Viacom International Inc.

1515 Broadway
New York, New York 10036
U.S.A.
(212) 258-6000
Fax: (212) 258-8718

Wholly Owned Subsidiary of National Amusements Inc.
Incorporated: 1971 as Viacom Inc.
Employees: 5,000
Sales: $1.6 billion
Stock Exchanges: American Boston
SICs: 7822 Motion Picture & Tape Distribution; 7812 Motion Picture & Video Production; 4841 Cable & Other Pay Television Services; 4832 Radio Broadcasting Stations

Viacom International Inc., a subsidiary of National Amusements, Inc., is a media company owning radio and television stations, cable systems, and pay-TV services including Showtime, The Movie Channel, and the MTV Networks. Viacom also produces films and sells the rights to the reruns of television programs.

Viacom was formed by the Central Broadcasting System (CBS) in the summer of 1970 to comply with regulations by the U.S. Federal Communications Commission barring television networks from owning cable TV systems or from syndicating their own programs in the United States. It formally became a separate company in 1971 when CBS distributed Viacom’s stock to its stockholders at the rate of one share for every seven shares of CBS stock.

Viacom began with 70,000 stockholders and yearly sales of $19.8 million. It had about 90,000 cable subscribers, making it one of the largest cable operators in the United States. It also had an enviable stable of popular, previously-run CBS television series—including / Love Lucy —available for syndication, which accounted for a sizable percentage of Viacom’s income.

By 1973 there were about 2,800 cable systems in the United States, with about 7.5 million subscribers. This market fragmentation, along with the lack of an infrastructure in many communities and tough Federal regulations, slowed the development of cable television. In 1973, Viacom had 47,000 subscribers on Long Island, New York, but a drive to find 2,000 more added only 250.

In 1976, to compete with Home Box Office (HBO), the leading outlet for films in cable, Viacom established the Showtime movie network, which sought to provide its audience with feature films recently released in theaters. Viacom retained half interest in the network while Warner Amex owned the other half. Despite a federal ruling that removed many restrictions on the choice of movies and sports available on pay-TV during this time, allowing a wider variety of programming, Showtime lost $825,000 in 1977. Nevertheless, Viacom earned $5.5 million that year on sales of $58.5 million. Most of its earnings represented sales of television series, but it also reflected the growth of its own cable systems, which at this time had about 350,000 subscribers.

Showtime continued to compete aggressively with HBO. In 1977 it began transmitting its programming to local cable stations via satellite, at a cost of $1.2 million a year. The following year it worked out a deal with Teleprompter Corp., the largest cable systems operator in the United States, with the result that Teleprompter offered its customers Showtime rather than HBO. Showtime also began offering a service channel called Front Row. Dedicated to family programming, including classic movies and children’s shows, Front Row cost consumers less than $5 a month and was aimed at smaller cable systems where subscribers could not afford a full-time pay-TV service.

Viacom’s forays into the production of original programming in the late 1970s and early 1980s had mixed results. The odds of producing a successful television series or film were long, and Viacom experienced several failures. The Lazarus Syndrome and Dear Detective series were failures, and CBS canceled Nurse after 14 episodes.

Cable systems were a capital-intensive business, and Viacom constantly invested money in building its cable infrastructure—spending $65 million in 1981 alone, for example. In the early 1980s Viacom started on a program of rapid growth across a range of media categories. Company President Terrence A. Hikes told Business Week that Viacom hoped to become a billion dollar company in three to five years. Because management felt that cable operations were not a strong enough engine for that growth, Viacom looked to communications and entertainment. In 1981 it bought Chicago radio station WLAK-FM for $8 million and disclosed its minority stake in Cable Health Network, a new advertiser-supported cable service. It also bought Video Corp. of America for $16 million. That firm’s video production equipment stood to save Viacom a great deal of money on production costs.

While its increased size would give Viacom clout with advertisers and advertising agencies, some industry analysts believed that the acquisitions were partly intended to discourage takeover attempts. Buying radio and TV stations increased the firm’s debt, and added broadcast licenses to Viacom’s portfolio. The transfer of such licenses was a laborious process overseen by the FCC, and it slowed down any attempt to quickly take over a company.

By 1982 Showtime had 3.4 million subscribers, earning about $10 million on sales of $140 million, and was seeking to distinguish itself from other pay-TV sources by offering its own series of programs. While Viacom had sales of about $210 million, syndication still accounted for a large percentage of Viacom’s profits, 45 percent in 1982. The growth rate of syndication had declined, however, while that for cable had increased, and by 1982 Viacom had added 450,000 subscribers to the 90,000 it inherited from CBS, making it the ninth-largest cable operator in the United States.

However, a decline in pay-TV’s popularity began in 1984, and growth in the industry was virtually halted. In early 1984, Showtime became a sister station to Warner Amex’s The Movie Channel in a move calculated to increase sales for both of them. HBO and its sister channel Cinemax were being offered on 5,000 of the 5,800 cable systems in the United States, while Showtime or The Movie Channel were available on 2,700. Besides having a far larger share of the market, HBO already featured many of the films shown by Showtime and The Movie Channel, removing some of the incentive for subscribing to both groups of services. That year Viacom earned $30.9 million on revenue of $320 million.

In September 1985, Viacom purchased the MTV Networks and the other half interest in Showtime from Warner Communications, a company that needed cash because its cable interests were suffering in the unfavorable market. As part of the deal Viacom paid Warner $500 million in cash and $18 million in stock warrants. Viacom also offered $33.50 a share for the one-third of MTV stock that was publicly held. The year before Viacom bought it, MTV made $11.9 million on sales on $109.5 million. These purchases increased Viacom’s debt load, making it less attractive for a takeover.

The MTV Networks included MTV, a popular music video channel, Nickelodeon, a channel geared towards children, and VH-1, a music video channel geared toward an older audience than that of MTV. The most valuable property in the MTV Network was MTV itself. Its quick pace and flashy graphics were becoming popular and highly influential in the media, and its young audience was a chief target of advertisers.

Established by Warner Amex in 1979 in response to a need for children’s cable programming, Nickelodeon had not achieved any notable success until acquired by Viacom. Viacom quickly revamped Nickelodeon, giving it the slick, flashy look of MTV and unique programming that both appealed to children and distinguished the network from competitors like The Disney Channel. Viacom also introduced “Nick at Night,” a block of classic sitcoms aired late in the evening, popular among an adult audience. In the next few years Nickelodeon went from being the least popular channel on basic cable to the most popular.

Showtime lost about 300,000 customers between March 1985 and March 1986, and cash flow dropped dramatically. In 1986 Showtime embarked on an expensive and risky attempt to gain market share. While Showtime and arch-rival HBO had each featured exclusive presentations of some films, many films were shown on both networks. In order to eliminate this duplication Showtime gained exclusive rights to several popular films and guaranteed its customers a new film, unavailable on other movie channels, every week. However, Showtime’s move increased the price of acquiring even limited rights to a film at a time when many industry observers felt that the price of buying films for pay-TV should be decreasing because the popularity of video cassette recorders had lowered their worth. Consequently, the cost of programming was raised, and Showtime was forced to increase marketing expenditures to make certain potential viewers were aware of the new policy.

Weakened by the $2 billion debt load it incurred, in part, to scare off unfriendly buyers, Viacom lost $9.9 million on sales of $919.2 million in 1986 and, ironically, became a takeover target. First Carl Icahn made an attempt to buy the company, and then a management buyout led by Terrence Hikes failed. Finally, after a six-month battle, Sumner M. Redstone, president of the National Amusements Inc. movie theater chain, bought Viacom for about $3.4 billion in March 1986. Some industry analysts felt that he had vastly overpaid, but Redstone believed Viacom had strong growth potential. Aside from its cable properties and syndication rights that now included the popular series The Cosby Show, Viacom owned five television and eight radio stations in major markets.

Redstone had already built National Amusements, the family business, from 50 drive-in movie theaters to a modern chain with 350 screens. Now faced with the task of turning Showtime around, he brought in Frank Biondi, former chief executive of HBO, who began organizing the company’s many units into a cooperative workforce. Biondi in turn brought in HBO executive Winston Cox to run the network, and Cox immediately doubled Showtime’s marketing budget. Showtime also obtained exclusive contracts with Paramount Pictures and Walt Disney films, which included the rights to air seven of the top ten films of 1986.

