Mel Stirring the Pot at MTVN? Freston Says No, Others Differ

Author:
Publish date:

In March, Nickelodeon staged its annual upfront presentation to a ballroom packed with media buyers and advertisers. Network executives weren't shy about poking fun at the purported feud between the two men who run the network's parent company, Viacom Inc.

Nick president Herb Scannell kicked off his remarks by introducing Mel Karmazin, Viacom's president and chief operating officer, who was in the audience. After alluding to much-publicized difficulties between Karmazin and chairman and CEO Sumner Redstone, Scannell showed a slide that depicted Karmazin and Redstone standing side by side, dressed as chefs.

"They've never gotten along better," Scannell said, joking that Redstone was still in the kitchen, finishing up breakfast for the crowd.

While it may not seem like a smart career move to publicly rib your bosses — especially when one is in the room — Scannell later said Karmazin has a good sense of humor and took it all in stride.

What does Karmazin say?

"The picture of me and Sumner as a chef?" he said. "Yeah, I thought it was funny. There's been so much written about Sumner and I, it's silly not to acknowledge it."

NEW MOGUL IN TOWN

Karmazin, who's still shrugging off reports of tension with Redstone, has settled in as the new mogul in the mix at MTV Networks Inc. — for the time being, anyway.

Some MTVN insiders don't believe Karmazin has a long-term future at Viacom because of the alleged friction with Redstone. But he'll be in the house on May 4, which marks the second anniversary of Viacom's $39.8 billion acquisition of his former company, CBS Corp.

When the deal closed in 2000, MTVN insiders and industry observers alike wondered what life would be like under the new Karmazin regime. Here was an executive who started his career as a scrappy radio-ad salesman, a CEO who really meant it when he appropriated "driving shareholder value" as his motto.

He flaunted his reputation for watching every penny, and earned Wall Street's admiration in the process.

After the merger, there were fears that CBS and MTVN — with its corporate culture of free thinking and free spending — would mix like oil and water.

Some observers expected that Karmazin, as Viacom's chief of day-to-day operations, would be extremely hands-on at the cable unit, home to powerful brands like Nick, MTV: Music Television and VH1.

But, according to MTVN chairman and CEO Tom Freston, Karmazin's "bark was worse than his bite."

As it turns out two years later, MTVN officials and sources say that Karmazin has not been a micro-manager. Viacom remains decentralized. And Freston maintains autonomy.

'HANDS-OFF GUY'

"Me, I'm like the consummate hands-off guy," Karmazin said. "I have one role in Viacom, and that is to receive and open up the checks when everybody sends me the money from these divisions."

Karmazin wants to see strong numbers when he looks at those checks. So last year — even as its ad sales declined during a brutal economic downturn — MTVN still registered double-digit gains in earnings before interest, taxes, depreciation and amortization (or cash flow), through unprecedented belt-tightening and budget slashing.

Some MTVN sources hold Karmazin responsible for those draconian measures, saying he doesn't accept any excuses from anyone who fails to hit a budget. They claim that despite his "hands-off" talk, Karmazin scrutinized MTVN's ad-sales unit and put heat on its executives. The unit restructured its management several times.

To varying degrees, they blame Karmazin for what they call a changed and colder corporate atmosphere at MTVN.

Freston said complainers are wrong to point fingers at Karmazin. The cuts at MTVN were Freston's decision, he said, as his division jockeyed to weather the economic storm and consolidated its staff as a result of the merger.

"Any changes in the company culture here have been decided by myself and my management team," Freston said. "Mel Karmazin, I would stress this, has not told us to change or do anything in the time he's been here.

"The fact of the matter is, when the ad-sales business goes down the way it did, we couldn't go up the way we were. We restructured last year. We laid off 500 people. [And] we ended up the year up in our EBITDA."

Karmazin has unfairly received "a bad rap" at MTVN because of his reputation as a penny pincher, a persona that Karmazin admits he cultivates and revels in, according to Freston.

"We probably cut a couple of hundred million dollars out of our budgets," Freston said. "And that was not only programming, but T&E [travel and expenses] and magazines. But that's what happens in a contraction."

NEEDED A MASTER

An ad-sales master like Karmazin was the perfect guy for MTVN to have on board for guidance during this rocky economic period, according to Freston. The merger closed at the start of one of the worst advertising downturns in decades.

The ad fiasco walloped nearly all media companies, including MTVN, which for years had enjoyed unfettered ad growth, typically in the double digits.

