Viacom to buy CBS for $37 billion; World's largest seller of advertising, No. 2 media firm envisioned


NEW YORK -- Viacom Inc. said yesterday that it would acquire CBS Inc. for $37.3 billion, a deal that is the biggest media merger yet and would create the world's second-largest media company after Time Warner Inc.

For Viacom and its 76-year-old chairman, Sumner Redstone, who will run the combined companies if the merger is completed, the deal adds a major broadcast television network, 15 CBS-owned television stations and the nation's biggest group of radio stations to a media portfolio that includes the highly profitable MTV, VH1 and Nickelodeon cable networks, the Paramount film studio and the Blockbuster video-rental chain.

CBS' 56-year-old chief executive, Mel Karmazin, will become Redstone's second-in-command and heir apparent, as chief operating officer, and all units of Viacom and CBS will report to him.

The acquisition places the last of the original big broadcast networks into the hands of a conglomerate.

NBC has been owned by General Electric since 1985, and ABC was purchased in 1995 by Walt Disney Co. for $19 billion -- the previous record for a media acquisition.

Perhaps more significant than Viacom's ascension to second-largest media company, it could very likely emerge as the world's largest seller of advertising; the acquisition includes CBS' pending deal to acquire the billboard giant Outdoor Systems Inc.

Analysts estimate that a combined Viacom-CBS would generate $11 billion a year in advertising-- nearly twice the figure of the current leader, Rupert Murdoch's News Corp., which sells $5.8 billion in annual advertising.

In terms of revenue from national TV networks, the merged entity, which will go by the Viacom name, would be ranked first, says Joe Mandese, editor of the Myers Report, a media newsletter.

The broadcast and cable networks to be controlled by the new Viacom have national revenue of $5.5 billion, he estimated, ahead of Walt Disney Co., owner of networks like ABC and ESPN, at $4.9 billion, and the NBC unit of General Electric, at $4.8 billion.

"That's not good for advertisers in terms of negotiating clout," Mandese said, "because of the control of assets."

"CBS already has a stranglehold on the radio marketplace," Mandese added, referring to its Infinity Broadcasting Corp. division.

"The new Viacom will own more local TV stations than any other entity, as well as cable networks popular with kids, teens and young adults and CBS, the leader in household viewers among the broadcast networks."

Reaction along Madison Avenue ranged from outrage to acceptance.

The acquisition of CBS by Viacom is "obscene," said Jean Pool, executive vice president and director of North American media services at J. Walter Thompson in New York.

"There is an incredible amount of power being concentrated in one person's hands," she said, alluding to Karmazin. "It's a bad idea. He's getting such control, you can't buy around him."

"As a company, Viacom can now compete for any budget in just about any medium for just about any demographic group," said Jon Mandel, co-managing director of Mediacom in New York, the media services unit of Grey Advertising Inc.

Viacom's cable networks are popular with children, teens and young adults, while CBS' emphasis on television news and prime-time fare such as "Touched by an Angel" have tended to attract older viewers.

Bringing the children's program "Rugrats" and the sophisticated news magazine "60 Minutes" under a single corporate nameplate is meant to offer advertisers one-stop shopping to reach audiences of all ages.

"To steal a quote from Jon Nesvig," Mandel said, referring to the top sales executive at the Fox Broadcasting Co. unit of News Corp., " 'Rupert Murdoch thinks if I sell you everything, I can charge you more, and you think if you buy everything, you can pay less.' "

Redstone, who has built Viacom into one of the world's most successful entertainment companies since acquiring it 12 years ago, predicted, "We will be global leaders in virtually every facet of the wonderful, diverse media and entertainment industry."

Both stocks rise

Both companies' stock prices rose on yesterday's news. And analysts almost universally lauded the deal, not just for its size and global scope, but for the complementary fit.

To top entertainment industry executives and talent agents, the acquisition accelerates the pressure and momentum for further deals in the industry.

"It will bring about a new wave of consolidations, make these companies even bigger," said David Geffen, a partner at the film and music company Dreamworks SKG. "It's a very powerful merger. They always come in waves. Everyone becomes competitive."

The new company will be called Viacom, but the CBS television network and all its units will continue to be called CBS. Both Redstone and Karmazin said CBS News, CBS Entertainment and CBS Sports will continue to be run much the way they have been.

But the merger could mean that Viacom's MTV and VH-1 music cable channels will find new outlets for their programming on CBS' rock radio stations around the country -- just as CBS' cable channels, Country Music Television and the Nashville Network, now provide programs for some of CBS' country-music radio stations. Each will heavily promote its sister networks.

Luring each other's viewers

In addition, promotional spots on MTV or VH-1 could induce some younger viewers to sample shows on CBS, helping the broadcast network eventually attract more of the 18-to-49-year-old audience that advertisers pay the biggest premiums to reach.

The merger could also mean that Nickelodeon -- the most profitable children's network, whether broadcast or cable -- would provide programming to help bolster CBS' little-watched Saturday-morning children's lineup.

The new company will have to divest itself of some broadcast properties or seek waivers from federal regulations. Redstone and Karmazin said they would visit the Federal Communications Commission today to appeal for changes in certain rules.

The most important, to them, is the cap on television station ownership, which restricts any company to owning stations that reach no more than 35 percent of the country's population.

With Viacom's 19 television stations and CBS' 15, the combined company would own stations in 18 of the top 20 markets and reach 41 percent of the population.

If the cap is not raised, Karmazin said, the company will probably sell some stations to comply with the regulations.

Viacom also owns half of the UPN broadcast network, with Chris-Craft, and under FCC rules that stake must be reduced to less than one-third unless an FCC waiver is granted.

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