Redstone’s banks were demanding $450 million in interest in the first two years following the takeover, but several fortuitous events aided him in paying off this debt. Shortly after the buyout Viacom began to earn millions from television stations wanting to show reruns of The Cosby Show. Furthermore, when Congress deregulated cable in 1987, prices for cable franchises soared. So when Redstone sold some of Viacom’s assets to help pay off its debt, he was able to get large sums for them. In February 1989 Viacom’s Long Island and suburban Cleveland cable systems were sold to Cablevision Systems Corp. for $545 million, or about 20 times their annual cash flow. Cablevision also bought a five percent stake in Showtime for $25 million, giving it a tangible interest in the channel’s success. Further, after Redstone restructured MTV and installed a more aggressive advertising-sales staff, MTV experienced continued growth, against the expectations of many industry analysts. In 1989, for example, the MTV Networks won 15 percent of all dollars spent on cable advertising. MTV was expanding throughout the world, broadcasting to western Europe, Japan, Australia, and large portions of Latin America. It also planned to expand into eastern Europe, Poland, Brazil, Israel, and New Zealand.

These successes enabled Redstone and Biondi to significantly cut Viacom’s debt by September 1989, and negotiate more favorable terms on its loans. Even so, it was rough going at first, and Viacom lost $154.4 million in 1987, though its sales increased to about $1 billion.

Under its new leadership Viacom branched out. Along with Hearst Corp. and Capital Cities/ABC Inc. it introduced Life-time, a channel geared towards women. It also started its own production operations in 1989, Viacom Pictures, which produced about ten feature films in 1989 at a cost of about $4 million a film. These films first appeared on Showtime. Viacom’s television productions also achieved success after years of mixed results. Viacom produced the hit series Matlock for NBC and Jake and the Fatman for CBS. It also added the rights for A Different World and Roseanne to its rerun stable. In addition, Viacom continued to spend heavily on new and acquired productions for Nickelodeon and MTV.

In October 1989, Viacom sold 50 percent of Showtime to TCI, a cable systems operator, for $225 million. TCI had six million subscribers, and Viacom hoped the purchase would give TCI increased incentive to market Showtime, thus giving the network a wider distribution.

By 1989 Viacom owned five television stations, 14 cable franchises and nine radio stations. In November of that year it bought five more radio stations for $121 million. Sales for the year were about $1.4 billion, with profits of $369 million. In 1990, Viacom introduced a plan that halved the cost of Showtime, but forced cable operators to dramatically increase the number of subscriptions to it. This strategy was designed to increase Showtime’s market share at a time when many consumers were starting to feel that pay-TV channels were no longer worth their price.

Several months after HBO introduced its Comedy Channel in 1989, Viacom began transmitting HA!, a channel similar in format. Both channels provided comedy programs, but HA! primarily showed episodes of old sitcoms, while the Comedy Channel showed excerpts from sitcoms, movies, and stand-up comedy routines. Both channels started with subscriber bases in the low millions, and most industry analysts believed that only one of them would survive, and Viacom management expected to lose as much as $100 million over a three-year period before HA! broke even. The two companies considered merging their comedy offerings, but HBO parent Time Warner would only move forward with the idea if Viacom agreed to settle its $2.4 billion antitrust suit against HBO.

Showtime had filed the lawsuit in 1989, alleging that HBO was trying to put Showtime out of business by intimidating cable systems that carried Showtime and by trying to corner the market on Hollywood films to prevent competitors from airing them. The suit attracted wide attention and generated much negative publicity for the cable industry.

In August 1992 the suit was finally settled out of court, after having cost both sides tens of millions of dollars in legal fees. Time Warner agreed to pay Viacom $75 million and buy a Viacom cable system in Milwaukee for $95 million, about $10 million more than its estimated worth at the time. Time Warner also agreed to more widely distribute Showtime and The Movie Channel on Time Warner’s cable systems, the second-largest in the United States. Furthermore, the two sides also agreed to a joint marketing campaign to try and revive the image of cable, which had suffered since deregulation.

In July 1991 Viacom announced plans to divide MTV into three cable channels by mid-1993. One channel would continue MTV’s traditional mix of rock, rap, pop and heavy metal, while the other two were to focus on more specialized segments of the music audience. The cost of the move was expected to be low because it would be done with new technologies like cable compression and fiber optics that enabled more information to go through the same basic equipment. Nickelodeon, meanwhile, was going to 57.4 million homes, and was watched by more children between ages two and 11 than the children’s programming on all four major networks combined. While Nickelodeon’s earnings were not reported separately, the Wall Street Journal estimated its profits as $76 million in 1992 on sales of $190 million.

In the early 1990s the cable television industry was in a state of flux in the United States. Congress threatened reregulation, while such emerging technologies as microwave transmission threatened to bypass traditional cable systems. Nevertheless, with MTV, Nickelodeon, Showtime, and Cinemax, as well as syndicated programs in its lineup, Viacom has retained a broad consumer base and remains highly competitive.

Principal Subsidiaries

Viacom Productions Inc.

Further Reading

“Viacom’s Risky Quest for Growth,” Business Week, June 21, 1982; Gubernick, Lisa, “Sumner Redstone Scores Again,” Forbes, October 31, 1988; Lieberman, David, “Is Viacom Ready to Channel the World?” Business Week, December 18, 1989.

—Scott M. Lewis

Viacom Inc.

1515 Broadway
New York, New York 10036
U.S.A.
(212) 258-6000
Fax: (212) 258-8718
Web site: http://www.viacom.com

Public Company
Incorporated: 1971
Employees: 81,700
Sales: $12.1 billion (1996)
Stock Exchanges: American Boston
SICs: 7822 Motion Picture & Tape Distribution; 7812 Motion Picture & Video Production; 7814 Video Tape Rental; 4841 Cable & Other Pay Television Services; 2731 Book Publishing

One of the largest entertainment and publishing companies in the world, Viacom Inc. operates numerous subsidiaries in four main groups: networks and broadcasting; entertainment; video and music/theme parks; and publishing. Its best-known television networks include MTV, Nickelodeon, VH1, Showtime, The Movie Channel, and Paramount Television, which produces such popular television series as Star Trek and Fraster. The company’s entertainment segment is led by Paramount Pictures, which has produced and distributed motion pictures since 1912. The Blockbuster group of subsidiaries, which comprises over 6,000 video and music stores, and Paramount Parks, which owns and operates five theme parks and one water park, form the body of Viacom’s video and music/ theme park segment. The company’s publishing group includes such venerable publishers as Simon & Schuster, Macmillan, and Prentice Hall.

1970s Formation

Viacom was formed by the Central Broadcasting System (CBS) in the summer of 1970 to comply with regulations by the U.S. Federal Communications Commission barring television networks from owning cable TV systems or from syndicating their own programs in the United States. It formally became a separate company in 1971 when CBS distributed Viacom’s stock to its stockholders at the rate of one share for every seven shares of CBS stock.

Viacom began with 70,000 stockholders and yearly sales of $19.8 million. It had about 90,000 cable subscribers, making it one of the largest cable operators in the United States. It also had an enviable stable of popular, previously-run CBS television series, including / Love Lucy, available for syndication, which accounted for a sizable percentage of Viacom’s income.

By 1973 there were about 2,800 cable systems in the United States, with about 7.5 million subscribers. This market fragmentation, along with the lack of an infrastructure in many communities and tough federal regulations, slowed the development of cable television. In 1973, Viacom had 47,000 subscribers on Long Island, New York, but a drive to find 2,000 more added only 250.

In 1976, to compete with Home Box Office (HBO), the leading outlet for films in cable, Viacom established the Showtime movie network, which sought to provide its audience with feature films recently released in theaters. Viacom retained half interest in the network while Warner Amex owned the other half. Despite a federal ruling that removed many restrictions on the choice of movies and sports available on pay-TV during this time that allowed a wider variety of programming, Showtime lost $825,000 in 1977. Nevertheless, Viacom earned $5.5 million that year on sales of $58.5 million. Most of the company’s earnings represented sales of television series, but it also reflected the growth of its own cable systems, which at this time had about 350,000 subscribers.

Showtime continued to compete aggressively with HBO. In 1977 it began transmitting its programming to local cable stations via satellite, at a cost of $1.2 million a year. The following year it worked out a deal with Teleprompter Corp., then the largest cable systems operator in the United States, with the result that Teleprompter offered its customers Showtime rather than HBO. Showtime also began offering a service channel called Front Row. Dedicated to family programming, including classic movies and children’s shows, Front Row cost consumers less than $5 a month and was aimed at smaller cable systems where subscribers could not afford a full-time pay-TV service.

