Analyst Michael Nathanson says Viacom needs more than a CEO. It needs to be merged with CBS in order to fix what’s wrong with the ailing media company.
Following reports that Viacom COO Thomas Dooley will replace CEO Philippe Dauman, at least on an interim basis, Nathanson issued a report that asks “how much of an agent of change can he be” at a company whose earnings are much lower than expected and has been buffeted by changes in the media universe that have hurt cable networks like MTV and Nickelodeon.
“We find it hard to believe that anything will be solved until the CBS-Viacom pieces are put back together. And even then, the combined assets would not be that much of bargain relative to its peers,” the analyst said.
The news of change at Viacom sent the comany's shares up almost 3% in early Friday trading. The stock has risen from its low point earlier in the year as it appeared that the battle for control of Viacom could result in new mangagment.
Nathanson says Viacom’s biggest problem—and quickest short-term fix—is at its movie studio.
“As such, the best Tom Dooley can do is sell 100% of Paramount to the highest bidder,” Nathanson said.
Dauman has been attempting to sell a 49% stake in Viacom. The idea is opposed by Sumner Redstone and his daughter Shari Redstone, who have asserted their control over their media empire.
“We are shocked that the Board or the Redstone family doesn’t see the obvious need to deliver Viacom cash ahead of its looming debt refinancing cycle. Furthermore, as Hollywood has become more and more of a global, tentpole business, Paramount doesn't have the franchises to compete with Disney, Universal or Warner Bros. As such, Viacom needs to sell its studio now to either a strategic buyer who can take out massive costs or find some 'easy' money which always seems to be available.”
Nathanson says the next order of business for the new interim CEO is to reassess Viacom’s programming leadership.
“This is where Viacom has failed the most. The Company needs to hire a cable networks CEO to oversee the entire network division. That person should have proven success as a cable programmer and be aggressive in seeking to change the culture. However, it might be impossible to recruit anyone good to take that job given the instability at the top,” he said.
Most importantly, Viacom and CBS ought to be put back together.
“As we have said from the beginning, the separation of Viacom and CBS was a major mistake for National Amusements. It was an illogical idea that was made worse by poor execution and the changing dynamics of the media ecosystem,” Nathanson says. “The right fix for National Amusements is to combine Viacom and CBS in stock-for-stock merger which creates massive cost synergies and puts a real programmer in charge of the business. However, CBS management has long dismissed the value this brings to their strategy and will need to be re-incentivized to do this.”
