TCS Daily


Is Viacom Viable?

By Dominic Basulto - April 21, 2005 12:00 AM

Media conglomerates like Viacom are struggling with a rapidly-shifting media landscape and a number of external forces that threaten to make their former business models obsolete. Technologies like the Internet, TiVo and satellite radio continue to erode traditional broadcast audiences, while at the same time, forcing marketers to rethink how to allocate their advertising dollars. After an $18.4 billion write-down of its assets in February; the exit of senior executive Mel Karmazin last year and the imminent departure of Howard Stern next year (both to Sirius Satellite Radio); and the lingering bad taste created by the news scandals surrounding Dan Rather at CBS News, Viacom is under pressure like never before. In order to adjust to this changing media world, Viacom will need to act quickly and decisively.

With shares of Viacom trading near a 52-week low, Sumner Redstone has already declared that 2005 will be a transition year for Viacom. In just the past three months, the company has already taken several important steps. In March, Redstone announced that the company could spin off CBS and other slow-growth broadcast properties. By breaking up the company into two different pieces, Redstone and his investment bankers hope to unlock the true value of the company. In April, Viacom also announced plans to bundle together its various Internet Web sites -- CBS.com, CBS SportsLine.com, CBSNews.com and UPN.com -- into a new operating unit called CBS Digital Media.

 

Moreover, Viacom announced a new multiplatform strategy which will enable the media conglomerate to leverage existing media brands with the Internet, mobile devices, video games and interactive TV. For example, Viacom plans to launch MTV Overdrive, a Web channel through www.MTV.com that will feature more opportunities to view and download content, on April 25. Meanwhile, there are also plans to leverage content from networks like Nickelodeon, VH1 and Comedy Central with mobile devices like cell phones.

 

However, are all these moves simply a case of too little, too late? In many ways, this multiplatform strategy is a final acknowledgement that video games, satellite radio, video-on-demand and the Internet are on the ascent, while old network technologies like broadcast TV and terrestrial radio are on the final downswing.

 

Last year in New York Magazine, TheStreet.com columnist James J. Cramer described how Viacom has been transformed from the ultimate media battleship, a magnificent warship fueled by advertising into a slow-moving, easy-to-sink dreadnought under attack from all sides from faster, nimbler competitors. By failing to respond in a timely way to the emergence of disruptive new technologies and clinging to a business model that failed to recognize the importance of technological innovation, Viacom has potentially doomed itself to irrelevance.

 

Overnight, the media landscape changed. The classic 18-to-34 demographic no longer exists, companies like Yahoo and Google are reinventing the world of advertising through highly-targeted contextual ads and consumers are showing a remarkable willingness to pay a premium for content if they can get it when they want it and how they want it.

 

These forces are infiltrating every corner of Viacoms empire. Nowhere is this more evident than in the world of satellite radio. Seemingly not a day goes by without Howard Stern imploring Sumner Redstone and the top brass at Viacom to fire him so that he can depart for Sirius Satellite Radio. To compound Viacoms broadcast radio woes, satellite radio leaders XM and Sirius now have over 5 million subscribers after only 3 years of operation. Quite simply, satellite radio has turned into one of the fastest-growing technologies of all time -- faster than the cell phone or cable TV or any other technology of the past 50 years. What makes the growth of satellite radio all the more remarkable is the fact that subscribers are suddenly willing to pay real dollars for a product that has been available free-of-charge for decades.

 

In the face of the strategic threat posed by companies like Sirius, Viacoms efforts to shuffle around its various broadcasting assets are a bit like rearranging deck chairs on the Titanic. Consider how things turned out the last time that Viacom attempted to deal with the influx of a disruptive new technology. With video rental chain Blockbuster, Viacom finally gave up the ship after finding its hand forced by online DVD rental services like Netflix and a head-spinning array of new technologies like video on demand and TiVo.

 

No doubt about it, the business models of the traditional media conglomerates are under pressure like never before. By dividing, splitting, re-organizing and consolidating its existing media properties, Viacom hopes to weather the storm. However, with the methods of content distribution changing; advertising models changing to reflect ultra-targeted ads; and an ongoing trend toward the democratization of media, these moves may not be enough. Once the broadband pipes are fat enough, the business of traditional broadcast media will never be the same. At that point, all the kings horses and all the kings men may not be enough to put Humpty Dumpty back together again.

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