In the face of a sagging stock price, Viacom Inc.'s board unanimously approved a plan Tuesday to split the nation's third-largest media giant into two publicly traded companies, one focused on fast-growing cable programming and the other on the more mature broadcasting business.
Chief Executive Sumner Redstone will be chairman and controlling shareholder of both companies after the division occurs in the first quarter of 2006.
Redstone has been exploring a possible split since March, when he grew frustrated that troubles in the company's Infinity Radio group were overshadowing the strength of his stable of cable channels, led by MTV and Nickelodeon. Viacom's shares have fallen 48% since the $40-billion acquisition of CBS Corp. in May 2000.
Under the plan, Viacom shareholders will receive stock in a new company that will retain the Viacom name. That company, which will include cable channels as well as Paramount Pictures, will be run by Viacom co-President Tom Freston.
The other public company will be called CBS Corp. Headed by co-President Leslie Moonves, it will include the broadcast TV network, TV stations, outdoor advertising group and Infinity Radio as well as assets originally owned by Viacom such as the UPN network, cable channel Showtime and publisher Simon & Schuster Inc.
Freston and Moonves are each expected to become chief executives.
Also on Tuesday, Viacom named Redstone's daughter, Shari Redstone, 51, a director since 1994, as nonexecutive vice chairwoman.
Last week, as he prepared for the board's action, Redstone spoke with The Times about the changes he'd set in motion. Seated in the living room of his hilltop mansion high above Beverly Hills, Redstone appeared relaxed, with his wife, Paula, and his dachshund mix, Murray, at his side. At 82, he said, he was still in the vanguard, setting trends that he predicted other moguls would soon follow.
Question: Why split the company five years after merging it?
Answer: These businesses are different. We've realized as much of the synergies as we're going to. I remember very well, before we merged with CBS, that Viacom was the fastest-growing media company. What were we then? MTV Networks and Paramount. MTV had about 450 million subscribers worldwide. It has more than a billion today, but that enormous value has not been realized in the present conglomerate structure.
Q: If broadcasting is holding MTV back, was the 2000 merger a mistake?
A: Wall Street wouldn't have taken the stock to $70 a share if it wasn't a good deal. But the world has changed. When we did that deal, radio was growing at 27% and nobody could have conceived of it going to zero. You can say that cable programming assets are all you need, but for major events like the Super Bowl, you need the reach of a broadcast network. Les [Moonves] had 9 of the 10 top shows on television last week, and that's why CBS is a great asset to own.
Q: Were the synergies that drove some of these mergers hyped?
A: For the most part, they have already been realized. For example, instead of losing a lot of money, the UPN network will now break even and start making money.
Q: So is Viacom a pioneer in deconsolidating media?
A: The world of the conglomerate has passed. Two other major media companies are considering what we are doing to see if some kind of division of their assets would ultimately enhance their value. I know I am pioneering a trend because one came to see me and said the idea was brilliant and that he was considering doing this with his own assets.
Q: Why hasn't Wall Street reacted more favorably?
A: I think people have been skeptical about whether the split would happen. Most analysts think this will take the stock to $45 or $50 a share. (The company's Class B shares rose 11 cents Tuesday to $34.21.)
Q: Splitting Viacom up will give MTV Networks its own stock to use for acquisitions. What are you looking at buying?
A: Cable programming assets are at the top of the list, closely followed by Internet acquisitions and gaming, which is the fastest-growing part of the entertainment industry. I'm in negotiations to buy certain [cable] channels, which I am not going to identify.
Q: Would you consider buying a social networking site such as Friendster?
A: Tom [Freston] thinks certain Internet assets will help growth and work well with MTV. I don't want to go into details.
Q: Did you miss the opportunity to buy an Internet company such as Yahoo when the Internet bubble burst and prices were cheap?
A: I never dwell on lost opportunities. If we need a Yahoo we will become a Yahoo. We'll build it ourselves.
Q: Some skeptics say that cable is mature and that CBS may be the faster-growing company.
A: I don't think any company in the world can grow as fast as MTV Networks. We have opportunities overseas that no one else has because of the strength of our brands and the eight years I've spent cultivating relationships in China, which is expected to become the No. 1 advertising market in the world within four to six years.