Viacom and CBS Make It a Blockbuster Night - Viacom and CBS to merge - Brief Article

Kiplinger's Personal Finance Magazine, Nov, 1999 by Brian P. Knestout

Faced with fragmented audiences in the Internet and cable-TV era, media companies are cobbling together a broad swath of platforms to draw audiences, attract advertisers and keep earnings growing. Sumner Redstone's Viacom is ahead of the curve. The company owns such cableTV staples as MTV, Nickelodeon, Showtime and VH1; the Paramount movie and TV studios and half of the UPN network; publisher Simon & Schuster; and about four-fifths of the Blockbuster video chain, which recently went public.

Now Redstone has decided to weld his company to broadcaster CBS and create a media leviathan worth $80 billion in market value, second in size only to Time Warner. Mel Karmazin, president of CBS, will run the new company's day-to-day operations as president, while Redstone will serve as chairman.

This largest-ever media merger is expected to close in the first half of 2000. It will span virtually the entire entertainment spectrum--all that's missing is a circus. The new company blends Viacom's studios and existing broadcast stations with CBS, creating a network that can produce its own shows, broadcast in 18 of the country's top 20 TV markets and earn more than $12 billion in ad sales annually, say analysts. It also gives the new Viacom the resources to make acquisitions and the room to save $250 million to $300 million over the next year in reduced overhead.

Nevertheless, critics point out that moving television production and distribution under the same roof won't instantly equal better earnings. While CBS's ratings are strong once again, it draws an older, less-prized audience, and the price it pays for NFL broadcasting rights hampers profits. Plus, Viacom's half-ownership of the UPN television network could pose obstacles to an otherwise smooth merger. And its reliance on advertising places it at risk from a slumping economy. Still, if the new company can navigate these shoals, it should appeal to long-term investors.

VIACOM

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