The integration of two media companies would be arduous and exhausting in the best of circumstances. Just look at the examples provided in recent months by AT&T and Disney as those behemoths absorbed Time Warner and 21st Century Fox, respectively.
There’s been much speculation about the newly minted ViacomCBS moving quickly to make more acquisitions to add to its larder of IP and episodes. But in reality, Viacom and CBS’ rank and file will be consumed for some time in the backbreaking work of integration: getting email systems aligned, unifying pension and health plans, centralizing accounts payable and receivable, and on and on. That’s the proverbial death by a thousand paper cuts that can sap the strength of even well-run organizations. Or in the words of a senior executive at a former Time Warner company: “It starts out with everybody obsessing over who’s in and who’s out and what’s being restructured, and then [over time] you realize everybody around you is just agitated because they can’t find their old files on their new computers.”
Moreover, there will surely be a human toll — in the form of an unknown number of layoffs as CBS and Viacom consolidate overlapping divisions and corporate functions. The enlarged company has promised to generate $500 million in cost savings within two years.
The other mantra for dealing with the harsh reality after the hoopla of a deal announcement is to expect the unexpected. Disney earlier this month had to acknowledge that it didn’t see a few land mines that were buried in Fox’s film division. Weakness at 20th Century Fox and merger-related costs were factors in Disney’s rare earnings miss with its fiscal third-quarter results earlier this month. AT&T was forced to grapple with a bigger leadership shake-up than anticipated in February and March when the three heads of the former Time Warner divisions — HBO, Turner and Warner Bros. — left abruptly for different reasons.
The long history of sibling rivalry between CBS and Viacom means that there will likely be some wariness between the two camps even among those who come to the table with the most collaborative of intentions. That’s human nature. A number of CBS-Viacom watchers have questioned the setup of the management structure, with Viacom’s Bob Bakish overseeing the combined company as president and CEO while Joe Ianniello runs the CBS-branded businesses as chairman-CEO. There’s concern that this construct could be a deterrent to the kind of cross-divisional brainstorming and focus that will be needed to make the merger more than the sum of its glossy network, studio and digital parts: CBS, MTV, Showtime, Paramount Pictures, CBS All Access, Pluto TV, Simon & Schuster and AwesomenessTV, to name a few.
Finding new and better (from a profit margin perspective) ways to make money is imperative for CBS and Viacom because of the headwinds buffeting the sectors that are most important to the combined company’s bottom line: advertising and affiliate fees.
Television advertising is under pressure from falling linear-TV ratings. Affiliate fees in aggregate are declining because of cord-cutting, which clearly accelerated in the second quarter, based on earnings disclosures from distributors and programmers. The initial excitement about the new wave of digital MVPDs has mellowed out to recognition that growth at Hulu Live and YouTube TV is not enough to offset the steady drumbeat of five- and six-figure quarterly declines in video subscribers at Comcast, DirecTV, Charter and other large MVPDs.
One of the benefits of bringing together CBS and Viacom was to make them both more formidable at the negotiating table with distributors. CBS’ emphasis in the past decade on securing retransmission consent fees has made the Eye less dependent on advertising but more vulnerable to the swings of the pay-TV landscape. Some analysts think the corporate reunion may be coming too late to make a meaningful difference in rates for either CBS or Viacom if the overall traditional pay-TV universe continues to shrink. “The new company will have to work extra hard to prove the financial merits of this combination,” wrote analyst Michael Nathanson of MoffettNathanson, who has voiced support for the re-merger for several years.
The extra-hard-work prescription also extends to the integration tasks — from mundane technical issues to job losses — that most directly affect employee morale. ViacomCBS’ future chairman Shari Redstone has often mentioned her focus on maintaining a culture of creativity and innovation at the companies her family controls. As Viacom and CBS prepare for what they hope will be a speedy closing process (given that Redstone’s National Amusements already controls both firms), leaders may find that the road ahead is just as fraught with obstacles as it was getting to the M&A altar.