The first battles for the post-Sumner Redstone futures of CBS and Viacom were waged last week.
Investors were pleased that CBS CEO Les Moonves succeeded the 92-year-old media mogul as chairman at the thriving broadcast-oriented company. They were less pleased that Viacom CEO Philippe Dauman was named executive chairman at the faltering cable network company.
The most important investor to be less than happy with the development at Viacom is Redstone’s daughter Shari Redstone, vice chairman of National Amusements, the family’s holding company, which controls CBS and Viacom.
After CBS announced Moonves’ election, Shari Redstone issued a statement praising the move, but said that Viacom ought to have a strong independent chairman who is not entangled in the Redstone family business. That seemed to mean anyone but Dauman, a trustee of the trust that will control the Redstone assets when Redstone passes away and the person responsible for his medical decisions if he’s judged incompetent.
But Viacom’s board voted for Dauman and Shari Redstone released another statement. It was not congratulatory, instead saying she would “continue to advocate for what she believes is in the best interests of Viacom shareholders.”
“She had to know she was going to lose this vote,” said the manager of a fund that invests in media stocks. “It’s interesting that she made that statement before the board meeting.”
The fund manager predicts that Shari Redstone and Dauman will clash again, and that eventually Redstone will prevail because while Dauman controls Viacom’s board, Redstone has the votes among the trust.
When word went out that Viacom would have a new chairman, investors were hopeful that would mean change was in the air. Viacom has been struggling with drooping ratings and sagging ad revenues as young viewers eschew TV in favor of entertaining themselves digitally. In the short term, Viacom also faces a big test on the distribution side because its carriage deal with Dish Network expires at the end of the month.
Investors and analysts say that while the entire TV industry is under pressure because of competition from over-the-top competitors like Netflix (they remember that Viacom’s deal giving Netflix programming in exchange for short-term cash helped the streaming video company take off), Dauman and his management shoulder some blame for not investing enough in the business and buying back stock instead to please Sumner Redstone.
“There is something to the notion that CEOs are paid to ‘see around corners’ and navigate their enterprises favorably through challenging environments,” said Brian Wieser of Pivotal Research. “Any change at the top will be viewed positively by investors.”
Analyst Marci Ryvicker concluded that the board moved last week because Sumner Redstone’s health is declining. He was examined by a doctor representing his former live in companion who has gone to court claiming that the mogul is incompetent to handle health care and business decisions.
One investor suspects the doctor will testify against Redstone, and that the board wanted to get ahead of the news. There is already an investor suit seeking that Redstone return the compensation he received last year because he wasn’t able to earn it.
While the situation at Viacom was noisier, some analysts believe the move at CBS was more significant in the short term. There had been some concern that somehow Dauman would gain control of the Redstone assets and that Moonves would leave, weakening CBS.
“Now Moonves is master of his fate,” said one investor. “If there’s a CBS-Viacom deal, it will be on Les’ terms and both companies would be better off under Moonves than under Dauman.”
The developments at CBS and Viacom could also have larger implications. “We believe that changes for the Redstone controlled empires could be the trigger for media company consolidation,” said Michael Nathanson at MoffettNathanson Research.