In Search for New CEO, Viacom Can Chase What it Lost: Creativity

  • Hunt for new leadership could lead back to Les Moonves and CBS
  • Owner of MTV, Comedy Central needs money as well as talent
Photographer: John Taggart/Bloomberg

For the first time in a decade, Viacom Inc. has an opportunity to put a creative executive in charge, one who can restore the luster of a once-great media company.

The $14 billion owner of Nickelodeon and MTV, is searching for a new chief executive officer after announcing Wednesday that interim CEO Tom Dooley will leave in mid-November. The company also halved its dividend and said profit this quarter will fall far short of analysts’ estimates.

Dooley, like his predecessor and mentor Philippe Dauman, who was ousted last month, hails from Viacom’s corporate side. Under the two, the company lost the subversive ethos that birthed groundbreaking shows like “South Park” and “The Real World,” and propelled the company to the media world’s upper echelon. The company spent billions buying back stock, failed to produce new hits and alienated many of the executives responsible for its growth.

“Viacom has lacked a CEO with any content experience,” said Tom Eagan, an analyst with Telsey Advisory Group in New York. “It’s been run by lawyers and finance people. The best media companies have a balance.”

That caught up with the company in recent years as viewers and advertisers abandoned Viacom’s cable-TV channels and its film studio struggled to produce successful movies. MTV, Nickelodeon and Comedy Central have hemorrhaged viewers to YouTube, Netflix and Snapchat, while Paramount is in sixth place in the U.S. box-office standings this year and will write off $115 million this quarter on a movie it hasn’t released.

Two Tasks

Viacom said Wednesday it’s no longer seeking a minority investor for Paramount, a top priority for Dauman before he was ousted.

Whoever the board picks, that person will face two challenges: a long-term effort to make Viacom’s youth-oriented media networks relevant again in pop culture, and more immediately shoring up the finances, including $1.4 billion in debt maturing in the next year.

That executive could hail from inside Viacom, outside or from another company within the orbit of the Sumner Redstone family, which owns a controlling stake in both Viacom and CBS Corp. Redstone, 93, and his daughter Shari, with roughly 80 percent voting stakes in both media giants, could try to reunite the two companies, which were split in 2006.

In addition to announcing a CEO search, New York-based Viacom cut its dividend to 20 cents a share, saving more than $300 million annually, and said it will sell debt to raise money. The company’s cash balance was $192 million last quarter, down from $2.6 billion a little over two years ago.

Bonds Yields

Yields on Viacom’s biggest bonds spiked Wednesday, signaling that investors would demand extra compensation for any debt that the company may sell.

Viacom is willing to let its credit rating fall below investment grade, according to a person with knowledge of the matter who asked not to be named discussing corporate strategy. The company carries a BBB- corporate credit grade, the lowest investment-grade rank, from S&P Global Ratings. Moody’s Investors Service rates the company Baa2, one step higher.

“The credit markets are pretty wide open, both on the investment-grade and high-yield sides,” said Stephen Flynn, a Bloomberg Intelligence analyst. “So raising money isn’t as complicated as turning around their operations.”

Recombination Therapy

Investors and Wall Street analysts say a merger is the best answer, and that reuniting with CBS could address both challenges. CBS’s stronger financial footing could steady Viacom and give the company time to rebuild its programming, in a way that keeps cable system operators happy and provides for the development of new online content.

“That would be of interest to me,” said billionaire Mario Gabelli, the second-largest holder of Viacom’s voting stock after the Redstone family.

Viacom needs to reinvest in content and new distribution platforms, according to Gabelli, who said the company also could choose to sell some businesses, like the Epix movie channel or assets in India.

CBS CEO Leslie Moonves has a long history on the creative side of the TV industry, and is one of the most-respected executives in media. His company’s flagship network has been the most-watched U.S. TV channel for most of Moonves’s two decades there.

There are no active negotiations about combining the two companies, Moonves said at an investor conference Tuesday. Yet he also said his executive team was capable of taking on a much larger challenge.

“Our guys could handle a lot more,” Moonves said. “They are very ambitious. They’re very aggressive.”