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One Year After Exec Shakeup, Viacom Sees Stability But Faces Stock Struggles

It has been one year since Shari Redstone, daughter of Sumner Redstone, prevailed in an epic battle for control of her father’s business empire. As the mogul — now 94 — fell into frail health, Shari Redstone fought it out in court with his former mistresses and confidants. Philippe Dauman bowed to the inevitable on Aug. 20, 2016, and resigned as CEO of Viacom.

The entertainment industry was glad to see him go. Viacom’s stock price had been cut in half over the previous two years, plunging from $88 to $43 by the time Dauman threw in the towel. With Shari Redstone firmly in charge, the company was desperate for a turnaround.

Since then, she has made some decisive moves, promoting Bob Bakish to CEO and bringing in Jim Gianopulos to revitalize her father’s beloved Paramount Pictures. Bakish quickly developed a “flagship” strategy to focus on developing Viacom’s six core brands.

But the stock price has not responded, and in fact has plunged another 30% since Dauman’s departure. As of Aug. 25, Viacom was trading below $30.

The company faces headwinds affecting the entire cable TV business. Investors were especially alarmed when Charter Communications, the nation’s second-largest cable provider, dropped Comedy Central, MTV, BET and other Viacom channels from new subscribers’ basic tier, raising fears about the company’s ability to grow in the skinny-bundle era.

“Owners of cable networks such as Viacom face worse conditions now vs. this time last year,” said Brian Wieser, an analyst at Pivotal Research Group. “It’s going to be a rocky period for [a little] while.”

In an earnings call earlier this month, Bakish pointed to “green shoots” across the business in arguing that the turnaround is beginning to take hold. Bakish underscored the success at MTV, where 3% ratings growth marked the end of a five-year slide, and touted record numbers for Comedy Central’s “The Daily Show” with Trevor Noah. He argued that those gains demonstrate that the strategy of focusing investment on flagship brands is paying off.

“We continue to find that advertisers will recognize the value of TV quantity advertising,” Bakish said, and “appreciate the controlled premium environment that Viacom can offer.”

However, it remains to be seen whether the ratings growth will boost the bottom line. Domestic advertising revenue dropped 2% in the most recent quarter, in part because Viacom decided to reduce the volume of advertising to improve the viewing experience.

Meanwhile, Paramount continues to face hiccups with its $1 billion Chinese slate-financing deal with Shanghai Film Group and Huahua Media. The deal has started and stalled several times since it was first announced under Brad Grey’s leadership in January. Viacom recently revealed that the June payment was delayed, but sought to assure investors that the deal is still on.

“It’s the lack of clarity around Charter and Paramount that has investors panicked,” said analyst Rich Greenfield, of BTIG.

Greenfield argued that those issues have distracted investors from the positive developments over the past year.

“Morale is better and organizationally it’s better,” he says. “There’s actually excitement about the strategic direction in programming philosophy.”

Shari Redstone serves as president of National Amusements, the family company that owns controlling stakes in Viacom and CBS. She’s vice chair of the latter two companies. Last winter, she explored the possibility of recombining Viacom and CBS, but backed off. Longtime CBS Corp. CEO Leslie Moonves made it clear that he saw no need for the two media companies to merge.

Greenfield, however, argued that such a combination is essential to boosting the scale of both firms. “They don’t have any more time to wait. There’s too much fear around what happens with Viacom’s distribution,” he said. “The only way to protect Viacom is to combine it with CBS. CBS doesn’t have the firepower to go up against Amazon and Apple. Both [Viacom and CBS] need to get to scale quickly.”

At the same time, the Redstone legal drama isn’t over. Though it doesn’t dominate the headlines the way it did a year ago, the battle between Redstone and his former companions threatens to provide even bigger distractions in the coming months.

Last fall, Sumner Redstone sued two of his former companions, Manuela Herzer and Sydney Holland, accusing the women of taking advantage of his advanced age to make off with $150 million.

Holland filed a countersuit in December, accusing Redstone of giving out millions to many other women, including $18 million to a flight attendant on the CBS corporate jet and $6 million to the flight attendant’s sister.

Herzer also filed a lawsuit accusing Shari Redstone of depriving her of a $70 million inheritance, while Sumner Redstone is suing Herzer over a penthouse apartment at the Carlyle Hotel they once shared.

Lawyers have skirmished in court for months over discovery issues, and Herzer’s suit has bounced between civil court and probate court in Los Angeles.

Herzer’s lawyers have accused Shari Redstone of orchestrating the litigation on behalf of her ailing father, who can communicate only with great difficulty. Herzer has tried — thus far without success — to force Sumner Redstone to submit to a medical evaluation to show whether he is even aware of the litigation.

In June, Holland’s lawyers won a significant victory by forcing Moonves to turn over any information regarding Redstone’s romantic relationships. Such information — including any about the alleged payments — could lead to further embarrassment if it became public.

Meanwhile, Dauman may be happy to have these troubles behind him. After stepping down from Viacom last year with a golden parachute worth $93 million, he bought a jet — a Textron 680A — and a $20 million mansion in Palm Beach, Fla., just a mile from Donald Trump’s Mar-a-Lago resort.

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