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After three years of negotiations, CBS and Viacom are coming together to form a $30 billion company, controlled by Shari Redstone and cementing her status as possibly the most influential woman in media.
The merger comes at a time when upheaval in the traditional pay-TV market and the rise of digital streaming services have changed the economics of the entertainment industry and pressured media companies to either grow or sell themselves off. With streaming video companies like Netflix now the leading story, CBS and Viacom are fusing their war chests to better compete in the rapidly morphing world of TV and film watching.
But the combined company will still be far smaller than many of the media titans that it will need to compete with.
"Will they be big enough?" said Jessica Reif Ehrlich, senior media and entertainment analyst at Bank of America Merrill Lynch. "It may enhance the strategic positioning of CBS-Viacom, but will it be enough? Scale matters.”
The new entity, which will be called ViacomCBS, will be run by Viacom Chief Executive Bob Bakish, with Joseph Ianniello, now the acting CEO of CBS, becoming chairman and CEO of CBS, according to a statement from the company.
The two companies said they spent $13 billion on content in the past 12 months, and expect to cut around $500 million in costs from the combined business.
“My father once said, ‘Content is king,’ and never has that been more true than today," Redstone, vice chair of the boards of CBS and Viacom, said in a release. "Through CBS and Viacom’s shared passion for premium content and innovation, we will establish a world-class, multiplatform media organization that is well positioned for growth in a rapidly transforming industry."
The culmination of the merger is the result of the tenacity of Redstone, the daughter of ailing Viacom founder Sumner Redstone, now 96. Redstone deferred management to Shari in 2016, who has worked through a barrage of challenges, including navigating a failed coup, overseeing a sexual harassment investigation and dealing with female friends of her father who laid claim to the Viacom fortune and to his estate.
“Shari is going to put it back together again,” said Mario Gabelli, founder and chief executive of Gabelli Asset Management Company Investors, one of the biggest holders of the preferred shares in CBS and Viacom.
But not everyone in the Redstone family is happy about the deal. Keryn Redstone, a lawyer and executive producer in film and TV who is a granddaughter of Sumner Redstone, said she did not support the merger.
“In 2006, when my grandfather separated CBS and Viacom, he did so intending for these companies always to remain separate," Keryn Redstone said. "The direction in which both companies have gone in the absence of my grandfather’s leadership is contrary to that which he had envisioned for success."
What it will own
The newly merged company will house a host of valuable media assets. Under CBS Corporation, the larger of the two companies, are the CBS broadcast network, local TV stations, the premium pay-TV channel Showtime, Network Ten in Australia, 50 percent of the CW Network with WarnerMedia, and the book publisher Simon & Schuster. Viacom owns Paramount Pictures, a variety of cable TV channels including as MTV and Comedy Central, Channel Five TV in the U.K., and Argentina's Telefe TV network.
Both companies also have their own extensive content production units, which provide shows for outside parties, including the thriller “Jack Ryan,” starring John Krasinski, which Viacom made for Amazon.
Together, they will control around $11 billion in advertising revenue and become a formidable negotiating force when it comes to gaining distribution with cable and satellite partners. In some cases, they will have significantly more bargaining power, because distributors might be more reluctant to drop Viacom and CBS, which airs NFL programming.
Why it’s happening
CBS and Viacom will need their greater size to compete with heavyweight rivals such as Netflix — which has 151 million paid subscribers — but also with Amazon, Disney, Hulu and a dizzying array of new entrants such as WarnerMedia's HBO Max and a new streaming service from Comcast’s NBCUniversal. (NBCUniversal is the parent company of NBC News.)
The ensuing competition for the best talent in Hollywood is driving the cost of content higher. Netflix just signed the creators of HBO’s “Game of Thrones” to a $200 million deal, and WarnerMedia has agreed to a half-billion-dollar partnership deal with producer J.J. Abrams.
The CBS-Viacom merger is the culmination of at least three years of discussions. Earlier talks foundered after the CBS board and Les Moonves, the company's former chief executive officer, initiated a corporate coup, attempting to dilute the power of the Redstone family, which holds the majority of voting shares in Viacom and CBS via National Amusements Inc., a privately held firm.
Moonves ultimately departed the company in 2018 after allegations of sexual misconduct. Moonves has denied the accusations.
The merger is the latest consolidation in the entertainment industry, following Disney’s acquisition of large parts of Fox, and AT&T’s takeover of Time Warner. However, the newly merged company will be small in comparison with its competitors — Disney has a market capitalization of $245 billion, while Netflix is currently valued at $136 billion and Comcast is worth $193 billion.
But Shari Redstone is looking to shake up the media landscape even beyond a merger between two major players. She has held informal talks with both Sony Pictures Entertainment and Discovery Communications, and companies such as Vice have pitched to her, according to Vanity Fair.
What does it mean for viewers?
Together, CBS and Viacom will offer a plethora of paid and free streaming services. And while other companies such as Disney have been yanking content from Netflix, CBS and Viacom are eager sellers to their competitors.
But the bottom line is shifting ever higher as companies battle for viewers.
“The media company of the future, if it wants to be viable, has to incur greater levels of investment on a recurring basis," said Brian Wieser, global president of business intelligence at the advertising firm Group M, noting that the highly competitive field means each company will need to spend heavily in order to stand out from the crowd. Netflix, for example, spent $600 million alone on marketing last quarter.
As for those holding stock in CBS or Viacom: “The marriage, while not made in heaven, is certainly going to be heavenly for the shareholders. It’s one step up to the heavens,” Gabelli said.