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CBS at Crossroads: Board Considers Options That Will Influence Decision on Next CEO

Nearly two months after Leslie Moonves’ ouster from CBS Corp., the search for his successor has been sluggish and only now starting in earnest. But it won’t be a speedy process.

The word that the CBS board’s evaluation of candidates could take as long as four to six months speaks volumes about the challenge CBS faces in lining up a new permanent leader. The final decision will say even more about where the board sees CBS heading.

Fundamentally, the board needs to decide if the CEO is going to be tasked with piloting the ship for the long term, or whether the job will require overseeing an auction of the storied broadcaster, or the re-integration of CBS and Viacom, or the pursuit of a transformative acquisition. Those are very different scenarios that demand specific leadership skills. CBS has tapped the Korn Ferry consulting firm to help with the headhunting.

Compounding the task is the fact that half of the directors on the 10-person board are new to CBS, as of Sept. 9. The CBS board was shaken up in the settlement that sealed Moonves’ departure and ended the litigation that erupted in May as the CEO’s regime launched a battle against its controlling shareholder, Shari Redstone’s National Amusements Inc. Moonves’ abrupt exit has coincided with the departures of a number of other longtime senior executives at the company previously known for the stability of its management. The changes have been dizzying for insiders.

The better news for CBS is that the company’s foundations are solid, as evidenced by strong third-quarter earnings reported Nov. 1. Joe Ianniello, CBS’ president and acting CEO, is well liked on Wall Street and seen as adequately equipped to steer the company in the short term while the board deliberates.

Ianniello is a candidate for the permanent job, and he’s been acting like a full-fledged CEO in the last few weeks by making corporate-level executive appointments to solidify the immediate post-Moonves leadership plan.

Within CBS, the post is seen as Ianniello’s to lose. He has the advantage of strong internal support — numerous senior CBS executives consider themselves to be “Team Joe.” But Ianniello has also faced strains in his relationship with Redstone given his close association with Moonves and his support, along with a majority of the previous CBS board, of the legal gambit to dilute National Amusements’ voting control of CBS.

The uncertainty around CBS’ future is sure to be a complicating factor in the CEO search. Top prospects may not be inclined to sign on to a company that seems likely to change hands in the next year or two. The presence of Redstone’s National Amusements as the controlling shareholder with a firm grip on the company could also be a turn off for top CEO talent. Names that have emerged in the past few weeks range from former Disney/ABC TV Group chief Anne Sweeney to her former Disney colleague Tom Staggs to Strauss Zelnick, one of the newly appointed CBS board members who is now interim chairman.

As the CBS board begins to sort out its leadership options, here’s a look at four scenarios in play.

Scenario No. 1: CBS is put up for sale

CBS Corp. is small by the standard of its other media peers, and it is getting smaller relative to the M&A activity that has swallowed up 21st Century Fox and Time Warner and promises to transform Disney and AT&T. Moonves had been frustrated that CBS was not able to engage in deal talks with interested suitors such as Verizon and AT&T because of NAI’s overwhelming control of voting shares in the company.

After the new board completes the review of CBS operations — division heads have been trekking to CBS’ Black Rock headquarters during the past few weeks to make presentations — it may well conclude that a sale is the best option for shareholders. In this scenario, Ianniello would be the logical choice to steer the company through an auction. Having previously served as chief operating officer and chief financial officer, Ianniello knows the company’s finances and balance sheet better than anyone else. He spearheaded the company’s spinoff of its outdoor advertising and radio divisions with the intention of honing CBS’ focus on high-end content production and distribution.

Scenario No. 2: CBS remains a standalone company

CBS has had a long run of performing well despite a topsy turvy environment for the TV business. The board may be impressed by what it hears in the long-term planning presented by division heads and decide to keep going it alone. In this scenario, the choice of successor to Moonves is a bet that CBS can continue on the path laid out by the previous regime or forge an alternative that would also keep dividends flowing and shareholders happy. The fly-solo approach would likely require a big commitment of new resources from NAI or another investor to keep CBS competitive in the arms race for content.

