Karmazin's Exit: Old Plot, Same Ending
By Ronald Grover and Tom Lowry
If you were looking for a surprise Hollywood ending, Mel Karmazin's departure from Viacom wasn't exactly a shocker. Most who follow the company figured Karmazin was probably a short-timer as the media giant's president and chief operating officer, even as he re-upped last year with a new three-year contract. Small wonder the stock, which hit a 52-week low recently, hardly moved after the June 1 announcement, easing down less than 1% to close at $36.98.
Almost immediately the fallout was felt. A day after Karmazin headed for the door, so did Jonathan Dolgen, the 59-year-old chairman of the company's entertainment unit, which included its long-sluggish Paramount studio. Dolgen's departure had its own drama attached to it -- the longtime Hollywood executive had crossed swords with CBS honcho Leslie Moonves in recent years and eventually decided he would rather leave than report to the new co-president.
And while Redstone lauded Dolgen as "one of the best and most innovative mangers in our industry," the handwriting was on the wall that the boss had grown tired of his studio's lengthy dry spell and languishing earnings. When Redstone bypassed Dolgen -- who was at one point considered a frontrunner for the No. 2 job -- Dolgen left, citing "the recently announced changes in Viacom's management structure." The question now was how long Dolgen's No. 2, studio boss Sherry Lansing, was likely to stay in her job.
In retrospect, what most Viacom (VIA ) watchers seem to have overlooked was all the boardroom intrigue leading to Karmazin's goodbye. The 60-year-old former ad salesman cited "personal and professional reasons" for stepping down. With an annual salary of $1 million and bonus of $6 million, plus other perks, he'll walk away with an estimated $31 million.
Yet, it now looks like CEO Sumner Redstone had been orchestrating Karmazin's departure for months, dropping well-placed hints and overruling his No. 2 on several occasions. Redstone, a barrister by trade, probably smoothed the departure process by not challenging the noncompete provision of his president's three-year contract and paying him the full amount remaining on his deal.
Karmazin wasn't available for comment for this story. After the announcement, Redstone told reporters that he learned of Karmazin's unhappiness only weeks ago. He said Karmazin was "frustrated" about the stock price of Viacom. "Nobody asked for Mel's resignation," Redstone said.
No doubt. But a few not-so-subtle hints had been sent Karmazin's way. Redstone, who owns more than 71% of Viacom's stock, apparently felt that his investment had languished too long and that a change of management was needed. Earlier this year, Redstone told investors that he had decided to increase film budgets at the struggling Paramount studio -- a touchy subject between Redstone and Karmazin, who liked to keep a tight lid on costs.
Then in April, Redstone hinted to BusinessWeek that he would announce succession plans soon (see BW Online, 4/19/04, "Viacom: Too Addicted to Ads?"). He also cooperated with a New York Times story that hinted his daughter, Shari, was in line for a bigger job at the company. Redstone was quoted as saying his daughter, who lives in Boston, where she runs the family-owned National Amusements theater chain, won't be his successor. But the story apparently hit home with Karmazin, according to company insiders, who say he was growing increasingly downbeat.
When Redstone told investors recently that Viacom was considering buying a cable company, Karmazin retracted the boss' statement later that same day. Was the Viacom chief really at odds with his No. 2 or just putting him in an uncomfortable spot? In hindsight, it's hard to say.
The larger question is why Redstone would force out a guy who had long been considered a miracle worker on Wall Street. Part of the answer is simply that the end rarely comes on an up note for those who work for Redstone. Ask former Viacom President Frank Biondi, who left under similar circumstances several years ago, or Redstone's loyal deputies, Thomas Dooley and Phillipe Dauman, who resigned to start their own investment firm.
Then there's the question of whether Karmazin was ever a good fit for Viacom. A company insider says Karmazin's hard-charging, sometimes abrasive style wasn't winning him plaudits from other top Viacom execs anymore. Also, he struggled in trying to revive the company's Infinity radio chain, which he had headed before a series of mergers brought him and Redstone together, with Viacom's purchase of CBS in 2000.
In the end, Karmazin was no longer working his magic on the Street. That, perhaps more than any other reason, was enough for Redstone to say goodbye -- just weeks after he had told shareholders that the two men were getting along fine and no change was imminent. The Street's reaction to Sumner's departure: "Mel who?" wrote Fulcrum Partners analyst Richard Greenfield.
What happens next? Redstone says he intends to retire as CEO in three years and has named Moonves and MTV Networks czar Tom Freston as co-chief operating officers and potential successors. The word inside Viacom is that Freston, who was Redstone's guy for more years than Moonves, has the inside track. But given his track record with No. 2s, Redstone is just as likely to stick around past his 84th birthday.
As for Karmazin, he's already being mentioned as a successor to CEO Michael Eisner at Disney (DIS ) by dissident former board members Roy Disney and Stanley Gold. They immediately called on Disney's board to interview him. The Mouse House hasn't directly commented on the Karmazin suggestion, but Disney Chairman George Mitchell declared after the Karmazin departure announcement that the outfit continues to have confidence in Eisner after two quarters of strong earnings.
Karmazin, who's still scheduled to be a Viacom consultant for two months, has said he will start looking for his next job after taking a week off to survey his options. One potential stumbling block: He owns nearly 4.1 million Viacom shares, worth approximately $149 million, and has options on another 7.2 million shares -- large holdings that would likely have to be put into trust or be sold if he were to take a job with another media outfit.
As for Redstone, he's back in undisputed control of the business he built from a chain of theaters 50 years ago into the world's third-largest media conglomerate. Alone at the top -- just the way, it would seem, he likes it.