Viacom’s forays into the production of original programming in the late 1970s and early 1980s had mixed results. Competition was stiff, the odds of producing a successful television series or film were long, and Viacom experienced several failures. The Lazarus Syndrome and Dear Detective series were failures, and CBS canceled Nurse after 14 episodes.

Growth through Acquisition in the 1980s

Cable systems were a capital-intensive business, and Viacom constantly invested money in building its cable infrastructure—spending $65 million in 1981 alone, for example. In the early 1980s Viacom started on a program of rapid growth across a range of media categories. Company President Terrence A. Elkes told Business Week that Viacom hoped to become a billion dollar company in three to five years. Because management felt that cable operations were not a strong enough engine for that growth, Viacom looked to communications and entertainment. In 1981 it bought Chicago radio station WLAK-FM for $8 million and disclosed its minority stake in Cable Health Network, a new advertiser-supported cable service. It also bought Video Corp. of America for $16 million. That firm’s video production equipment stood to save Viacom a great deal of money on production costs.

While its increased size would give Viacom clout with advertisers and advertising agencies, some industry analysts believed that the acquisitions were partly intended to discourage takeover attempts. Buying radio and TV stations increased the firm’s debt, and added broadcast licenses to Viacom’s portfolio. The transfer of such licenses was a laborious process overseen by the FCC, thereby slowing down attempts to act quickly in taking over a company.

By 1982 Showtime had 3.4 million subscribers, earning about $10 million on sales of $140 million, and was seeking to distinguish itself from other pay-TV sources by offering its own series of programs. While Viacom had sales of about $210 million, syndication still accounted for a large percentage of Viacom’s profits, 45 percent in 1982. The growth rate of syndication had declined, however, while that for cable had increased, and by 1982 Viacom had added 450,000 subscribers to the 90,000 it inherited from CBS, making it the ninth-largest cable operator in the United States.

However, a decline in pay-TV’s popularity began in 1984, and growth in the industry was virtually halted. In early 1984, Showtime became a sister station to Warner Amex’s The Movie Channel in a move calculated to increase sales for both of them. HBO and its sister channel Cinemax were being offered on 5,000 of the 5,800 cable systems in the United States, while Showtime or The Movie Channel were available on 2,700. Besides having a far larger share of the market, HBO already featured many of the films shown by Showtime and The Movie Channel, removing some of the incentive for subscribing to both groups of services. That year Viacom earned $30.9 million on revenue of $320 million.

In September 1985, Viacom purchased the MTV Networks and the other half interest in Showtime from Warner Communications, a company that needed cash because its cable interests were suffering in the unfavorable market. As part of the deal Viacom paid Warner $500 million in cash and $18 million in stock warrants. Viacom also offered $33.50 a share for the one-third of MTV stock that was publicly held. The year before Viacom bought it, MTV had made $11.9 million on sales on $109.5 million. Again, these purchases increased Viacom’s debt load, making it less attractive for a takeover.

The MTV Networks included MTV, a popular music video channel, Nickelodeon, a channel geared towards children, and VH-1, a music video channel geared toward an older audience than that of MTV. The most valuable property in the MTV Network was MTV itself. Its quick pace and flashy graphics were becoming popular and highly influential in the media, and its young audience was a chief target of advertisers.

Established by Warner Amex in 1979 in response to a need for children’s cable programming, Nickelodeon had not achieved any notable success until acquired by Viacom. Viacom quickly revamped Nickelodeon, giving it the slick, flashy look of MTV and unique programming that both appealed to children and distinguished the network from such competitors as The Disney Channel. Viacom also introduced “Nick at Night,” a block of classic sitcoms aired late in the evening, popular among an adult audience. In the next few years Nickelodeon went from being the least popular channel on basic cable to the most popular.

Company Perspectives:

Now and in the future, our intention is simple: to collaborate throughout the corporation and flourish in every medium, in every language, in every region of the planet —on movie screens and computer screens, by air and by wire, on paper and bytes in cyberspace. Look at our balance sheet, our brand list, and our business strategies, and you’ll see a 29 billion dollar enterprise with a dynamic record of growth, an exceptional portfolio of assets, a management team with an uncanny grasp of today’s opportunities and a keen eye on the horizon. Look at our people and our products, and we hope you see something different: a media giant that blends the instincts of an entrepreneur with the soul of an entertainer.

However, Showtime lost about 300,000 customers between March 1985 and March 1986, and cash flow dropped dramatically. In 1986 Showtime embarked on an expensive and risky attempt to gain market share. While Showtime and arch-rival HBO had each featured exclusive presentations of some films, many films were shown on both networks. In order to eliminate this duplication, Showtime gained exclusive rights to several popular films and guaranteed its customers a new film, unavailable on other movie channels, every week. However, Show-time’s move increased the price of acquiring even limited rights to a film at a time when many industry observers felt that the price of buying films for pay-TV should be decreasing since the popularity of video cassette recorders had lowered their worth. Consequently, the cost of programming was raised, and Showtime was forced to increase marketing expenditures to make certain potential viewers were aware of the new policy.

Weakened by the $2 billion debt load it incurred, in part, to scare off unfriendly buyers, Viacom lost $9.9 million on sales of $919.2 million in 1986 and, ironically, became a takeover target. First Carl Icahn made an attempt to buy the company, and then a management buyout led by Terrence Elkes failed. Finally, after a six-month battle, Sumner M. Redstone, president of the National Amusements Inc. movie theater chain, bought Viacom for about $3.4 billion in March 1986. Some industry analysts felt that he had vastly overpaid, but Redstone believed Viacom had strong growth potential. Aside from its cable properties and syndication rights that now included the popular series The Cosby Show, Viacom owned five television and eight radio stations in major markets.

Redstone had already built National Amusements, the family business, from 50 drive-in movie theaters to a modern chain with 350 screens. Now faced with the task of turning Showtime around, he brought in Frank Biondi, former chief executive of HBO, who began organizing the company’s many units into a cooperative work force. Biondi in turn brought in HBO executive Winston Cox to run the network, and Cox immediately doubled Showtime’s marketing budget. Showtime also obtained exclusive contracts with Paramount Pictures and Walt Disney films, which included the rights to air seven of the top ten films of 1986.

Turning Viacom Around in the Late 1980s

Redstone’s banks were demanding $450 million in interest in the first two years following the takeover, but several fortuitous events aided him in paying off this debt. Shortly after the buyout Viacom began to earn millions from television stations wanting to show reruns of The Cosby Show. Furthermore, when Congress deregulated cable in 1987, prices for cable franchises soared. So when Redstone sold some of Viacom’s assets to help pay off its debt, he was able to get large sums for them. In February 1989 Viacom’s Long Island and suburban Cleveland cable systems were sold to Cablevision Systems Corp. for $545 million, or about 20 times their annual cash flow. Cablevision also bought a five percent stake in Showtime for $25 million, giving it a tangible interest in the channel’s success. Further, after Redstone restructured MTV and installed a more aggressive advertising-sales staff, MTV experienced continued growth, against the expectations of many industry analysts. In 1989, for example, the MTV Networks won 15 percent of all dollars spent on cable advertising. MTV was expanding throughout the world, broadcasting to western Europe, Japan, Australia, and large portions of Latin America, with plans to further expand into eastern Europe, Poland, Brazil, Israel, and New Zealand.

These successes enabled Redstone and Biondi to significantly cut Viacom’s debt by September 1989 and negotiate more favorable terms on its loans. Even so, it was rough going at first, and Viacom lost $154.4 million in 1987, though its sales increased to about $1 billion.

Under its new leadership Viacom branched out. Along with Hearst Corp. and Capital Cities/ABC Inc. it introduced Lifetime, a channel geared towards women. It also started its own production operations in 1989, Viacom Pictures, which produced about ten feature films in 1989 at a cost of about $4 million a film. These films first appeared on Showtime. Viacom’s television productions also achieved success after years of mixed results. Viacom produced the hit series Matlock for NBC and Jake and the Fatman for CBS. It also added the rights for A Different World and Roseanne to its rerun stable. In addition, Viacom continued to spend heavily on new and acquired productions for Nickelodeon and MTV.

