Viacom’s Redstone Weighs In on Eve of $85-Billion CBS Deal

Sumner Redstone, chief executive of Viacom Inc., will celebrate his 77th birthday this month with his latest show of corporate vigor: the consummation of his company’s proposed $85-billion merger with broadcast powerhouse CBS.

The media mogul, who likes to remind, “I’m the youngest executive you know,� says he is still the same driven, feisty and brutally competitive executive he was when he bought Viacom 13 years ago for $3.2 billion and started building his now $39-billion media empire. As someone who has a knack for quoting financial statistics off the top of his head, Redstone likes to brag that his resting heart rate is 55--�that of a football star.�

He scored his most recent worldwide media goal with a deal to acquire CBS--a merger that after imminently getting government approval will further expand and diversify his already vast Viacom empire--that also includes Paramount Pictures; Blockbuster Entertainment; cable networks MTV, Nickelodeon and Showtime; Spelling Entertainment; the start-up network UPN; and part of publishing giant Simon & Schuster.

In an interview at Viacom’s corporate headquarters in Manhattan, Redstone discussed the new management structure of the merged Viacom-CBS, how he and equally aggressive CBS CEO Mel Karmazin will work together, how the deal differs from rival Time Warner’s mega-merger with America Online, and how the ownership of two networks--CBS and UPN--will enable the new company to share programming.

Redstone, a Harvard-educated lawyer who was born in a Boston tenement and today is worth $11 billion, also talked about how his two adult children figure into the future of his company. His 48-year-old son, Brent, who had been a practicing lawyer in Denver, recently began working on the business side at Showtime.

Redstone’s daughter, Shari, 45, runs National Amusements, the Boston-based theater chain that Redstone took over from his father in the mid-1950s and grew into one of the largest privately held circuits in the country.

Redstone refused to discuss the recent personal press he’s received about his relationship with a younger woman, producer Christine Peters, and a bitter divorce from his wife of many years, Phyllis.

Having narrowly escaped death in a Boston hotel fire in 1979 and being told he would never walk again, Redstone says, “Today, I run faster on a tennis court than most people you know who are much younger than I.�

When asked the source of his sheer determination, Redstone answers, “The will to survive is the will to win, too.�

Q: What are the three things you love about the deal with CBS?

A: One, we will be an advertising juggernaut. We start with $11 billion in advertising revenue between the two companies. We will have the No. 1 platform for advertisers in cable programming, outdoor advertising, in radio and, of course, we have the television stations, which together give us six duopolies. We could offer advertisers all demographics, from Nickelodeon to CBS.

Q: But won’t your reliance on advertising make you vulnerable during an economic downturn?

A: PaineWebber did a report on advertising and took a very strong position that advertising is no longer cyclical, and we believe that. They mentioned only one company, Viacom, and speculated that within the next several years we would add $40 billion to the market cap from this source of revenue alone.

Q: Why is advertising no longer cyclical?

A: In the last recession, MTV Networks did great. You know that if you’re a major company and you’re under pressure, you can’t afford to stop advertising. Your competitors will eat you alive.

Q: Certainly, this current advertising boom is led largely by the “dot-coms.�

A: Not true. I think there will be about $10 billion spent by the Internet companies this year in advertising. And, it’s all found money. The advertising market is about $213 billion right now and the seers say it will go to $325 billion in about six years.

Who’s going to get a good part of that? Cable. Cable is about $9.8 billion now and it’s going to go about $25 billion over the next several years.

You asked me what turned me on about CBS, this is a big part of it.

Q: What are the other advantages of the CBS acquisition?

A: We saw that with CBS, we’d be the No. 1 provider of television entertainment for networks, cable and for syndication. That’s a big business. And, finally, we’ll have about 50% more hours in prime time than any other company.

Q: So, how is it going so far with you and Mel?

A: Mel has spent a great deal of time over here. There’s not a day, I don’t think, that we’re not together or on the phone. Also, we have taken Mel through all of our businesses in order to familiarize him with our businesses and I’ve started to do the same with their businesses.

Q: Have you worked out the roles of other top executives, including Viacom Entertainment chief Jonathan Dolgen and CBS TV Chief Executive Leslie Moonves?

A: We’ve made it clear that Jon is going to run the same entertainment group he has run and Les is going to run his business, also. Neither one is going to work for the other.

Q: There is some question that some areas of responsibility might be taken away from Dolgen.

A: I can’t get into that. There are some things that on the surface would appear to be better off under CBS management and some things that would be better off under Paramount management.

Q: And, both Dolgen and Moonves are happy with the structure?

A: Let me put it this way, both have signed long-term contracts.

Q: What about the areas where there are some overlaps, particularly in syndication, where CBS owns King World and Paramount owns Spelling and other syndicators?

