NEW YORK — Mel Karmazin recently held a conference call with institutional investors, bucking up Westinghouse Electric’s radio group and outlining plans to revive the still-lagging performance of CBS and its TV stations.
It was a normal investor-relations ploy for CEOs in need of a stock-price boost, except for one thing: Michael Jordan is CEO, not Karmazin. He may run all of CBS Radio, but Karmazin has no authority over the company’s TV business.
The unusual move comes as Karmazin, 53, a brash, blunt exec who’s Westinghouse’s largest individual shareholder, is said to have grown frustrated by the company’s lagging stock price and uncertain prospects for earning the $1 billion in media cash flow promised last year, based on a rebound at CBS.
Karmazin came up through the radio ranks, selling Infinity Broadcasting to Westinghouse late last year in a $4.9 billion stock deal that gave him 10 million Westinghouse shares. But since then, Karmazin has spread his reach far beyond, spurring some to dub him the company’s own version of Ted Turner, now ensconced as the top owner and resident rabble rouser at Time Warner.
“He’s got an opinion on everything,” said one CBS exec, charitably describing Karmazin as a “bigger-than-life character.”
And while there’s no evidence he’s yet meddled in the business of CBS Entertainment president Leslie Moonves, some consider that prospect inevitable, as the network accounts for half of CBS’ revenues.
Karmazin’s already fond of regaling Wall Street with the nugget that NBC has made $100 million from its Thursday hit “Friends,” offering hope that CBS needs just one such crown jewel to turn itself around.
“I think Mel’s more of an agitator than Ted Turner,” said one analyst, despite the fact that Westinghouse directors claimed to be “looking for that sort of criticism.”
Applause in order
But while Jordan may not relish the caustic critic, shareholders do, and many attending last week’s annual meeting in Minneapolis no doubt applaud Karmazin’s oft-stated desire to boost the stock price. Karmazin is said to be peeved about losses at the CBS network that have chipped away at gains from the solid profit performance of radio, and about shortfalls in promised cash flow.
The CBS network had been projected to break even last year, but wound up losing $48 million after a $79 million loss in the fourth quarter. Ratings have slowly begun to improve, but the web’s audience remains anchored in the 50-plus segment, weakening the Eye web’s ability to charge premium ad rates.
In the first quarter ended March 31, the network lost $44 million more, leading analysts to reduce cash-flow estimates for the year.
Company execs told Wall Street on April 25 the network will at best break even in 1997 after anticipated losses in the first half, and warned of a slow turnaround process. That puts added pressure on Karmazin’s Infinity, and the country music cable networks being acquired from Gaylord Entertainment, to carry the freight for sustained growth.
Westinghouse has spent $11.2 billion in the last 18 months on a media shopping spree, securing the acquisitions of CBS, Infinity and the Gaylord channels, along with Spanish-lingo cabler TeleNoticias. Some of those deals were touted as cash generators, but they’ve also fueled debt and diluted stock with newly issued shares.
And the notion that focusing on higher-growth media businesses will help Westinghouse’s languishing stock price has yet to be proved.
Despite the addition of Infinity, media cash flow was merely flat in the first quarter vs. 1996. And Westinghouse’s share price, now hovering around $18, hasn’t kept pace with last year’s bull market, prompting plans to spin off the company’s industrial assets to offer a pure media play.
Karmazin lately has embarked on a cost-cutting spree, urging trims like the sale of an art collection — valued at $8 million to $10 million — adorning Black Rock’s 35th floor, and while he’s disdainful of perks like corporate jets, so far Westinghouse’s has been spared the ax.
Earlier this month, Karmazin transferred sales and management responsibility for the venerable CBS Radio Networks from Westinghouse to Westwood One, a programming arm 25%-owned by CBS that Karmazin runs as CEO. In the process, he cut 30 jobs and substantial overhead from CBS’ payroll.
Outside the radio empire, where lower programming costs have fueled huge margins, Karmazin has focused most on the TV station business, where both CBS’ revenues and profit margins badly lag rivals in major markets.
And while that may ruffle the feathers of TV execs from CBS Television and Cable Group CEO Peter Lund on down, shareholders and financial analysts applaud his aggressive style.
“I can imagine Mel’s frustration on the TV side,” said analyst Frank Bodenchak of Morgan Stanley & Co. “To the extent he can impose on the TV stations, that would clearly be a positive.”
Bodenchak figures that perhaps 40% of a station’s revenues are dependent on the network’s programming, suggesting that real local improvement there will depend nearly as much on CBS’ overall gains.
Can his talent transfer?
But some detractors question whether Karmazin’s austerity bent in the high-margin, low-cost radio business is transferable to TV, where higher talent salaries and lower ratings are throwing the economics out of whack.
“A radio station can go from worst to first in a week with a format change,” says one CBS TV exec. “But TV stations are like battleships; they’re very hard to turn around.”
And West Coast execs doubt entertainment prexy Moonves would welcome a programming powwow should Karmazin seek to have a say.
Predictably, Jordan and Lund downplay Karmazin’s influence on the television side of Westinghouse’s media business.
“We talk about investments and priorities every week,” Jordan told Daily Variety, brushing aside a question about Karmazin’s growing influence outside the radio sphere. “He’s part of senior management.”
“We all want to see improvement on the TV stations,” says Lund, who last week joined Karmazin on the Westinghouse board of directors.
Notoriously press-shy, Karmazin refused requests for comment on his role, although he has admitted he’s “not making a lot of friends” inside the company. As a self-made man who twice took Infinity public, observers expect him to push for a greater hand in shaping CBS’ future, and may even aim at running the company himself someday. After all, his own Infinity fortune is tied to CBS’ fate.
Says Nicholas Heymann, a NatWest Securities analyst: “I think it’s pretty clear that Mel’s not going to be there long unless he gets his way.”