In October 1989, Viacom sold 50 percent of Showtime to TCI, a cable systems operator, for $225 million. TCI had six million subscribers, and Viacom hoped the purchase would give TCI increased incentive to market Showtime, thus giving the network a wider distribution.

By 1989 Viacom owned five television stations, 14 cable franchises, and nine radio stations. In November of that year the company bought five more radio stations for $121 million. Sales for the year were about $1.4 billion, with profits of $369 million. In 1990, Viacom introduced a plan that halved the cost of Showtime, but forced cable operators to dramatically increase the number of subscriptions to it. This strategy was designed to increase Showtime’s market share at a time when many consumers were starting to feel that pay-TV channels were no longer worth their price.

Several months after HBO introduced its Comedy Channel in 1989, Viacom began transmitting HA!, a channel similar in format. Both channels provided comedy programs, but HA! primarily showed episodes of old sitcoms, while the Comedy Channel showed excerpts from sitcoms, movies, and stand-up comedy routines. Both channels started with subscriber bases in the low millions, and most industry analysts believed that only one of them would survive; Viacom management expected to lose as much as $100 million over a three-year period before HA! broke even. The two companies considered merging their comedy offerings, but HBO parent Time Warner would only move forward with the idea if Viacom agreed to settle its $2.4 billion antitrust suit against HBO.

Showtime had filed the lawsuit in 1989, alleging that HBO was trying to put Showtime out of business by intimidating cable systems that carried Showtime and by trying to corner the market on Hollywood films to prevent competitors from airing them. The suit attracted wide attention and generated much negative publicity for the cable industry.

In August 1992 the suit was finally settled out of court, after having cost both sides tens of millions of dollars in legal fees. Time Warner agreed to pay Viacom $75 million and buy a Viacom cable system in Milwaukee for $95 million, about $10 million more than its estimated worth at the time. Time Warner also agreed to more widely distribute Showtime and The Movie Channel on Time Warner’s cable systems, the second-largest in the United States. Furthermore, the two sides also agreed to a joint marketing campaign to try and revive the image of cable, which had suffered since deregulation. Also during this time, in a move that surprised many industry analysts, HBO and Viacom agreed to merge their struggling comedy networks, HA! and the Comedy Channel, into one network, Comedy Central, which ultimately experienced great success.

Overall, Viacom appeared to be thriving. In 1993 the company’s net income reached $66 million, earned on revenues of $1.9 billion. Nickelodeon, meanwhile, was going to 57.4 million homes, and was watched by more children between ages two and 11 than the children’s programming on all four major networks combined. While Nickelodeon’s earnings were not reported separately, the Wall Street Journal estimated its profits as $76 million in 1992 on sales of $190 million. However, by the mid-1990s, Redstone was ready for a new challenge. The 70-year-old media mogul found it by expanding Viacom into the motion picture and video rental markets.

In July 1994 Viacom purchased Paramount Communications Inc., one of the world’s largest and oldest producers of motion pictures and television shows. The deal, which cost approximately $8 billion, elevated Viacom to the fifth-largest media company in the world. The acquisition vastly expanded the company’s presence in the entertainment business, giving it a motion picture library that included the classics The Ten Commandments and The Godfather and an entre into the premier movie market. Moreover, in the Paramount deal Viacom gained ownership of Simon & Shuster, Inc., one of the world’s largest book publishers.

Later that same year, the company again expanded into a new segment of the entertainment industry by acquiring Blockbuster, the owner, operator, and franchiser of thousands of video and music stores. The Blockbuster group of subsidiaries was one of Viacom’s most quickly growing enterprises; by 1997, Blockbuster boasted 60 million cardholders worldwide and over 6,000 music and video stores.

Viacom’s acquisition of Paramount and Blockbuster gave the company thriving new enterprises, but left the company in significant debt. To both relieve that debt and focus the company’s energies, Viacom divested itself of several segments of its business. In 1995 the company sold the operations of Madison Square Garden to a partnership of ITT Corp. and Cable-vision Systems Corp. for $1.07 billion. In 1996, the company spun off its cable systems in a deal with TCI. Although the split-off represented a break with Viacom’s origins as a cable provider, the deal relieved the company of $1.7 billion in debt. The following year, Viacom left the radio broadcasting business by selling its ten radio stations to Evergreen Media Corporation. The approximately $1.1 billion deal reduced Viacom’s debt even further.

Although Viacom was no longer a cable service provider, and it had expanded into the motion picture and video rental market, its cable networks remained a significant portion of its business. MTV Networks, which included MTV, Nickelodeon, and VH1, accounted for almost $625 million in operating profits in 1997, approximately 32 percent of Viacom’s estimated earnings for the year.

Principal Subsidiaries

Blockbuster Videos, Inc.; Paramount Pictures Corporation; Paramount Television Limited; Paramount Home Video, Inc.; Simon & Schuster, Inc.; Macmillan, Inc.; Prentice Hall, Inc.; MTV Networks Company; Showtime Networks Inc.; VH1 Inc.; Spelling Entertainment Group Inc. (75%).

Further Reading

Atlas, Riva, “Paramount, Anyone?,” Forbes, May 23, 1994, p. 264.

Gubernick, Lisa, “Sumner Redstone Scores Again,” Forbes, October 31, 1988.

Gunther, Marc, “This Gang Controls Your Kids’ Brains,” Fortune, October 27, 1997, pp. 172–78.

Impoco, Jim, “America’s Hippest Grandpa,” U.S. News & World Report, September 27, 1993, p. 67.

Lieberman, David, “Is Viacom Ready to Channel the World?” Business Week, December 18, 1989.

“Viacom’s Risky Quest for Growth,” Business Week, June 21, 1982.

—Scott M. Lewis
—updated by Susan Windisch Brown

Viacom Inc.

1515 Broadway
New York, New York 10036
U.S.A.
Telephone: (212) 258-6000
Fax: (212) 258-6464
Web site: http://www.viacom.com

Public Company
Incorporated: 1971
Employees: 122,770
Sales: $26.6 billion (2003)
Stock Exchanges: New York
Ticker Symbol: VIA
NAIC: 5152210 Cable & Other Subscription Programming; 512110 Motion Picture and Video Production; 518111 Internet Services Providers; 532230 Video Tape and Disc Rental; 511130 Book Publishers: 551112 Offices of Other Holding Companies; 713110 Amusement and Theme Parks

One of the largest media companies in the world, Viacom Inc. operates numerous subsidiaries in six segments: cable networks; television; radio; outdoor; entertainment; and video. Well known to cable viewers are MTV, Nickelodeon, Nick at Night, VH1, and Showtime. Television holdings include the CBS and UPN television networks, King World Productions, and Paramount Television. Infinity Radio owns and operates a wealth of radio stations. The entertainment segment includes: Paramount Pictures, a producer and distributor of motion pictures since 1912; venerable publisher Simon & Schuster; and Paramount Parks' theme attractions. Viacom Outdoor is engaged in display advertising. Blockbuster Inc. operates and franchises video stores around the globe.

1970s Formation

Viacom was formed by the Central Broadcasting System (CBS) in the summer of 1970 to comply with regulations by the U.S. Federal Communications Commission (FCC) barring television networks from owning cable TV systems or from syndicating their own programs in the United States. It formally became a separate company in 1971 when CBS distributed Viacom's stock to its stockholders at the rate of one share for every seven shares of CBS stock.

Viacom began with 70,000 stockholders and yearly sales of $19.8 million. It had about 90,000 cable subscribers, making it one of the largest cable operators in the United States. It also had an enviable stable of popular, previously-run CBS television series, including I Love Lucy, available for syndication, which accounted for a sizable percentage of Viacom's income.

By 1973 there were about 2,800 cable systems in the United States, with about 7.5 million subscribers. This market fragmentation, along with the lack of an infrastructure in many communities and tough federal regulations, slowed the development of cable television. In 1973, Viacom had 47,000 subscribers on Long Island, New York, but a drive to find 2,000 more added only 250.

In 1976, to compete with Home Box Office (HBO), the leading outlet for films in cable, Viacom established the Showtime movie network, which sought to provide its audience with feature films recently released in theaters. Viacom retained half interest in the network while Warner Amex owned the other half. Despite a federal ruling that removed many restrictions on the choice of movies and sports available on pay-TV during this time and allowed a wider variety of programming, Showtime lost $825,000 in 1977. Nevertheless, Viacom earned $5.5 million that year on sales of $58.5 million. Most of the company's earnings represented sales of television series, but it also reflected the growth of its own cable systems, which at this time had about 350,000 subscribers.

