In 2000, I was a financial and media reporter working at a Bay Area start-up. At the time, nearly everyone I spoke with thought that the merger of Time Warner and AOL was a fabulous idea. Advertisers were happy about the prospects of easily buying across a wider range of platforms and audiences. Tech people saw the deal as proof old media was on the way out and legacy media executives saw the deal as the first in an upcoming wave of deals that would combine the best of both worlds.
At the time, I argued against the deal, much to the chagrin of some of my bosses and fellow reporters. In any deal, talk of cost savings and business synergy is generally over-valued and an AOL/Time Warner merger seemed less likely than most to find ways to merge their disparate businesses. But investors and analysts can be caught up in their own hype as much as anyone and critics of the deal were few and far between. But as we now know, the AOL/Time Warner merger was a disaster for both investors and the two businesses. For example, the market cap of the two companies at the time of the merger was a combined $350 billion. Even the most optimistic current valuing of what's left of those two companies is $75 billion.
So I feel more than a bit of deja vu when I see the giddy anticipation from analysts and investors over a possible CBS/Viacom merger and a combined company run by CBS head Les Moonves. But like the AOL/Time Warner merger, the deal seems much more promising in the abstract than it would be in reality.
As this piece in The Wall Street Journal notes, media buyers like the idea of a combined company and that makes sense. Fewer people to negotiate with makes like easier for them:
"From a buyer’s perspective, it creates healthy competition in the marketplace and gives us a great deal more fluidity across a diverse set of assets,” as well as more “compelling packages," said David Cohen, president of Interpublic Group of Cos. ’ Magna media-buying unit in North America. "Viacom is the scrappy kid in the playground willing to try anything once and CBS is the tried and true elder statesman. The juxtaposition of these two is actually quite exciting and something I’d very much like to see."
But making ad buys less complicated for advertisers doesn't bring any real value to a merged CBS/Viacom. And in fact, the piece doesn't even try and argue that "ease of use" is a valid reason for the merger. It does, however, contain a statement from National Amusements Inc., which holds nearly 80% voting stakes in CBS and Viacom. That statement argues the merger could "allow the combined company to respond even more aggressively and effectively to the challenges of the changing entertainment and media landscape."
That vague proclamation doesn't provide much of a reason why the deal makes sense, other than serving to consolidate power among some members of the Redstone family. How does a combined company respond more aggressively than the two individual companies can now? In fact, there's a good argument to be made that a larger company containing such disparate properties could be less nimble and more likely to be risk-adverse at a time when the media business is undergoing a whirlwind of changes.
Much is made of the success of Les Moonves during his time as CBS CEO. And there are many success for him to be proud of. CBS remains strong in primetime and it has been able to monetize its content as well as any American television network. Revenues are also strong, although it's worth noting that an increasingly large percentage of the CBS revenue stream is provided by licensing of content and retransmission consent fees. Neither one of which are likely to continue growing at their current rate.
But even if you accept the premise that Moonves has been successful at CBS, there is little evidence to suggest he can turn around Viacom's troubled cable networks. Viacom owns a wide range of properties and they each have different problems. But generally speaking, their ratings are slumping from a combination of competition from streaming and an audience's reluctance to sit through the current heavy ad load. Nothing in the background of Les Moonves suggests that he is the right person to solve either of those challenges. In fact, there's an argument to be made that the best way to revive Viacom's lagging cable TV assets is to completely blow up the current business model and that seems an unlikely choice from a guy who has become a leading proponent for the current broadcast television model. In fact, the only short-term positive for a Moonves-led Viacom is that he could use Viacom's many cable assets as more leverage to extract increased retrans fees from pay-TV providers. But that's a short-sighted approach that would inflict even more damage on Viacom's struggling TV networks.
Les Moonves does what he does very well. But I'm not convinced that he's the best future for Viacom, despite the relentless hype from some media analysts. Wall Street loves to deal with familiar faces. But sometimes, what sounds good in the abstract turns out to be a disaster once it's time to get things done. Viacom's problems won't be fixed by simply grafting it onto another media company. It needs a new CEO and a new vision for success. Neither one of which will appear if CBS and Viacom do indeed merge back together.