Five years after creating the world's third-largest media conglomerate by buying CBS Corp. for $40 billion, Viacom Inc. is thinking about splitting in two.
The move would illustrate how the media consolidation of the last decade hasn't all worked out as planned.
Chief Executive Sumner Redstone said Wednesday that he and Viacom's board were considering separating the company's mature operations, including CBS Television and Infinity Broadcasting, from its faster-growing cable programming networks, which include MTV, Nickelodeon, Comedy Central, BET and Showtime.
Redstone has been frustrated that troubles in the radio sector have dragged down Viacom's value and prevented the company from expanding. Creating two publicly traded companies would give Viacom's prized cable programming group its own currency -- its stock -- to use for acquisitions.
"The world has changed, and if you are going to run a successful company you have to adjust to the times," said Redstone, the 81-year-old controlling shareholder of Viacom.
Cleaving Viacom also would resolve the question of who would succeed Redstone, who had set up a horse race between co-Presidents Leslie Moonves and Tom Freston. Redstone would continue to control and be chairman of both companies; Moonves and Freston would each become a CEO.
The proposed breakup underscores the challenges facing the entertainment industry as it realizes that acquisitions have in many cases done as much harm as good.
Time Warner Inc., for instance, has struggled to put the company back on track after its ill-fated $99-billion merger with America Online in 2001. French company Vivendi Universal sold all its entertainment assets except music to General Electric Co.'s NBC after the debt taken on to acquire those assets in 2000 almost bankrupted the company. Viacom last month wrote down by $18 billion the value of the radio and outdoor-advertising assets that were part of its CBS acquisition.
"Some of these deals were so big that companies ended up owning stuff they didn't want," said Leo Hindery, the former president of AT&T Broadband who now heads InterMedia Partners, a New York investment firm.
Some of those unwanted assets are now being shed.
Viacom late last year spun off its Blockbuster Inc. video chain because of its dimming prospects as video on demand and movie downloading started to take hold. The company also has put its book publishing unit, theme parks and theaters on the block, as well as more than a third of its radio stations.
In addition, Time Warner sold its music group last year after a surge in online piracy threatened its growth. The world's largest media giant also is expected to spin off its cable systems into a new company so that it can more easily expand.
"Media stocks as a whole have been a drag," said Frank Biondi, a former chief executive of Viacom and Universal Studios Inc. who runs a private investment firm. "When companies have such large scale, it's virtually impossible to get all the pieces moving in one direction."
Although some of the industry downsizing stems from a need to reduce debt, the failed promise of synergy also is to blame. Viacom expected that combining its vast cable holdings with CBS' radio and television stations would give it clout on Madison Avenue, allowing the company to squeeze more from advertisers by offering one-stop shopping across many media.
Because some advertisers began demanding discounts for buying in bulk, Viacom ended up embracing the more traditional practice of selling each medium individually.
Viacom's plan doesn't mean that media acquisitions are over. Some experts believe the current industry restructuring is simply laying the groundwork for another wave of deals, especially in new media such as video gaming and online and wireless services.
"We're going to go through a stage of reconfiguration," said Michael Wolf, who heads the media and entertainment practice at consulting firm McKinsey & Co. "The media companies are building war chests to assemble digital assets."
Investors warmed to Redstone's idea. Viacom's actively traded Class B shares rose $2.13 to $36 on the New York Stock Exchange, their biggest gain in two years. The shares continued to rise in after-hours trading to $38.80. Viacom's all-time high was $75.87 in 2000. In the last year, the stock has fallen 3% compared with a 7% gain for the Standard & Poor's 500 index.
Should Redstone's plan be implemented, Freston, 59, would head a company that accounts for 45% of Viacom's sales and grew last year by about 17%. It would include MTV Networks, Nickelodeon, VH1, BET, Showtime and Paramount Pictures.
Moonves, 55, would oversee a company that includes CBS Television, the Infinity radio stations and Viacom's outdoor advertising group. Those businesses account for 55% of Viacom's sales and had a growth rate last year of about 9%.