Showtime continued to compete aggressively with HBO. In 1977 it began transmitting its programming to local cable stations via satellite, at a cost of $1.2 million a year. The following year it worked out a deal with Teleprompter Corp., then the largest cable systems operator in the United States, with the result that Teleprompter offered its customers Showtime rather than HBO. Showtime also began offering a service channel called Front Row. Dedicated to family programming, including classic movies and children's shows, Front Row cost consumers less than $5 a month and was aimed at smaller cable systems where subscribers could not afford a full-time pay-TV service.

Viacom's forays into the production of original programming in the late 1970s and early 1980s had mixed results. Competition was stiff, the odds of producing a successful television series or film were long, and Viacom experienced several failures. The Lazarus Syndrome and Dear Detective series were failures, and CBS canceled Nurse after 14 episodes.

Growth Through Acquisition in the 1980s

Cable systems were a capital-intensive business, and Viacom constantly invested money in building its cable infrastructure—spending $65 million in 1981 alone, for example. In the early 1980s Viacom started on a program of rapid growth across a range of media categories. Company President Terrence A. Elkes told Business Week that Viacom hoped to become a billion-dollar company in three to five years. Because management felt that cable operations were not a strong enough engine for that growth, Viacom looked to communications and entertainment. In 1981 it bought Chicago radio station WLAK-FM for $8 million and disclosed its minority stake in Cable Health Network, a new advertiser-supported cable service. It also bought Video Corp. of America for $16 million. That firm's video production equipment stood to save Viacom a great deal of money on production costs.

While its increased size would give Viacom clout with advertisers and advertising agencies, some industry analysts believed that the acquisitions were partly intended to discourage takeover attempts. Buying radio and TV stations increased the firm's debt, and added broadcast licenses to Viacom's portfolio. The transfer of such licenses was a laborious process overseen by the FCC, thereby slowing down attempts to act quickly in taking over a company.

By 1982 Showtime had 3.4 million subscribers, earning about $10 million on sales of $140 million, and was seeking to distinguish itself from other pay-TV sources by offering its own series of programs. While Viacom had sales of about $210 million, syndication still accounted for a large percentage of Viacom's profits, 45 percent in 1982. The growth rate of syndication had declined, however, while that for cable had increased, and by 1982 Viacom had added 450,000 subscribers to the 90,000 it inherited from CBS, making it the ninth largest cable operator in the United States.

However, a decline in pay-TV's popularity began in 1984, and growth in the industry was virtually halted. In early 1984, Showtime became a sister station to Warner Amex's The Movie Channel in a move calculated to increase sales for both of them. HBO and its sister channel Cinemax were being offered on 5,000 of the 5,800 cable systems in the United States, while Showtime or The Movie Channel were available on 2,700. Besides having a far larger share of the market, HBO already featured many of the films shown by Showtime and The Movie Channel, removing some of the incentive for subscribing to both groups of services. That year Viacom earned $30.9 million on revenue of $320 million.

In September 1985, Viacom purchased the MTV Networks and the other half interest in Showtime from Warner Communications, a company that needed cash because its cable interests were suffering in the unfavorable market. As part of the deal Viacom paid Warner $500 million in cash and $18 million in stock warrants. Viacom also offered $33.50 a share for the one-third of MTV stock that was publicly held. The year before Viacom bought it, MTV had made $11.9 million on sales of $109.5 million. Again, these purchases increased Viacom's debt load, making it less attractive for a takeover.

The MTV Networks included MTV, a popular music video channel; Nickelodeon, a channel geared towards children; and VH-1, a music video channel geared toward an older audience than that of MTV. The most valuable property in the MTV Network was MTV itself. Its quick pace and flashy graphics were becoming highly influential in the media, and its young audience was a chief target of advertisers.

Established by Warner Amex in 1979 in response to a need for children's cable programming, Nickelodeon had not achieved any notable success until acquired by Viacom. Viacom quickly revamped Nickelodeon, giving it the slick, flashy look of MTV and unique programming that both appealed to children and distinguished the network from such competitors as The Disney Channel. Viacom also introduced "Nick at Night," a block of classic sitcoms aired late in the evening, popular among an adult audience. In the next few years Nickelodeon went from being the least popular channel on basic cable to the most popular.

However, Showtime lost about 300,000 customers between March 1985 and March 1986, and cash flow dropped dramatically. In 1986 Showtime embarked on an expensive and risky attempt to gain market share. While Showtime and arch-rival HBO had each featured exclusive presentations of some films, many films were shown on both networks. In order to eliminate this duplication, Showtime gained exclusive rights to several popular films and guaranteed its customers a new film, unavailable on other movie channels, every week. However, Showtime's move increased the price of acquiring even limited rights to a film at a time when many industry observers felt that the price of buying films for pay-TV should be decreasing since the popularity of video cassette recorders had lowered their worth. Consequently, the cost of programming was raised, and Showtime was forced to increase marketing expenditures to make certain potential viewers were aware of the new policy.

Company Perspectives:

Viacom is a leading global media company, with preeminent positions in broadcast and cable television, radio, outdoor advertising, and online. With programming that appeals to audiences in every demographic category across virtually all media, the company is a leader in the creation, promotion, and distribution of entertainment, news, sports, music, and comedy.

Weakened by the $2 billion debt load it incurred, in part, to scare off unfriendly buyers, Viacom lost $9.9 million on sales of $919.2 million in 1986 and, ironically, became a takeover target. First Carl Icahn made an attempt to buy the company, and then a management buyout led by Terrence Elkes failed. Finally, after a six-month battle, Sumner M. Redstone, president of the National Amusements Inc. movie theater chain, bought Viacom for about $3.4 billion in March 1986. Some industry analysts felt that he had vastly overpaid, but Redstone believed Viacom had strong growth potential. Aside from its cable properties and syndication rights that now included the popular series The Cosby Show, Viacom owned five television and eight radio stations in major markets.

Redstone had already built National Amusements, the family business, from 50 drive-in movie theaters to a modern chain with 350 screens. Now faced with the task of turning Showtime around, he brought in Frank Biondi, former chief executive of HBO, who began organizing the company's many units into a cooperative workforce. Biondi in turn brought in HBO executive Winston Cox to run the network, and Cox immediately doubled Showtime's marketing budget. Showtime also obtained exclusive contracts with Paramount Pictures and Walt Disney films, which included the rights to air seven of the top ten films of 1986.

Turning Viacom Around in the Late 1980s

Redstone's banks were demanding $450 million in interest in the first two years following the takeover, but several fortuitous events aided him in paying off this debt. Shortly after the buyout Viacom began to earn millions from television stations wanting to show reruns of The Cosby Show. Furthermore, when Congress deregulated cable in 1987, prices for cable franchises soared. When Redstone sold some of Viacom's assets to help pay off its debt, he was thus able to get large sums for them. In February 1989 Viacom's Long Island and suburban Cleveland cable systems were sold to Cablevision Systems Corp. for $545 million, or about 20 times their annual cash flow. Cablevision also bought a 5 percent stake in Showtime for $25 million, giving it a tangible interest in the channel's success. Further, after Redstone restructured MTV and installed a more aggressive advertising-sales staff, MTV experienced continued growth, against the expectations of many industry analysts. In 1989, for example, the MTV Networks won 15 percent of all dollars spent on cable advertising. MTV was expanding throughout the world, broadcasting to Western Europe, Japan, Australia, and large portions of Latin America, with plans to further expand into Eastern Europe, Poland, Brazil, Israel, and New Zealand.

These successes enabled Redstone and Biondi to significantly cut Viacom's debt by September 1989 and negotiate more favorable terms on its loans. Even so, it was rough going at first, and Viacom lost $154.4 million in 1987, though its sales increased to about $1 billion.

Under its new leadership Viacom branched out. Along with Hearst Corp. and Capital Cities/ABC Inc. it introduced Lifetime, a channel geared towards women. It also started its own production operations in 1989, Viacom Pictures, which produced about ten feature films in 1989 at a cost of about $4 million a film. These films first appeared on Showtime. Viacom's television productions also achieved success after years of mixed results. Viacom produced the hit series Matlock for NBC and Jake and the Fatman for CBS. It also added the rights for A Different World and Roseanne to its rerun stable. In addition, Viacom continued to spend heavily on new and acquired productions for Nickelodeon and MTV.

