Splitsville at Viacom
The media giant's Mel Karmazin calls it quits
It's Survivor, The Apprentice, and Fear Factor all rolled into one. And while it may be the hottest reality show of the summer, you won't find it on TV. It's playing only at Viacom, home to CBS, Infinity Broadcasting, MTV, Paramount Pictures, and Simon & Schuster.
Mel Karmazin, Viacom president and chief operating officer, abruptly extinguished his own torch last week, after a year of fighting a weakening stock price and nearly half a decade of spar-ring with Viacom's notoriously controlling chairman, Sumner Redstone. Karmazin's resignation touched off a frenzy of speculation about his next move--Would it be to Disney, where its CEO is under fire?--as well as the succession plan for Viacom, where Redstone, age 81, controls 71 percent of the stock and has been in no hurry to step aside as CEO.
The guessing game didn't last long. In a move that would make Donald Trump proud, Redstone immediately elevated Viacom's top two division heads, Leslie Moonves, head of CBS, and Tom Freston, who runs MTV, to co-chief operating officers, where they will now battle it out for the Viacom throne. In a move that made Disney CEO Michael Eisner's day, Disney board chairman George Mitchell issued a statement reconfirming the board's support of Eisner (for now, anyway).
Yet, with Karmazin on the loose, more high-level departures possible at Viacom, Paramount looking for a new chief (Chairman Jonathan Dolgen also resigned last week), and the fragile situation at Disney, executive brinkmanship could be the spectator sport of the summer. "There are very few people who can run these giant media companies," says Lowell Singer, an entertainment analyst with SG Cowen & Co. in New York. "Mel is one of them, and with him in the mix, you don't know what will happen." Karmazin can take his time. With three years left on his contract, he is expected to walk away with some $30 million.
Fine choices. Personnel drama aside, entertainment analysts endorsed Redstone's may-the-best-exec-win tack, and Wall Street gave the stock a boost, if only a small one. "I think it was the wisest move, to make those two fellas co-COO s," says David Joyce of investment banking firm Guzman & Co. in Miami. "They're the strongest operating guys in the company."
Redstone, who got wind of Karmazin's resignation through an intermediary, hinted at what the company would look like once it is free of Karmazin and Dolgen, whose conservative spending styles make Jack Benny look profligate. For one, Viacom will revisit its strategic positions in each of its industries. Redstone also said he plans to launch several new cable channels, in addition to the gay channel planned for next year. And in an unheard-of approach to the modern movie business, Redstone said that Paramount will spend more on movies--as much as $150 million for some pictures, rather than always less than $100 million. He also said that Viacom has no plans to sell Infinity, home of Howard Stern, although it may offload some lagging stations.
Meanwhile, in between sabotaging each other's success Survivor -style, Moonves and Freston had better work on developing a deep bench, analysts say, for the day when one of them moves up and the other possibly moves out. That is, if Redstone ever actually steps down. Says Singer: "He's been known to change his mind before."
This story appears in the June 14, 2004 print edition of U.S. News & World Report.