levin seems satisfied with the WB and the company's collection of cable networks.

Karmazin hasn't been completely satisfied with CBS since he's been there, which is one reason he went to see Redstone in his Broadway offices in early August. "The fact that he had me come over to his office means he didn't think any deal was going to happen," says Karmazin, noting that real negotiations take place on neutral turf. But after getting reacquainted with Redstone and discussing a swap of some stations, Karmazin says he began to realize that a bigger deal might be possible.