The epic battle engulfing Viacom and its lion in winter has been nothing if not great copy. Angry mistresses! Scorned loyalists! The puppet-master heiress! A brainwashed mogul! Since last fall, the fracas around Sumner Redstone, the 93-year-old titan who controls Viacom and CBS Corp., has been documented in legal briefs and prepared statements slung by battalions of lawyers and PR reps working coast to coast.
But all that amounts to a sideshow. The true narrative surrounding Viacom is not a melodrama but a colossal corporate tragedy. Poor management decisions, lack of vision, and a culture of entitlement have led to a steep erosion in value for most of Viacom’s core brands: Paramount Pictures, Nickelodeon, MTV, and Comedy Central. The company that once defined the cutting edge in TV is now seen as a dull blade.
Certainly every traditional media company is grappling with the forces of digital disruption. But Viacom’s standing on Wall Street, its financial outlook, and its reputation in the creative community lag far behind those of its media peers.
The blame for every problem that bedevils Viacom cannot be laid at the feet of one person. But the responsibility for steering Viacom is clearly delineated. CEO Philippe Dauman and the board of directors have fumbled those duties, so much so that Viacom’s stock has sunk more than 50% in the past two years. It began to rebound in recent weeks on rumors that Dauman and the board were to be swept out.
The speculation came true on June 16, when Redstone’s privately held National Amusements moved to replace five board members, including Dauman. That followed the May 20 surprise that Dauman, a lawyer by trade, was booted from the trust that will oversee Redstone’s holdings after his death.
Redstone’s efforts to remake the various boards immediately became mired in legal challenges, which will take some time to sort out in courts in Delaware, Massachusetts, and, possibly, California. But the case for bringing in fresh management is strong, if you ask company insiders, alums, and vocal investors.
Among the missteps frequently cited:
• Spending $18.5 billion on stock buybacks over the past 10 years. That move helped prop up Viacom’s stock, which in turn benefitted shareholders and Dauman through his copious stock awards. But many question whether some of that money would have been better used to invest in content, talent, or acquisitions to expand Viacom’s operations.
• Launching a quixotic lawsuit against YouTube in 2007 that dragged on for seven years and yielded no monetary damages for the company. It was seen as a distraction to Viacom developing a strong digital strategy in the face of a massive shift in viewer behavior.
• Focusing on quantity versus quality among its cable channels. Viacom will struggle to maintain carriage for its 17 domestic linear channels as distribution inevitably moves toward skinnier bundles and à la carte OTT options.
• Relying on staff cuts and belt-tightening to help meet quarterly earnings goals. In April 2015, Viacom took a $785 million write-down on programming costs and restructuring fees. Viacom has missed consensus estimates for revenue or earnings in subsequent quarters.
• Approving eye-popping annual salary packages for Dauman and other top execs in the face of declining performance. Dauman earned a $17 million signing bonus when he struck a new contract last year. From 2011 to 2015, his salary and bonuses alone totaled $100.9 million. Stock grants and options awarded during that time are valued in the low-nine-figure range, according to CNBC.
A Viacom spokesman defended Dauman’s record and asserted that content spending under his watch has doubled to $6 billion. He cited Dauman’s efforts to reinvent advertising sales for the digital generation with new metrics and ad formats. Regarding digital strategy, the spokesman pointed to Viacom’s partnerships with Roku and Snapchat as examples of forward-looking alliances. He also cited Viacom’s growth potential in international thanks to moves initiated by Dauman.
For those who worked at MTV Networks in its glory days, Viacom’s current state is hard to stomach. Tom Freston, who was fired as Viacom CEO in 2006 and replaced by Dauman, went public with his views on CNBC last week. Jason Hirschhorn, who was a top digital exec at MTV Networks from 2000 through 2006 and is now CEO of the content curation firm Media Redef, didn’t mince words either.
“The CEO didn’t deliver. The figures are there. He didn’t transition the company. He put it into debt with nothing to show for it other than astronomical pay for himself and cronies,” Hirschhorn tells Variety. “There is no pronounced strategy. Just buzzwords and blame. Talent has been chased out. And all the while, an employee base and shareholders suffer. Viacom is a company that is as susceptible to changes in youth media habits as any company in the world, and they didn’t get it done. It’s savable. It [still] throws off a ton of cash. It’s got to move now.”
That movement is likely to come on many fronts in the coming weeks. The market has spoken on Dauman’s tenure. So have Shari and Sumner Redstone. Viacom board members, present and pending, have a duty to listen.