Viacom Announces Plans to Buy CBS Summary

  • Last updated on November 10, 2022

The multibillion-dollar merger of two media giants combined the broadcasting company CBS with the cable television company Viacom. The merger, announced in 1999, was approved by the Federal Communications Commission in 2000.

Summary of Event

The 1980’s and 1990’s saw rapid growth in the United States in cable television, computers, and the Internet. The videocassette recorder (VCR) and the computer chip changed people’s ability to consume programming. The conditions fueled entertainment and media mergers. By the end of the 1990’s, Time Warner, Inc., and the Walt Disney Company were in megamedia conglomerates. Rupert Murdoch’s News Corporation was building its assets. The commonly accepted wisdom was that bigger was better. To own an asset from its creation through its distribution, present and future, was the strategy for financial success. In the fall of 1999, Columbia Broadcasting System (CBS) and Viacom recognized the potential to compete in the megamedia world, to get bigger and better, if they combined forces. Viacom Mergers, business Columbia Broadcasting System [kw]Viacom Announces Plans to Buy CBS (Sept. 7, 1999) [kw]CBS, Viacom Announces Plans to Buy (Sept. 7, 1999) Viacom Mergers, business Columbia Broadcasting System [g]North America;Sept. 7, 1999: Viacom Announces Plans to Buy CBS[10480] [g]United States;Sept. 7, 1999: Viacom Announces Plans to Buy CBS[10480] [c]Communications and media;Sept. 7, 1999: Viacom Announces Plans to Buy CBS[10480] [c]Radio and television;Sept. 7, 1999: Viacom Announces Plans to Buy CBS[10480] Redstone, Sumner Karmazin, Mel Diller, Barry Moonves, Les

CBS and Viacom shared a convoluted history. CBS, one of television’s original “Big Three” broadcasters, created Viacom as a separate company in 1970 as a result of Federal Communications Commission (FCC) regulations prohibiting broadcasters from syndicating their own programming. CBS came to the deal with its gold-standard television broadcast network: two hundred owned and affiliated stations; programming entities CBS Entertainment, CBS News, and CBS Sports; distribution entity CBS Enterprises and syndication entity King World Productions; and radio network Infinity Broadcasting. CBS also had a presence on the rapidly growing Internet with CBS Marketplace.com and Sports Line.com. Viacom owned multiple cable television networks, including Music Television (MTV), MTV VH1, Video Hits One Showtime, Nickelodeon, Nickelodeon (television network) Noggin, and Comedy Central; fifth network United Paramount Network (UPN); the movie and television studio Paramount Communications; publisher Simon & Schuster; video rental chain Blockbuster; and theater multiplexes and amusement parks. Viacom took its theater chains and cable entities global. It also assessed the future of the Internet and created a division devoted to Internet identities for MTV, VH1, and Nickelodeon.

Two equally strong-willed media entrepreneurs, fiftysix-year-old Mel Karmazin, chief executive officer (CEO) of CBS Corporation, and seventy-six-year-old Sumner Redstone, chairman of Viacom, engineered the merger. Karmazin had started his career selling advertising on radio. He bought radio stations and became the president of Infinity Broadcasting, the second-largest owner of radio stations in the United States. Westinghouse/CBS bought Infinity Broadcasting in 1997. Karmazin became chairman and CEO of CBS Radio, and within two years, he was promoted to president and CEO of CBS Corporation. As president, Karmazin strengthened the company with the key purchase of King World, syndicator of The Oprah Winfrey Show and Wheel of Fortune.

Redstone had been an attorney and litigator before moving into his father’s business, National Amusements, Inc. (NAI). Redstone built NAI from a chain of drive-ins to a national chain of theaters. He shrewdly assessed the growth of suburbia and developed the multiplex—multiple theaters that could be located off a freeway or in a mall. He invested in movie studios and distribution companies, including Viacom. As a major stockholder, he recognized the value and the future of Viacom, and in 1987 he acquired the company in a three-month bidding war. In 1994, he fought Barry Diller and Diller’s QVC QVC cable television network in a bitter, escalating battle of counterbids to acquire Paramount Communications.

Karmazin proved his reputation as a supersalesman by persevering in his pursuit of a Viacom-CBS merger. He first approached Redstone and Viacom in 1997 and was rebuffed. In 1999, he set up a series of exploratory meetings with Redstone, detailing CBS Corporation’s strengths—CBS was the most watched network in 1998—the demands of a digital media future, and the advantages to combining forces in a merger. Much of Karmazin’s success had come from his ability to anticipate trends in regulation. He sensed a trend in deregulation that could be advantageous to both companies.