In October 1989, Viacom sold 50 percent of Showtime to TCI, a cable systems operator, for $225 million. TCI had six million subscribers, and Viacom hoped the purchase would give TCI increased incentive to market Showtime, thus giving the network a wider distribution.

By 1989 Viacom owned five television stations, 14 cable franchises, and nine radio stations. In November of that year the company bought five more radio stations for $121 million. Sales for the year were about $1.4 billion, with profits of $369 million. In 1990, Viacom introduced a plan that halved the cost of Showtime, but forced cable operators to dramatically increase the number of subscriptions to it. This strategy was designed to increase Showtime's market share at a time when many consumers were starting to feel that pay-TV channels were no longer worth their price.

Several months after HBO introduced its Comedy Channel in 1989, Viacom began transmitting HA!, a channel similar in format. Both channels provided comedy programs, but HA! primarily showed episodes of old sitcoms, while the Comedy Channel showed excerpts from sitcoms, movies, and stand-up comedy routines. Both channels started with subscriber bases in the low millions, and most industry analysts believed that only one of them would survive; Viacom management expected to lose as much as $100 million over a three-year period before HA! broke even. The two companies considered merging their comedy offerings, but HBO parent Time Warner would only move forward with the idea if Viacom agreed to settle its $2.4 billion antitrust suit against HBO.

Key Dates:

1970:

Viacom is formed by the Central Broadcasting System (CBS).

1971:

Formally made a separate company, Viacom becomes one of the largest cable firms in the United States.

1973:

Fragmentation in the cable industry inhibits growth.

1976:

Company establishes Showtime movie network to compete with Home Box Office (HBO).

1981:

Company invests $65 million in cable infrastructure.

1985:

Company purchases MTV Networks.

1986:

Debt-weakened Viacom is purchased by Sumner M. Redstone.

1989:

Viacom files lawsuit against HBO.

1994:

Company purchases Paramount and Blockbuster.

1996:

Viacom spins off cable systems.

2000:

Viacom buys CBS Corporation.

2004:

Redstone announces intention to step down as CEO.

Showtime had filed the lawsuit in 1989, alleging that HBO was trying to put Showtime out of business by intimidating cable systems that carried Showtime and by trying to corner the market on Hollywood films to prevent competitors from airing them. The suit attracted wide attention and generated much negative publicity for the cable industry.

In August 1992 the suit was finally settled out of court, after having cost both sides tens of millions of dollars in legal fees. Time Warner agreed to pay Viacom $75 million and buy a Viacom cable system in Milwaukee for $95 million, about $10 million more than its estimated worth at the time. Time Warner also agreed to more widely distribute Showtime and The Movie Channel on Time Warner's cable systems, the second largest in the United States. Furthermore, the two sides also agreed to a joint marketing campaign to revive the image of cable, which had suffered since deregulation. Also during this time, in a move that surprised many industry analysts, HBO and Viacom agreed to merge their struggling comedy networks, HA! and the Comedy Channel, into one network, Comedy Central, which ultimately experienced great success.

Overall, Viacom appeared to be thriving. In 1993 the company's net income reached $66 million, earned on revenues of $1.9 billion. Nickelodeon, meanwhile, was going to 57.4 million homes, and was watched by more children between ages two and 11 than the children's programming on all four major networks combined. While Nickelodeon's earnings were not reported separately, the Wall Street Journal estimated its profits as $76 million in 1992 on sales of $190 million. However, by the mid-1990s, Redstone was ready for a new challenge. The 70-year-old media mogul found it by expanding Viacom into the motion picture and video rental markets.

In July 1994 Viacom purchased Paramount Communications Inc., one of the world's largest and oldest producers of motion pictures and television shows. The deal, which cost approximately $8 billion, elevated Viacom to the fifth largest media company in the world. The acquisition vastly expanded the company's presence in the entertainment business, giving it a motion picture library that included the classics The Ten Commandments and The Godfather and an entre into the premier movie market. Moreover, in the Paramount deal Viacom gained ownership of Simon & Schuster, Inc., one of the world's largest book publishers.

Later that same year, the company again expanded into a new segment of the entertainment industry by acquiring Blockbuster, the owner, operator, and franchiser of thousands of video and music stores. The Blockbuster group of subsidiaries was one of Viacom's most quickly growing enterprises; by 1997, Blockbuster boasted 60 million cardholders worldwide and over 6,000 music and video stores.

Viacom's acquisition of Paramount and Blockbuster gave the company thriving new enterprises, but left the company in significant debt. To both relieve that debt and focus the company's energies, Viacom divested itself of several segments of its business. In 1995 the company sold the operations of Madison Square Garden to a partnership of ITT Corp. and Cablevision Systems Corp. for $1.07 billion. In 1996, the company spun off its cable systems in a deal with TCI. Although the split-off represented a break with Viacom's origins as a cable provider, the deal relieved the company of $1.7 billion in debt. The following year, Viacom left the radio broadcasting business by selling its ten radio stations to Evergreen Media Corporation. The approximately $1.1 billion deal reduced Viacom's debt even further.

Although Viacom was no longer a cable service provider, and it had expanded into the motion picture and video rental market, its cable networks remained a significant portion of its business. MTV Networks, which included MTV, Nickelodeon, and VH1, accounted for almost $625 million in operating profits in 1997, approximately 32 percent of Viacom's estimated earnings for the year.

By June 1998, Viacom had more than recovered from the hit it had taken from the Blockbuster purchase. Stock equaled its 1995 high, a joint production of the movie Titanic had seen spectacular box office receipts, and the sell-off of most of Simon & Schuster book publishing operations brought in $4.6 billion. A new strategy for Blockbuster drove up its sagging market share. Furthermore, Viacom had been on a global expansion drive, selling broadcast rights to Paramount's film library, for example. MTV was becoming an international brand as well.

Creating Synergy: 1999–2004

In 1999, Redstone held about $9 billion worth of Viacom shares. The company's stock had outshined rivals Time Warner, Disney, and News Corp. That year, Viacom announced plans to buy out CBS Corporation for $37 billion in stock. The heydays of network television were in the past. CBS's cash flow for the year would come from cable, radio, stations, and billboards. Cable ranked first among profitable segments of the entertainment business during the decade, with radio close behind.

CBS had made an early stab into cable in 1981, but the effort tanked. The "Tiffany Network" steered away from the medium after that while its direct competitors, ABC, NBC, and Fox, made inroads. The tide turned thanks to CEO Mel Karmazin and his predecessor Michael Jordan. "Not until 1997 did Jordan and Karmazin lead CBS back into cable by buying two music channels, the Nashville Network and County Music Television, for $1.5 billion," Marc Gunther wrote for Fortune.

Redstone had his eye on those channels and proposed an exchange of Viacom television stations for the country channels. But Karmazin convinced Redstone of the synergistic benefits of merging the two media giants and the deal was completed in May 2000. Redstone relinquished "effective operating control" of the merged company to Karmazin, according to the Wall Street Journal in 2003. Wall Street applauded the move, respectful of Karmazin's record in financial management and operational details as head of CBS.

But a few years down the road, it became less and less likely that Karmazin would succeed Redstone. Not only did the pair have an uneasy relationship, but Karmazin failed to meet earnings targets from 2001 to 2003. Moreover, Redstone wanted back some of the power he had relinquished.

Despite the three-year deal they arrived at in 2003, in June 2004 Karmazin resigned.

Redstone named MTV's Tom Freston and CBS's Leslie Moonves co-presidents, setting up a competition between them for his heir apparent.

Television, radio, and outdoor segments reported to Moonves and cable networks, entertainment, and video, to Freston. Television had produced 29 percent of Viacom's 2003 consolidated revenues; followed by video, 22 percent; cable networks, 21 percent; entertainment, 15 percent; radio, 8 percent; and outdoor, 5 percent.

Significantly, Redstone was prepared to finally step down as CEO, something he said he would do within the next three years. Gunther wrote for Fortune, "Until now the 81-year-old Redstone had stubbornly refused to set a date for his retirement. No one can force him out, because he controls 71% of the shareholder votes at $27 billion-a-year Viacom."

Principal Subsidiaries

Blockbuster Videos, Inc.; Paramount Pictures; Paramount Home Entertainment; Simon & Schuster; MTV Networks; Showtime Networks Inc.; VH1 Inc.; BET; The CBS Television Network; United Paramount Network; Infinity Broadcasting; Paramount Television; Paramount Parks.

