The CBS-Viacom Merger: Silicon Valley Is Not Impressed

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Is CBS worth $36 billion? Yeah, on Wall Street, where it's 1999, and advertising on TV networks is the best way to sell SUVs and six-packs to the masses. In the hearts, minds and business plans of Silicon Valley, however, it's 2005. Most U.S. homes and every last dorm room and office have high-speed connections to the Net; a wired nation surfs an endless array of digital infotainment, and--sorry, Sumner--the '80s-era conglomerates brimming with vertically integrated synergy are about as relevant as rabbit ears. The Viacom-CBS merger "has the feel of a nostalgia purchase," says Paul Saffo of the Institute for the Future. "It's as if you're out hiking, and a mastodon pops up in front of you."

If that actually happened, of course, the mastodon would squash you flat. The Viacom-CBS deal is about translating media distribution into ad dollars, and in the current world, CBS's TV, radio, billboard and Web properties will make the new Viacom a promotional and marketing juggernaut. Viacom, says PaineWebber analyst Chris Dixon, "is clearly going to be on the cutting edge of any kind of ad spending that's being done across all media."

Well, maybe--except the coming broadband Web seems expressly designed to hasten the demise of Viacom's broadcast-media landscape. "I don't understand how the [TV] networks get bigger," says Joe Krause, senior vice president of content at Excite@Home, one of the broadcast world's likelier rivals. "I only know how they get smaller."

How? Let's see. A 50-channel cable universe cuts its viewership in half? Have fun in a 500-channel medium. Or 5,000. Or 5 million. "You'll be competing for people's attention whether you're a radio website, a TV site or my grandmother's birthday-party site," says Todd Wagner, CEO of Broadcast.com the online video site that Yahoo snapped up last summer for $5.7 billion.

Then there's the ebbing power of ads themselves. Why should marketers shell out for tomorrow's Must-See Thursday lineup when digital VCRs like Tivo and Replay will let viewers order up any show, anytime--and effortlessly skip ads once they do? The future belongs to the customizable, one-to-one marketing software that e-commerce types are now inventing.

Won't the world's Viacoms be capable of competing on this terrain? Sure. Between Hollywood's program libraries, production studios and promotional muscle, when the behemoths put their full weight online, they'll be some of the biggest dogs on the block. What's more, predicting a paradigm shift based on a declining American appetite for ordinary TV may prove to be a fool's errand. Still, CBS's $36 billion price tag derives from its status as a network that dominates Madison Avenue's ad dollars, not as just another player in a new and unpredictable ball game. "The Web turns viewers into the programmers and the network," says Wagner. "That's what the revolution will be." In which case, whose heads are likeliest to roll?

--By Michael Krantz