CBS to date has prospered through its embrace of digital streaming — it was the first of the traditional media giants to launch a standalone subscription platform with CBS All Access in 2014. CBS has also seen a windfall in SVOD content licensing coin during the past decade as Netflix, Amazon, et al spend big to stock up their services with library content. But as the marketplace shifts, CBS, like other media companies, faces the question of whether to go all in — as Disney and AT&T are doing — or remain a smaller fish in the pond.

“Does the company rip off the Band-Aid and pull all content from platforms like Netflix, Amazon, Sky, and Star to go direct or do they continue at the incremental pace of change at which they’ve started?” MoffettNathanson analyst Michael Nathanson wrote of CBS earlier this week.

In this scenario, an outsider seems most likely to come in as CEO.

Scenario No. 3: CBS is re-merged with Viacom

There’s no doubt that a reunion for CBS and Viacom remains a strong possibility. Redstone has made clear her interest in re-merging the companies that were brought together by her father, Viacom and CBS chairman emeritus Sumner Redstone, through his acquisition of CBS in 2000 and split up again in 2006. Opposition to such a deal has been strong within CBS. That’s partly because adding Viacom’s two dozen basic cable channels to CBS and Showtime would directly counter CBS’ strategy of commanding top dollar in carriage and retransmission consent fees from MVPDs for its two must-have channels.

But now that global content licensing has grown in importance to CBS’ bottom line, the prospect of gaining access to Viacom’s IP and its bigger network platforms could be more appealing. Viacom itself is in a healthier position than it was two years ago when NAI went public with its re-merging effort. Redstone in 2016 initiated an overhaul of Viacom’s board and executive leadership, similar to the process now under way at CBS.

Moonves had balked at rejoining with Viacom, seeing it as a rescue mission for the struggling other half of the Redstone empire and counter to the interests of CBS shareholders. NAI’s settlement agreement with Moonves included a commitment that NAI would not propose a CBS-Viacom merger for another 24 months. But there’s nothing to stop the boards of CBS and Viacom from pursuing such a deal if they are so inclined. If a CBS-Viacom courtship begins anew sooner rather than later, Viacom CEO Bob Bakish would be in the pole position to run the combined operation.

With content licensing becoming such a driver of CBS’ fortunes, the case could be made that gaining access to the trove of IP held by Viacom’s cable channels and Paramount Pictures would be beneficial to the enlarged company. CBS and Viacom would also have expanded U.S. launch platforms for shows that could be sold around the world.

But Wall Street analysts have been divided on whether CBS and Viacom are better off together or apart. One influential voice among media biz watchers, Todd Juenger of Sanford Bernstein & Co., remains dead set against reunification.

“We still believe the chances of a Viacom re-merger remain very low,” Juenger wrote in a note after CBS’ Q3 earnings. “The hold-over independent board members, and new board members, don’t strike us as shrinking violets who will abdicate their fiduciary duty to CBS common shareholders. We think they are fairly likely to explore options to sell the company (NAI cannot prevent them from exploring those options. NAI can vote ‘no’ on a deal), and extremely unlikely to advocate for Viacom.”

Scenario No. 4: CBS seeks to grow through acquisitions

CBS could turn the tables and pursue a major acquisition, if NAI will support such a move. Sony Pictures Entertainment, Lionsgate, Univision, and MGM are among the sizable targets out there that could be a fit with CBS’ existing assets.

In this instance, Ianniello’s skills as a dealmaker and financing whiz would be prized in sizing up the acquisition targets. If the CBS board becomes comfortable with its acting CEO, Ianniello would be in a good position to advocate for CBS to bulk up in order to remain competitive.

So far, sources at the top of CBS have stayed tight-lipped about the new board’s thinking. With the company in solid shape, the board has the luxury of time to consider a myriad of options, from selling out to buying big, as it looks to fill the seat at the top. 

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