Principal Competitors

News Corp.; Time Warner; Walt Disney.

Further Reading

Atlas, Riva, "Paramount, Anyone?" Forbes, May 23, 1994, p. 264.

Berkowitz, Harry, "Company President Leaves, Karmazin Steps Down at Viacom, Surprise Resignation Follows Often-Rocky Relationship with CEO Redstone," Newsday, June 2, 2004, p. A2.

Flint, Joe, "Final Cut: Karmazin Leaves Post, Ending a Stormy Marriage," Wall Street Journal, June 2, 2004.

Gubernick, Lisa, "Sumner Redstone Scores Again," Forbes, October 31, 1988.

Gunther, Marc, "Behind the Shakeup at Viacom," Fortune, June 28, 2004, p. 34.

—, "This Gang Controls Your Kids' Brains," Fortune, October 27, 1997, pp. 172–78.

—, "Sumner ♡ Mel: CBS, Viacom, and the Triumph of Cable," Fortune, October 11, 1999, pp. 54+.

—, "Viacom: Redstone's Remarkable Ride to the Top," Fortune, April 26, 1999, pp. 130+.

"How Much for Ads on Children's TV? A Million and a Half Dollars, If They Violate F.C.C. Rules," New York Times, October 22, 2004.

Impoco, Jim, "America's Hippest Grandpa," U.S. News & World Report, September 27, 1993, p. 67.

Lazaroff, Leon, "Viacom Prepares to Battle FCC over $550,000 Indecency Fine," Knight-Ridder Tribune Business News, November 10, 2004.

Lenzner, Robert, and Peter Newcomb, "The Vindication of Sumner Redstone," Forbes, June 15, 1998, pp. 50+.

Lieberman, David, "Is Viacom Ready to Channel the World?" Business Week, December 18, 1989.

Peers, Martin, "Leading the News: Viacom Is Near Deal to Retain Top Management," Wall Street Journal, March 20, 2003, p. A3.

"Viacom's Risky Quest for Growth," Business Week, June 21, 1982.

—Scott M. Lewis
—updates: Susan Windisch Brown, Kathleen Peippo

Viacom Inc.

founded: 1970

Contact Information:

headquarters: 1515 broadway
new york, ny 10036 phone: (212)258-6000 fax: (215)258-6358 email: info@viacom.com url: http://www.viacom

OVERVIEW

Viacom is one of the leading media companies in the world. The company is a strong force in the television industry and operates such cable networks as MTV, VH1, Nickelodeon, Showtime, The Movie Channel, Flix, Comedy Central, The Sci-Fi Channel, and The All News Channel.

In addition, Viacom produces major television shows, syndicates popular television programs, produces major motion pictures, publishes books, and operates regional theme parks. The company also owns a number of television stations and movie theaters.

COMPANY FINANCES

Viacom reported total revenues of $13.2 billion for the year ended December 31, 1997, and earnings per share of $.84. This compared with 1996 revenues of $12.1 billion and per-share earnings of $.31. In 1995 Viacom's revenues totaled $11.7 billion with per-share earnings of $.24, against 1994 revenues of $7.4 billion and a loss of $.62 per share. In 1997 Viacom's earnings before interest, taxes, depreciation, and amortization were $1.7 billion, compared with $2.1 billion in 1996. Operating income in 1997 totaled $753 million, against $1.3 billion in 1996.

ANALYSTS' OPINIONS

When chairman Sumner Redstone dismissed CEO Frank Biondi in 1996 and took over as supreme leader of Viacom, he took a more hands-on approach to management. Critics believe this hands-on approach has slowed down decision making within the company and are not sure this new management strategy is working.

Analysts believe that Viacom needs to develop marketable icons created in Paramount's motion pictures. An example would be Forrest Gump, where the main character lends itself to a whole host of merchandising ideas. Viacom did make use of the Bubba Gump Shrimp Co. restaurant idea in the film by opening a real restaurant of the same name.

HISTORY

Viacom was formed by CBS in 1970 when the Federal Communications Commission (FCC) dictated that television networks could not occupy cable systems and television stations concurrently in the same market. Viacom purchased cable systems in five states throughout the 1970s. Showtime was started in 1978 as a subscription television service.

CHRONOLOGY: Key Dates for Viacom Inc.

1970:

Viacom is formed by CBS

1978:

Showtime is started

1987:

83 percent of Viacom is purchased by Sumner Redstone

1994:

Acquires Paramount and Blockbuster

1995:

Viacom and British Sky Broadcasting develop a Paramount television channel in the United Kingdom

1996:

Purchases half of United Paramount Network (UPN)

1997:

Sells Evergreen Media and Chancellor Broadcasting: sells its share of USA Network to Universal

Viacom acquired television and radio stations throughout the late 1970s and early 1980s. The company teamed up with Warner/Amex in 1983 to form Showtime Networks. Showtime Networks was a combination of Showtime and The Movie Channel. Warner/Amex became simply Warner in 1986 and Viacom purchased Warner's share of Showtime Networks and MTV Networks, which included the first all-music video channel on cable television.

Sumner Redstone became a prominent figure in Viacom's history when his movie theater chain, National Amusements, purchased 83 percent of Viacom in 1987. Redstone then began attempts to acquire many prominent companies, including Orion Pictures, which he ultimately was unable to attain. His acquisition of Paramount and Blockbuster in 1994 firmly branded Viacom as a major player in the media industry.

The mid-1990s at Viacom have been marked by a number of key personnel changes. The most notable of these changes was undoubtedly Redstone's firing in 1996 of Frank Biondi from his post as president and CEO. It was, however, by no means the only change in upper management ranks. In 1994 Richard Snyder, the chairman of Simon & Schuster, was sacked by Redstone. Steven Barrard, the CEO at Blockbuster, resigned in 1996, followed in 1997 by Bill Fields, his replacement. Redstone replaced Fields with John Antioco, who previously had been a member of top management at Taco Bell.

In 1997 the company sold its radio stations to Evergreen Media and Chancellor Broadcasting for $1.1 billion. That same year the company also ended a long-running battle with Universal Studios over control of cable television's USA Network by selling its share to Universal for $1.7 billion.

STRATEGY

Viacom has applied a variety of strategies in an effort to increase its existing markets and expand to new markets. In the late 1990s Viacom made plans to open a corporate store in Chicago. The store would be comparable to the Disney and Warner Bros. stores and offer various Viacom merchandise based on characters and ideas developed by Viacom's movie and television divisions. Included within the stores would be interactive games, a restaurant, and a movie theater.

Viacom also introduced, through Paramount, a new comic book developed by Marvel Comics. The first issue of the comic book featured "Mission: Impossible" and was released in May 1996, at the same time Paramount's movie of the same name was opening. Viacom is hopeful that the comic book venture will help to generate a demand for licensed merchandise that then can be offered in Viacom stores.

In late 1996 Viacom exercised its option to purchase half of United Paramount Network (UPN). Analysts believe UPN will be a "secure distribution outlet" for Viacom. Viacom's reason for starting the venture was to furnish UPN with a network brand identity that would eventually pay off financially.

In May 1998 Viacom agreed to sell its educational, professional, and reference publishing operations to Pearson PLC for $4.6 billion. The company said the move was part of its strategic program to concentrate "on its core entertainment assets, deliver maximum value to its shareholders, and strengthen its capital structure." Viacom will retain its consumer publishing operations, which under 34 different imprints publish more than 2,000 new titles a year.

INFLUENCES

Viacom has faced many challenges on the way up the ladder to success. The company has learned that bigger is not always better. Viacom's acquisition of Paramount Communications initially proved profitable with the movie Forrest Gump being a box office smash. But since "Gump," Paramount has not turned out any block-buster movies. Viacom hasn't given up on Paramount and believes the subsidiary will become profitable.

The acquisition of Blockbuster Entertainment Group has also cost more than it has paid off. Redstone had promised Blockbuster would be "the No. 1 distributor of music products in the world" when Viacom acquired the chain in 1994. There have been rumors of a spinoff of the video rental chain. Originally, Viacom believed that its size would empower Blockbuster to contract better prices on videos. But Blockbuster has faced some strong competition. Despite Blockbuster being forced to cut prices, reducing its profits, Viacom still believes Block-buster has a future. Viacom plans to expand Blockbuster stores to carry a wide variety of media products.

