Hoping to cut costs and boost advertising at its unprofitable UPN television network, Viacom Inc. said Monday that it will combine CBS and UPN under one management team in January.
As a result of the restructuring, UPN will report to Leslie Moonves, who is credited with turning around CBS as the president and chief executive of CBS Television. The loser in the management change is Kerry McCluggage, chairman of Paramount Television Group, who will resign Jan. 1.
Broadcasters are facing the weakest advertising market in a decade, and Wall Street praised Viacom's move.
"This is long overdue," said Jessica Reif Cohen, an analyst at Merrill Lynch.
Viacom will save less than $10million a year by combining the two operations, including advertising, programming and promotional staffs, analysts say. And the company also should be able to boost revenue by packaging UPN and CBS commercial time together for advertisers. UPN, the fifth-rated network, suffers from the lowest advertising rates of the six networks.
The realignment has been widely speculated upon since Viacom, which co-founded UPN, merged with CBS more than a year ago.
Company sources say that Viacom CEO Sumner Redstone has championed maintaining the status quo because he was worried about upsetting both McCluggage and Paramount studio chief Jonathan Dolgen. The two executives have overseen UPN since its inception in 1995.
In an interview with the Times last month, Redstone said the Paramount executives were just starting to see the benefits of a climb in ratings and he was not eager to break up a successful team.
But sources say Redstone lost this battle to Viacom Chief Operating Officer Mel Karmazin, who has been eager for UPN to benefit from the programming and advertising clout of CBS. They say Karmazin has been frustrated that UPN has not seen advertising rates climb along with its ratings.
Though Redstone controls Viacom, Karmazin's contract enables him to run the company day-to-day without interference. Ironically, this year UPN has enjoyed the biggest ratings growth of any network, thanks to heavy spending on the popular new Star Trek show "Enterprise" and its winning a bidding war with rival WB network to broadcast "Buffy the Vampire Slayer."
Critics of the network say these expenditures increased UPN's losses, making it more vulnerable to an overhaul.
"UPN has not established its personality because of [programming] changes year to year, while the WB has been more consistent," said John Muszynski, an executive at ad agency Starcom Worldwide.
The two fledgling networks have been in a fierce rivalry since they started in the same month.
"UPN had its voice, then lost it," Dolgen said. "We've made great strides recently; if only we had been a year ahead on programming or the advertising downtown had come a year later."
Dolgen, though, said Monday it was sensible to pair the network with CBS.
Company sources say the merger of the two networks would have happened sooner but the timing was never right. Until two years ago, UPN was owned 50-50 by Viacom and Chris-Craft Industries Inc. Viacom brought programming and a growing group of mid-market stations to the partnership while Chris-Craft brought one of the strongest station groups in the country.
The partnership ended bitterly, with Viacom buying out its partner after a legal battle for only $5 million. The company then debated whether to keep UPN alive after losing to News Corp. in a bid to buy Chris-Craft, UPN's biggest station group. Owning the stations is key to making money in network television.
Television executives speculated that CBS would now use UPN to offset rising programming costs by rerunning shows in the same week on both networks. But Moonves said there was no plan to do so. He said each network would maintain its own identity, with CBS pursuing an older audience and UPN, which also runs wrestling shows, targeting young male viewers.