Viacom chairman Sumner Redstone (left) and CBS president Mel Karmazin talk to the press after a merger between the two companies was announced.

(AP/Wide World Photos)

The logic of the merger was difficult to ignore. CBS, a brand-name broadcast network with a loyal but aging audience, would join with Viacom’s young cable presence. The network would have a studio to create content and would be able produce through the studio’s production facilities. The combined companies would produce programming for television and, through King World, become the big moneymaker of syndication. They would sell advertising on television, radio, and billboards. They would cross-promote their music, print, film, television, and radio programming. Through their combined resources, they would have global and Internet digital reach. Karmazin convinced Redstone that CBS and Viacom were a good match. Karmazin agreed to the Viacom name and to taking second position as president to Redstone’s chairman with a contractual provision for Karmazin to move into the chairman position within three years.

On September 7, 1999, Redstone and Karmazin announced that Viacom would purchase CBS Corporation for $35.6 billion. CBS and Viacom appeared to be a natural fit, the happy reunion of a parent and a prodigal. The announcement of the merger was widely anticipated and elicited positive feedback from the entertainment industry and Wall Street.

The merger required approval from the FCC. FCC regulations prohibited one company from owning television stations that reached more than 35 percent of the audience in the U.S. market. The regulations also prohibited one company from owning two networks if one of the networks was in the top four. The merger gave the combined companies potential for six television duopolies, in Philadelphia, Boston, Dallas, Detroit, Miami, and Pittsburgh. Karmazin and Redstone announced their willingness to meet whatever restrictions were required to overcome regulatory obstacles for FCC approval, and they went to Washington, D.C., to meet with officials.

In 2000, the FCC approved the CBS-Viacom merger. Viacom requested, and won, a waiver to maintain its majority ownership of UPN. In 2001, the United States Court of Appeals granted Viacom temporary approval to exceed the 35 percent ownership cap.

Significance

Media watchdogs criticized the merger as another loss for diversity and quality in the dissemination of public information. In the FCC hearings, only one commissioner expressed a dissenting opinion during the approval of the merger, arguing in favor of diversity. Karmazin argued that the FCC rules for television and radio that protected old media by restricting concentration were antiquated, and the rules did not apply in an Internet world because the Internet provided an outlet for opinion and free speech. The multibillion-dollar media merger strengthened Viacom’s presence throughout the Internet on the CBS-Viacom Web sites.

Ultimately, the FCC rolled back the restrictions it had placed on the CBS-Viacom merger, allowing Viacom to own television stations that reached 41 percent of the audience in the U.S. market and ownership of two networks in the top four.

The positive atmosphere that surrounded the early days of the CBS-Viacom merger obscured the inevitable personality conflicts and struggle for control between Redstone and Karmazin. Redstone ignored the three-year contract that guaranteed Karmazin the top position at Viacom, and Karmazin left Viacom. Redstone promoted CBS president Les Moonves, whose programming skills, as demonstrated by shows such as Everybody Loves Raymond, C.S.I.: Crime Scene Investigation, and Survivor, helped produce the hoped-for synergy between CBS and MTV, VH1, and Nickelodeon. Viacom Mergers, business Columbia Broadcasting System

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Bagdikian, Ben H. The New Media Monopoly. Boston: Beacon Press, 2004. Examines the effects of media consolidation with emphasis on news and politics.
  • citation-type="booksimple"

    xlink:type="simple">Croteau, David, and William Hoynes. The Business of Media: Corporate Media and the Public Interest. Thousand Oaks, Calif.: Pine Forge Press, 2006. Examines the conflict between the business side of media and the obligations of media in the public sphere. Examines the changes in FCC regulations.
  • citation-type="booksimple"

    xlink:type="simple">McChesney, Robert W. Rich Media, Poor Democracy. Urbana: University of Illinois Press, 1999. Discusses the Internet as a tool for public opinion and an object for media takeover.
  • citation-type="booksimple"

    xlink:type="simple">Wasserstein, Bruce. Big Deal: Mergers and Acquisitions in the Digital Age. Rev. ed. New York: Warner Books, 2001. History and tactics of media corporate mergers, with emphasis on business and personalities behind the scenes.

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