To reduce debts incurred as a result of acquisitions, Viacom decided to sell its cable television properties. Originally planning to sell to minority-affiliated RCS Pacific L. P., Viacom ended up spinning off its cable properties to shareholders. The change in strategy was made as a result of Congress nixing the loophole that allowed corporations to skirt taxes on television or cable properties sold to minority-led organizations. By spinning off the business to shareholders, Viacom still avoided a capital gains tax since spin-offs to shareholders aren't taxable.

CURRENT TRENDS

One favorable trend within Viacom's motion picture operations has been the phenomenally popular, Oscar-winning Titanic, the James Cameron-directed film released jointly by Paramount Pictures and 20th Century Fox. Through late April 1998 the film had earned approximately $560 million at box offices in the United States and Canada. Titanic was released by Paramount in the United States and Canada, while 20th Century Fox handled its release outside those two markets.

Although Titanic was widely expected to become the biggest box office success in motion picture history, Paramount did come in for some criticism for its handling of the film's television rights. The TV rights were reportedly sold to NBC for $30 million in a deal negotiated by Paramount. Other television networks complained they were not properly made aware of the auction of TV rights and that they would have been willing to spend considerably more than the $30-billion bid by NBC. There were also reports that 20th Century Fox was considering taking legal action over Paramount's handling of the TV rights sale.

PRODUCTS

Viacom's business consists of four main groups: Entertainment, Networks and Broadcasting, Video and Music/Theme Parks, and Publishing. The Entertainment segment, which in 1997 accounted for just over 29 percent of Viacom's total business, includes movie theaters, Paramount Pictures, Paramount Television, Spelling Entertainment Group, and Viacom Interactive Media. Paramount Pictures and Spelling Entertainment Group produce and distribute motion pictures and television programming.

Viacom's Networks and Broadcasting segment, accounting for about 20 percent of the company's total revenues in 1997, includes such cable television networks as The All News Channel and Comedy Central, 50 percent each owned by Viacom. MTV Networks and Show-time Networks are also holdings of Viacom.

FAST FACTS: About Viacom Inc.

Ownership: Viacom is a publicly owned company traded on the American Stock Exchange.

Ticker symbol: VIA

Officers: Sumner M. Redstone, Chmn. & CEO, 74; George S. Smith Jr., Sr. VP & CFO, 49; Vaughn A. Clarke, Sr. VP & Treasurer, 43; Carl D. Folta, Sr. VP, Corporate Relations, 40

Employees: 116,700

Principal Subsidiary Companies: Viacom's principal subsidiaries include: Paramount Pictures, Block-buster Entertainment Corp., Spelling Entertainment Group Inc., Viacom Cable, and Viacom International Inc.

Chief Competitors: As one of the world's leading entertainment and publishing conglomerates, Viacom and its major subsidiaries face keen competition in all areas of operation. Some principal competitors include: Hearst Corp.; McGraw-Hill; Capital Cities ABC; CBS; Orion Pictures; Walt Disney; and Anheuser-Busch.

The heart of the company's Publishing sector is Simon & Schuster, which operates such imprints as MacMillan Publishing USA and Prentice Hall. Publishing accounted for roughly 18 percent of Viacom's revenues in 1997. Before the sale of the majority of this division to Pearson PLC in 1998, the various company holdings published and distributed educational, consumer, business, technical and professional books, and audiovisual software. Viacom retained its consumer publishing operations.

The Video Music/Theme Parks group, accounting for almost 33 percent of the company's total revenues in 1997, includes Block Party entertainment centers, Block-buster Music, Blockbuster Video, Discovery Zone Inc., and Paramount Parks. Viacom owns 49.6 percent of Discovery Zone Inc., while Paramount Parks operates five theme parks and one water park in the United States and Canada.

In 1996 Viacom and Sprint teamed up to form branded direct-access Internet products. The plan established links to Viacom sites such as Blockbuster Video and the MTV networks on a specially designed "net browser" created by Sprint.

CORPORATE CITIZENSHIP

Nearly 4,000 Viacom employees in the United States, Canada, and the United Kingdom participated in Viacommunity III, the company's third annual volunteer day, on September 11, 1997. The annual event celebrates the spirit of volunteerism and community among Viacom's employees around the world. Among the projects undertaken during Viacommunity III were cleanups of public parks and gardens, the painting of murals, escorting underprivileged children on field trips, and the renovation of tenement housing, schools, and hospitals. The employees taking part in Viacommunity III came from Viacom operations in 22 cities, including New York, Chicago, Los Angeles, Toronto, and London.

GLOBAL PRESENCE

Viacom is actively involved in 100 countries around the world. CEO Sumner Redstone is intent on making Viacom an international rival to Rupert Murdoch's News Corp. and Turner Broadcasting System. Viacom has various international programming ventures. The company owns 100 percent of MTV Europe and has an interest in MTV Asia. Viacom's cable networks continue to expand internationally, but the company plans further expansion in other facets of its business.

THIS TITANIC SOARS

If there were any doubts about the ability of Paramount Pictures to release high-quality, profitable movies, they were surely sunk by the 1997 blockbuster, Titanic, which took in more than $1.2 billion in box office revenues. In 1998 Titanic raked in 11 Oscars, including the award for Best Picture, tying the record set by Ben Hur in 1959. Following the Best Picture awards for Forrest Gump in 1994 and 1995's Braveheart, Titanic continued a successful trend for Paramount movies in the 1990s.

When filming began, not many people would have predicted this kind of success, however. Titanic, which was also distributed by 20th Century-Fox overseas, cost $200 million to produce and was ran behind its original July 1997 release date. Regarded as the most expensive film ever made, some did not immediately see the film's enormous potential. Director James Cameron, who won the 1998 Oscar for Best Director for Titanic, proved the critics wrong. In his effort to make the film as technically realistic as possible, Cameron utilized numerous computerized visual and other special effects to ensure that Titanic would not disappoint.

In many cases computer-generated people were used in lieu of stunt people to shoot the dangerous scenes in which many of the ship's passengers drowned. Much of the water seen in the film was also computer generated. In addition, Cameron had three huge sets constructed for filming the ship's sinking, one of which weighed more than two-million pounds. To make the film even more realistic, a scale model of the ship itself was built, measuring 775 feet in length. This was 90 percent of the size of the actual vessel. In all, Titanic set an industry record of 6,029 stunt-person days—three times the old record—and used more than 550 computer-generated shots.

Paramount, along with Sprint and Max Factor, hoped that Titanic's box office success would translate to the home video market as well. At the time of this publication, Sprint was giving away $22 Titanic video vouchers to people who changed their long-distance service to their company. Max Factor was offering a soft-cover edition of James Cameron's Titanic companion book to consumers who purchased $10 worth of cosmetics. Paramount also launched a $50 million campaign to market the video, hoping that it would sell more than the 30 million units that Buena Vista Home Video's The Lion King sold.

In 1995 Viacom and British Sky Broadcasting joined together to develop a Paramount television channel in the United Kingdom. The lineup included past and current comedy and drama series, many of which had not previously been screened in the United Kingdom. Paramount movies were not included since they were licensed to the British company's premium film channels.

Growth in the media industry has been shifting more toward Europe. When Bertelsmann and Compagnie Luxembourgeoise started a joint venture media company, Viacom responded with its own joint venture in direct competition. In 1996 Viacom teamed up with Kirch Group of Germany in order to expand Viacom's presence in Europe. Kirch offered all of Viacom's existing and future cable channels in its digital pay television service to consumers. The deal also gave Viacom an option to acquire a percentage of Tele 5, a Spanish broadcaster.

EMPLOYMENT

In Viacom's search for qualified employees, the company offers both paid and unpaid internships. New employees are trained on the job and are provided with seminars, workshops, and classes to supplement their training. The company administers regular performance reviews and promotes from within whenever possible. Viacom encourages employee participation in professional organizations and job fairs. The company provides tuition reimbursement as well.

SOURCES OF INFORMATION

Bibliography

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"viacom inc. struck a deal with sprint." broadcasting & cable, 21 october 1996.

For an annual report:

on the internet at: http://www.viacom.com/10kcover.html

For additional industry research:

investigate companies by their standard industrial classification codes, also known as sics. viacom's primary sics are:

2731 book publishing & printing

4841 cable & other pay television services

7812 motion picture, video tape production

7841 video tape rental