Finance

With Dauman Out, Viacom Weighs Next Steps

Options on the table include cable retrenchment, a Paramount sale — and a CBS reunion 8/29/2016 8:00 AM Eastern
Tom Dooley is Viacom's interim CEO following Philippe Dauman's departure.
TakeAway

As Viacom looks for a successor to CEO Philippe Dauman, the company must also plot the best path toward a turnaround.

With Viacom turning the page after the long-anticipated ouster of CEO Philippe Dauman and the temporary ascension of chief operating officer Tom Dooley to the CEO spot, all eyes are on what is next for the youth-oriented programmer.

 

While Dooley reaches out to investors and has vowed to work with Viacom’s board on its future organization and plans, there has been no shortage of suggestions as to where the programmer goes from here, ranging from an outright sale to a more intense focus on kids’ programming.

 

Dooley, a loyal lieutenant to Dauman for more than 30 years, is officially serving as interim CEO until the end of the fiscal year on Sept. 30. While he is also in the running for the permanent spot, many analysts believe his ties to Dauman and the old Viacom regime limit his chances. As MoffettNathanson senior research analyst Michael Nathanson wrote in a blog post last week, “We wonder how much of an agent of change he will be.”

 

PLENTY OF CANDIDATES

Analysts have speculated about possible replacements for Dauman for months, but in the past few weeks changes at 21st Century Fox could free up two well-respected executives for the Viacom slot — co-chief operating officer Chase Carey and Jim Gianopulos, head of studio 20th Century Fox Film Corp.

 

Gianopulos — who some have said would give Viacom instant credibility, at least on the fi lm side — had already planned to step down at the end of the year so longtime executive Stacey Snider could take over the studio. Last week he accelerated that time frame to Sept. 1, which would make him available for the Viacom job.

 

Carey also could be ready for a fresh start, as Fox CEO James Murdoch and executive chairman Lachlan Murdoch have recently been flexing their muscles — they were reportedly behind the Snider appointment and have taken quick action in the sexual harassment scandal involving Fox News chairman Roger Ailes. Carey, who stayed on to help with the Murdochs’ transition, may feel that it is time to move on. He also has a stellar track record in turning around companies like DirecTV.

 

Other possible candidates include former The Walt Disney Co. chief operating officer Tom Staggs, who abruptly resigned in April, and former DreamWorks Animation CEO Jeffrey Katzenberg, who sold his company to Comcast earlier this month. Katzenberg walked away from that deal $390 million richer, mainly in the form of vested stock options, and is reportedly more interested in short-form content creation, which he feels is the future of the business.

 

Whoever takes Viacom’s helm will have their work cut out for them. Ratings and ad revenue has plummeted and more distributors are toying with the idea of doing without some or all of the company’s channels.

 

CUTTING CHANNELS

Morgan Stanley media analyst Ben Swinburne suggests that a possible turnaround path is to slash the number of Viacom channels from nearly 20 to five or six (MTV, Nickelodeon, Comedy Central, BET and Spike). Swinburne wrote that Viacom should also address its younger audience by drastically reducing ad loads, hold back on SVOD licensing and refocus its attention on Nickelodeon.

 

“In our view, Nickelodeon is the crown jewel, and has seen some content success of late on both Nick and Nick Jr.,” Swinburne wrote. “We argue building this network(s) is the key to long-term durability of the company, and Viacom may need to (at least for now) leave its content exclusive to its networks and apps.”

 

Viacom also should make the direct-to-consumer market a priority, Swinburne added, as the market potentially shifts to a place where consumers buy moderately priced OTT apps and bundles to serve their needs.

 

“For Viacom, investing in the capabilities to move DTC seems critical, perhaps prepping to offer consumers a bouquet of apps focused on kids, music, and comedy,” Swinburne wrote. “Given Viacom’s legacy target audience, it should be leading in this area, experimenting more than others with different models, not following.”

 

BTIG media analyst Rich Greenfield wrote that an outright sale could be a better path for Viacom shareholders, especially as it is still considering a partial sale of its Paramount Pictures movie studio.

 

While Viacom’s controlling shareholder, Sumner Redstone, has objected to the partial sale of Paramount, he may be open to selling the whole thing. And with some estimates putting Paramount’s value at $10 billion, it might be a better move for potential buyers to purchase the entire company — which has an enterprise value of about $27 billion — and sell off the pieces it doesn’t want.

 

CBS DEAL MAY NOT HELP

Greenfield also advocated for a recombination with corporate sister CBS, a move that other analysts have backed. But there is still little incentive for CBS shareholders to press for a deal.

 

Even Nathanson, who has called the 2006 CBS-Viacom split the biggest mistake the company ever made, can see little in deal synergies for CBS in a recombination. In his blog post, Nathanson estimated that putting Viacom and CBS back together would result in a gain of just 5.6% (or about 24 cents per share) for CBS stockholders.

 

“While a new CEO might look to fi x all that is wrong at Viacom, we find it hard to believe that anything will be solved until the CBS Viacom pieces are put back together again,” Nathanson wrote.

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