In A CBS-Viacom Merger, What Would The Combined Company Look Like?

In A CBS-Viacom Merger, What Would The Combined Company Look Like?

CBS and Viacom, the Liz Taylor and Richard Burton of the media business, once again are talking about a reunion.

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They inhabit a transformed media world compared with the one when they last considered coming back together, back in 2016. Wall Street pressure on both companies to gain scale is ratcheting up as other mega deals (especially Disney-Fox and AT&T-Time Warner) reshape the landscape. Shari Redstone, the controlling shareholder in both companies through her father’s company, has publicly acknowledged as much.

Multiple sources told Deadline that early-stage conversations have happened not only involving Redstone but also between Viacom CEO Bob Bakish and CBS czar Leslie Moonves. The two execs are well-acquainted, as Bakish arrived at Viacom in 1997, just two years after Moonves got to CBS. They were colleagues during the six years CBS and Viacom were under the same roof, a period that saw Moonves rise to CEO in 2003.

One source with knowledge of the companies tells Deadline that Bakish might emerge as a strong internal candidate to become Moonves’ No. 2. While Bakish isn’t known as a programming specialist, Moonves has made that part of CEO-dom his forte. “He’s the guy who knows how to bet on talent and stories,” the source says. “Bob is a good and decent man” whose operational and financial savvy could serve as an effective counterbalance. Helping fortify his position is the bond he has formed with Redstone as her choice to stabilize the company following years of volatility and palace intrigue — a difficult goal he has made strides toward achieving.

In addition to industry consolidation, the other difference between now and 2016 is share price, with ratings erosion eating away at both companies’ valuations. Since December 12, 2016, the date when the last round of merger talks officially was abandoned, CBS is down nearly 6%. Viacom, meanwhile, has surrendered just 3% of its value in that span, though it remains the smaller of the two by a lot, with a market capitalization of $14B, compared with about $22.5B for CBS. Those are modest next to the $100M-plus valuations for peers like Disney and small compared with those of tech giants.

Several sources tell Deadline that a viable scenario involves a third company like Lionsgate joining the fold to create a bulkier entity. Another concept that has been discussed would see a much bigger shark like Verizon or Amazon swallowing a combined CBS-Viacom as an aggressive entry into the top tier of entertainment content. “They are just laying in the weeds, waiting for the AT&T trial in March and ready to put their war chest to work to become a major force on the content side,” one former Verizon exec says.

No one at CBS, Viacom or Redstone’s National Amusements, which controls about 10% of the equity in both companies and a controlling 80% of Class A shares), would not comment directly on merger speculation. Insiders at the companies say things will take weeks at a minimum to play out, and those familiar with each media company’s strategies insist they would be able to make a legitimate go of it on their own. Despite having a common majority shareholder, they note that CBS and Viacom have separate boards and separate agendas.

Viacom is set to report its fourth-quarter earnings on February 8, with CBS following on February 15. In the weeks and months to follow, the boards of both companies will meet and formally discuss their options.

While most Wall Streeters see a merger as a must, especially for Viacom, not everyone sees it that way for CBS. “We continue to believe the company is best positioned in the current M&A environment as both predator and prey,” wrote Piper Jaffray analyst Stan Meyers in a research note last week. “We also see plenty of optionality for CBS as tax reform takes hold, freeing up cash for further investment into digital platforms and M&A.”

Leaving a third party out for the moment, what would a combined CBS-Viacom look like? For starters, most of their respective assets are complementary, not surprisingly given they once were two wings of the House of Sumner. (This is a key detail should a prospective merger come before Washington regulators.)

On the TV side, CBS is led by its flagship broadcast network, the longtime leader in total viewers, as well as a profitable collection of local TV stations. Its eclectic stable of cable networks ranges from the well-distributed but lightly rated Pop, a joint venture with Lionsgate, to CBS Sports Network to No. 2 premium network Showtime, which saw record subscriptions from last year’s return of Twin Peaks.

The company has made aggressive moves in the streaming arena, with stand-alone services from CBS and Showtime already more than halfway to execs’ predictions of 8 million total subscribers by 2020.

Viacom touts its cable portfolio as the most viewed on the dial, in the aggregate. It is led by six core networks: MTV, Nickelodeon, Nick Jr., Comedy Central, BET and the newly launched Paramount Network (formerly Spike). While it has crafted novel digital deals on the ad side and has the requisite apps that can be authenticated with a cable subscription on multiple devices, it has been a bit more cautious on the OTT front.

Certainly, the possibility of unlocking new retransmission revenue is strong, given the combined strength of broadcast and cable. Comcast and Disney have shown the potential for harmony between a broadcast network, local stations and cable outlets. Wringing more cash from distributors could be tough, however. Bakish has recently been mending fences with MVPDs alienated by the perceived arrogance of his ousted predecessor, Philippe Dauman. Suddenlink, now owned by Altice, was a major cable system that held firm and kept Viacom networks off its bundles for three years.

Film-wise, Viacom’s troubled Paramount Pictures is a Hollywood fixture that has been struggling of late. Fox vet Jim Gianopulos took the reins at the studio last April, pledging a major turnaround, though the process is in its early phase. A tumultuous 2017 saw longtime boss Brad Grey get fired and subsequently die of cancer, a turn of event followed the 2016 ouster of longtime lieutenant Rob Moore. The studio finished behind Lionsgate in the market-share rankings last year and failed to net a single Oscar nomination.

Paramount Players, a new division run by AwesomenessTV founder Brian Robbins, has ramped up quickly as a synergy play. The unit is loading the pipeline by mining the company’s deep library, with projects ranging from a live-action take on Dora the Explorer to a remake of the Eddie Murphy-Nick Nolte buddy-cop outing 48 Hrs. While Paramount has always had hits like Jackass bubble up from within, a previous lack of coordination hindered the launch of an in-house animation unit and microbudget division Insurge, which debuted after the meteoric success of Paranormal Activity before dissolving in 2015

CBS Films, which launched in 2007, has not hit many home runs and had a quiet 2017. But over its run, the small specialty division has released critical favorites like the Coen brothers’ Inside Llewyn Davis along with midbudget crowd-pleasers like stars-of-a-certain-age comedy Last Vegas. After the CBS-Viacom divorce kept Moonves away from Paramount, the division offered him an appealing presence on the film side.

Production is an interesting sandbox for the two companies, should they re-combine, especially on the TV side. CBS Studios is a smooth-running machine feeding both the broadcast network and CBS All Access as well as some outside buyers. Paramount Television, meanwhile, has scaled notably since the divorce with CBS. As the entity behind hits from 13 Reasons Why on Netflix to Shooter on USA, the group’s studio affiliation and talent Rolodex provide a boost when it comes to mounting what the market prizes: premium series with cinematic DNA.