"Last year it was no secret that [in] ad sales … everything tanked," Freston said. "Mel is very adept and smart at ad sales and selling in a down market, which we haven't seen a lot of. We were able to end up the year doing a lot better than most of our peers, as did CBS. It's great to have someone in the house with that kind of experience."

MTVN is now back in a growth mode. It's expecting its best year ever and is even hiring, according to Freston.

The retooling of two cable networks MTVN inherited from CBS Corp. — TNN: The Nashville Network and CMT: Country Music Television — is going well. And MTV has cable's biggest hit show, The Osbournes .

But repercussions from the ad drought, as well as consolidation moves to eliminate overlap following the addition of TNN and CMT, hit hard. Like many media companies, MTVN had a series of layoffs.

The biggest came last fall, when roughly 450 employees were let go, and the unit took a $67 million write-off that reflected severance for those cuts.

FRESTON'S LEFT ALONE

From the early days of the merger, Karmazin has been respectful of Freston, a smart marketer who built MTVN into a multibillion dollar division, according to an executive who was at the programmer during the merger, but has since left.

Another inside source said Karmazin was "deferential" to Freston, because MTVN is such a cash-flow cow.

"Mel saw the ship was headed in the right direction," the former MTVN official said, referring to the cable programming unit's course.

Freston echoed that sentiment.

"People think Mel's like this crazy micromanager, which I have not found," Freston said. "He has great regard for MTV Networks and what we do."

While Karmazin has not ordered MTVN executives to do his bidding, a number of sources familiar with the situation say he rode herd on MTV's ad-sales group, demanding more accountability — which led to major management changes there.

MTVN's ad-sales department had been known for being notoriously aggressive negotiators, or table pounders.

The focus moved toward becoming more client-oriented, one of Karmazin's mantras. Sources also claim that Karmazin wanted heads of the networks to be on top of what was happening with ad sales, as well, and had tough questions for them.

There was some restructuring on the programming end, as well, where MTVN was digesting the two networks from CBS's cable unit — The Nashville Network, relaunched as TNN: The National Network, and CMT.

Despite the difficult ad environment, Viacom's cable networks last year delivered the most cash flow of all the company's divisions. Viacom combines numbers for all its cable networks, lumping Black Entertainment Television and Showtime with MTVN.

Last year, the entire cable group posted $4.28 billion in revenue on a pro forma basis, up 4 percent, with EBITDA up 19 percent, to $1.76 billion from $1.48 billion the prior year.

While Wall Street has soured on other media mega-mergers — such as America Online Inc.-Time Warner Inc. and The Walt Disney Co.-Capital Cities/ABC Inc. — analysts still rate the CBS-Viacom marriage with gold stars — and "buy" recommendations.

"This is one of the smoothest integrations of two companies I've ever seen," said Merrill Lynch analyst Jessica Reif Cohen. "They've done a phenomenal job."

She lauded MTVN's "strong" and "very stable" management team. And Viacom is one of the media companies best poised to benefit "from the momentum of an ad rebound," Reif Cohen said.

"They've really turned a corner here," she added.

Even before turning that corner, during the trying past two years, Freston credited Karmazin with keeping Viacom's purse strings open for MTVN.

"When we want to stand up and spend money, and we want to buy things like CSI
or Star Trek —
we've invested $1 billion on rights on TNN — he's been extremely supportive," Freston said. "He always says, 'You decide. It's your division. I'm not going to tell you what to do.' "

MCGRATH: NO CULTURE CLASH

Freston and the two executives who head his two network groups — Scannell, who's president of Nick, TNN and TV Land; and Judy McGrath, the newly named president of the MTV Music Networks Group — dispute talk of post-merger changes in MTVN's corporate culture or operational control.

McGrath retells an oft-quoted anecdote about one of MTVN management's first meetings with Karmazin, at which she bluntly asked him about the nightmarish things they'd heard about his reputation as a tightwad.

According to McGrath, Karmazin came to a budget meeting and asked for questions.

"There was a dead silence," she said. "I realized as I was opening my mouth that Tom [Freston], who was sitting two people away from me, was starting to clench his teeth … I just said to Mel: 'I heard you sleep here [and] you never go home. You're wondering why we have so many kitchens. You've asked people to give up their magazine subscriptions. What's truth or fiction?' "

Karmazin went through her list and replied, "Truth, truth, fiction."

Today at MTVN, "We still have as many kitchens, and free soda and coffee," McGrath said. "There has been no impact of the penny-pinching variety."

'THUMBPRINT' SEEN

Other sources maintain there's definitely been a difference with Karmazin around.

"He's had a thumbprint on the whole culture of the company, with the exception of the creative," one source said.