A: I can’t comment on that subject matter except to say we’re glad to have all the assets and one possibility would be that each asset operates with the same leadership.

Q: How do you think the company will change?

A: Very little. Mel and I will run the company as a partnership. I’ve done that before in the days of [Frank] Biondi, who, incidentally, I have the greatest affection for. Obviously, I didn’t think he should be CEO.

Q: How do the two of you differ?

A: If I could candidly point out major differences I would. I haven’t really seen them.

Q: You’re more social, aren’t you?

A: I guess. People have said that.

Q: And, you love the limelight and are very press savvy whereas he is press phobic.

A: As far as the press goes, if it’s a good story about me, it’s good for Viacom. As far as personal publicity, I’m not interested. I view meeting with the press as an opportunity to talk about the company.

Q: It’s a means to an end to Wall Street.

A: Yes.

Q: Mel believes that if you cultivate Wall Street, you don’t need the press.

A: The press influences Wall Street.

Q: You made a point when you announced the merger to say that because you didn’t pay a premium for CBS, you are extremely under-leveraged. If you could make one single acquisition, what would it be?

A: If we could on an economically rational basis acquire more cable channels, I think both Mel and I would agree that would be a good thing. Are we going to buy AOL? No.

Q: Who would have thought that AOL would buy Time Warner?

A: I have a lot of affection for Jerry Levin, whom I consider my best friend in the industry. I didn’t fully understand the deal from his standpoint. . . . You can get the advantages of the relationship without being acquired by them or acquiring them.

Q: Did AOL approach you about buying Viacom?

A: Never a serious discussion, but there were some discussions between people like Tom Freston and Tom Dooley, and (AOL President) Bob Pittman, where the idea sort of surfaced.

Q: So, you would not have been interested in that deal?

A: No. Wall Street is endorsing it, so it was a good deal in the final analysis, but, I would have been somewhat suspect of the valuation of an Internet company considering they were selling basically for multiples of revenue rather than by the standards I’ve grown up with like cash flow and so on.

Q: How much does Paramount Pictures contribute to Viacom’s bottom line?

A: Unlike other studios, Paramount has never lost money in any year and has usually been a significant cash generator for Viacom. Also, you cannot isolate our studio business from the rest of the company. Think about the Nickelodeon and MTV franchises and the role they’re playing. We’re building a whole new high-growth business out of full-length animation that started with “Rugrats.�

Q: You proved to regulators that UPN would disappear if Viacom didn’t maintain ownership because no one jumped when the network was put up for sale. If no one else wanted it for the measly price of $5 million, how can Viacom justify funding its losses?

A: Before the CBS deal, we had already turned this network around, and a year ago when I predicted a turnaround in the third quarter, nobody would have guessed we would actually surpass WB.

Now, we bring to that network the programming expertise and resources of CBS and the possibility of also saving money on operations when you have two networks. I believe it won’t be long before we will get rid of our losses and start breaking even.

Q: And when do expect that to happen?

A: I would like to think within a year from now.

Q: Will UPN air re-purposed programming from CBS?

A: I would speculate that you would see some news and sports programming on UPN of a quality UPN couldn’t afford to do by itself.

Q: How is your relationship these days with (USA Networks Chairman) Barry Diller given the suit his company has filed against you regarding rights to wrestling, which USA could lose to Viacom? (In 1993, Diller lost to Viacom in a court battle for Paramount.)

A: I don’t believe in history getting in the way of the future and I like Barry a lot. About the present suit, he’s doing what he should be doing to protect his business interests and we’re doing what we should be doing to protect our business opportunities.

In the Paramount context, I genuinely felt we [Viacom] had a done deal. This guy was supposed to be an extremely good friend of mine. I felt he did something inappropriate and cost me a couple billion.

Q: You’ve always maintained that your successor would come from the top management ranks of Viacom and would not be a family member. Now that your son, Brent, works for Showtime, and, of course, Shari heads National Amusements, has that changed things?

A: I think my kids are very competent. But, as far as succession goes, I still believe that professional management is the best answer. We have a great management team here. I know that ( News Corp. Chairman Rupert) Murdoch has a different point of view. He has said his kids will take over.

Q: Have you discussed it with him?

A: No. However, I don’t think he has the kind of management team we have here.

If I deserve any credit for anything, certainly one of my major achievements has been to assemble and keep that team. In the 13 years since I took over Viacom, there’s been only one person who has left, and that was (former Nickelodeon head) Gerry Laybourne--and she made a career mistake.

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Viacom’s stock struggled for much of the 1990s, but the shares have rocketed in the last two years with other major entertainment issues. Quarterly closes and latest for Viacom’s actively traded Class B shares on the New York Stock Exchange:

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Monday: $55.63

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Source: Bloomberg News