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CBS-Viacom: 20 Years Later, a Look Back at the High Hopes and Eventual Collapse of That First Merger

It’s been nearly 20 years since Viacom and CBS first announced their intent to merge, in a $35 billion deal that was billed at the time as the biggest ever in showbiz. When Viacom’s Sumner Redstone and then-CBS president and CEO Mel Karmazin revealed the plan at a Sept. 7, 1999, press conference, the combined Viacom/CBS empire was valued at $80 billion.

That original merger would ultimately only last five years, as Redstone moved to split Viacom and CBS back into separate companies in 2005 — keeping his oversight over both, of course. But in the early days of the merger, the outlook was rosy. Redstone called Viacom and CBS “natural partners.”

Redstone is now incapacitated, his empire in the hands of his daughter, Shari Redstone, who is guiding CBS and Viacom back together. But even at the time of the original merger, the question of the elder Redstone’s advanced age — he was 76 — was a topic of concern, which is why a succession plan was discussed. As part of the original plan, Redstone kept the chairman/CEO title over all of Viacom, with Karmazin in line as president and COO, and as Redstone’s eventual replacement. Of course, Karmazin was eventually pushed out by Redstone. But at the time, Redstone said, “I insisted (Mel) come with the deal. The guy is brilliant. We’re kindred spirits.”

Ironically, Viacom’s DNA has always come from CBS. The original Viacom was first created in the 1970s after the Justice Department forced CBS to sell off its syndication unit. Originally just a distribution company, Viacom began purchasing TV stations and then cable outlets (including MTV and Nickelodeon in 1984). Then Redstone’s National Amusements took control of the company in 1986, and he began an acquisitions spree that included Paramount Communications in 1994 and Blockbuster Video, which included Spelling Entertainment, in 1995.

The Viacom acquisition came nearly five years after Westinghouse paid $5.4 billion for CBS in 1995. In acquiring CBS, Redstone touted the ability to advertise and cross-promote Paramount and Viacom content across CBS’ TV and radio stations, as well as outdoor billboards. The deal was seen as complimentary: CBS was mostly in broadcast (both TV and radio), while Viacom’s strengths were in film and cable TV.

The CBS/Viacom merger was so big at the time that Senate antitrust subcommittee chairman Mike DeWine (R-Ohio) called the merger “a little scary.”

Among the chief concerns: That CBS/Viacom would own two broadcast networks, as Viacom was simultaneously buying out its 50/50 partnership with Chris-Craft to become sole owner of weblet UPN. Viacom threatened to shut down UPN if it couldn’t keep the small network in the merger, and regulators ultimately allowed the company to keep it along with CBS.

Because it oversees broadcast licenses, the FCC was the final step in blessing Viacom/CBS, which it did on May 3, 2000. The first real test of the power of the combined company came soon after, when “Survivor” premiered to stunning ratings — and Redstone credited the merged company’s increased footprint for helping promote the show. Speaking soon after the merger was made official, Redstone proclaimed that the combo of “our incredibly complementary operations” would make “Viacom the preeminent success story of the media industry for many decades to come.”

Early examples of cross-company synergy that year included TV Land airing a week-long marathon of classic episodes of “The Fugitive” to promote CBS’ revival of the franchise. VH1 was tapped to promote the Eye’s new Bette Midler sitcom with a week of Midler-themed programming. CBS also announced an MTV-produced Super Bowl halftime show, a Nick Jr.-branded Saturday kids’ block, and TV movie co-productions with Showtime.

“Within our company, through all sorts of different tentacles, we are all working together in a splendid way,” then-CBS head Leslie Moonves said at the summer 2000 TV Critics Association press tour.

But it didn’t turn out that way. Bumps in the synergistic road included that 2004 Super Bowl XXXVIII halftime show, produced for CBS by MTV. That event created an uproar after Justin Timberlake tore off part of Janet Jackson’s clothes on camera, visibly showing her nipple for a brief second. The resulting uproar included a record $550,000 fine for CBS by the FCC (although an appeals court eventually voided the fee) and beyond that led to a crackdown in on-air content, spurred by spike in content complaints and FCC fines across the board.

In the corporate boardroom, the Viacom/CBS merger also led to more executive intrigue, as Moonves continued to amass more power and Redstone rather quickly soured on Karmazin.

Karmazin, a super salesman, had helped build up the Infinity Broadcasting radio chain and, subsequently, CBS Corp. But after CBS merged with Viacom, this feisty entrepreneur had a hard time working with Redstone. After four years of bickering over how best to manage the combined operations of Viacom and CBS, Karmazin ceded ground to Redstone. The two fought over Karmazin’s tight-fisted Wall Street-oriented style, and whether or not the company was making enough big bets on future technology or blockbuster movies. As Karmazin departed, Redstone gave more power to Moonves and Viacom’s Tom Freston.

By 2005, Redstone had become frustrated by the colossus he had created. Viacom’s stock performance was not to his liking and he saw few if any transformative acquisition properties on the horizon. So he proposed breaking Viacom into two companies, housing movie and cable-TV operations in a company led by Freston and broadcast TV, radio and outdoor advertising operations under Moonves. Freston’s Viacom was supposed to grow more quickly without being encumbered by the more stable businesses given to Moonves. Redstone, in essence, would oversee a growth stock and a value stock. “Sometimes, divorce is better than marriage,” Redstone quipped in an interview at the time.

After the breakup, however, CBS proved to be a steady ship, while Viacom saw its shares stagnate as the company struggled to figure out how to adjust to the digital age — leading to Redstone’s quick ouster of Freston in 2006. (At the time, part of Redstone’s unhappiness came from Viacom failing to acquire MySpace, at the time the hottest social media property online.) His replacement, Phillipe Dauman, managed a more than 130% increase in Viacom shares, to almost $88 a share in early 2014, only to see the price as its cable assets continued to face viewership erosion.

In 2016, Dauman — who had been pursing a plan to sell nearly half of the Paramount studio — lost a power struggle with Shari Redstone and was ousted himself. At CBS, Moonves, of course, was also eventually thrown out, but for very different reasons, when allegations of sexual assault forced his exit in 2018.

Now, with CBS and Viacom about to renew their vows after all that drama and all these years later, some investors may wonder whether the company should have stuck it out under a single umbrella.

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