"It became a very different place the last couple of years. Some of the changes were for the better," the source said. "There was a lot of waste, in terms of expenses and so forth. People really weren't watching the bottom line like they should have.

"We were a spoiled group of people for a long time. The company had seen nothing but double-digit growth ever since its inception. We were on quite a roll. When Mel came in, we started having to cut costs."

Those cuts coincided with the ad downturn, according to Freston, and had nothing to do with Karmazin.

But another source said it went beyond that. After the merger, the "undercurrent of a clash of cultures" went beyond spending.

"MTVN had developed this sprawling bureaucracy," the source said. "I'd go to a meeting expecting a couple of people, and there would be a whole conference room full of people I would get introduced to.

"It was consensual decision-making. It was a format that worked for MTV, but I think that was at odds with Karmazin's view of the world. Not that he would come in the room and say, 'What is everyone doing here?' But there was a sense there was a new sheriff in town and some concern about that."

Redstone was certainly a demanding executive, but MTVN staffers still had to get used to Karmazin's brusque demeanor, according to a company veteran.

"Mel was a very intimidating man and the style of MTV Networks management before him was much more nurturing," the source said. "They could be tough, no question, because Sumner Redstone asks tough questions. But it became more of a punitive environment under Mel.

"At least that was the feeling, the climate. Ad sales felt the brunt of it, but it certainly wasn't alone. The place lost its innocence a little bit, its naivete and kind of free-spirited thing. It became a big, mean business machine."

THE PARTY INCIDENT

Karmazin acknowledged, for example, that he nixed plans for Viacom to foot the bill for a separate Christmas party for its top executives last year.

Redstone wound up paying for the soiree, and the party has been cited as a symbol of the difference — and tension — between Redstone and Karmazin, and of the differences between the old Viacom and the new one.

Karmazin calls it answering to Viacom's shareholders.

"MTV had a Christmas party," he said. "Viacom had a Christmas party at the Pierre [Hotel] for all of our corporate people. There was a separate party that the company had historically done for its most senior executives. And my sense was, with the events of 9/11, and the difficult environment, and my discussion with a number of people, that the company shouldn't be allocating money to that.

"Sumner felt that he wanted to have the party and he paid for the party, which is fine. Everything worked out."

Karmazin and Freston are indeed a contrast as executives, although both enjoy a good sense of humor.

During a recent interview, Freston was clad from head to toe in black, sporting a spiky haircut. His management method is laid-back, tolerant, easygoing and keyed into keeping creative types happy as a path to profits.

"Tom is one who does not have a great sense of formality or protocol," Scannell said. "It is not a heavily hierarchical company."

Karmazin's reputation is as the consummate salesman, Mr. Bottom Line, with no hint of being a touchy-feely guy. He prefers communicating with his executives via phone calls and electronic mail, rather than through meetings.

"He really doesn't come around much," Freston said. "You don't really see him."

But Karmazin doesn't take life so seriously that he wasn't above parading around in a sandwich-board placard — which read "Viacom: the free cash-flow machine" — for a video clip played at an analysts conference last year.

And Karmazin and McGrath have what she described as a "vibrant" and "humorous" e-mail relationship.

"I speak to Judy more on fun stuff," Karmazin said. "So she'll send me some ratings information from The Osbournes
and I'll say, 'Could have been better.' "

Both Karmazin and Freston use the same marketing buzzword — "added value" — to describe what Karmazin has brought the table for MTVN.

"I think I add value to the company every day I'm here, or otherwise I really wouldn't be here," Karmazin said. "But there has not been one decision that has been made at MTV Networks that was made by me. Every single decision that is made, whether or not it's the creation of The Osbournes,
what to rebrand TNN, how should we do things in sales."

'IT'S JUST AN OPINION'

According to Karmazin: "I can sit there and counsel and give my opinion and advice, but I really made it known to everybody that it's just an opinion I'm giving them, because they're the ones that are going to be responsible. I don't want to ever hear, 'The reason our performance is what it is is, Mel, [is because] we did what you told us to do.' "

Karmazin had nothing but praise for Freston, and Viacom's other division heads.

"These people are so strong, they are not going to just sit there," Karmazin said. "They know more about their business than I do."

Freston, Scannell and McGrath all seem to take umbrage — McGrath said she "bristles" — at any suggestion that they were running a loose financial ship before the merger and Karmazin's arrival, or that they were not up to speed on issues like ad sales.

"Are you kidding?" McGrath said. "With Sumner Redstone? We all know exactly what's going on with our businesses."

Scannell described MTVN as "a creative enterprise that performs well. Creativity and commerce have always been the mix."

Related