Viacom media take over drama - Economist

American media
Sumner’s lease
The future of Viacom is shrouded in uncertainty and mired in litigation
May 28th 2016  | NEW YORK | From the print edition
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UNDER normal circumstances, a nasty public power struggle between a company’s controlling shareholder and its chief executive might put a dampener on the share price. But the circumstances at Viacom, a media conglomerate, are anything but normal. Sumner Redstone (pictured), an ailing 92-year-old mogul, recently kept control of his $42 billion media empire after a humiliating legal battle to prise it from his hands. Now the focus has shifted to the leadership of Philippe Dauman, the CEO of Viacom, prompting another round of lawsuits. Although the drama makes the firm’s future more uncertain, investors seem more excited.
Like many a television soap opera, recent events have been absorbingly far-fetched. First came a lawsuit by Manuela Herzer, a former lover of Mr Redstone’s who had been written out of his will. Her reinstatement would have threatened the tycoon’s control of Viacom and another media giant, CBS. A judge threw out that lawsuit on May 9th. Then, on May 20th, Mr Redstone ejected Mr Dauman from a trust that will decide the fate of his holdings after his death. Three days later Mr Dauman filed a lawsuit to block the move, arguing that Mr Redstone was mentally incompetent and that Shari Redstone, his daughter, was pulling the strings in an “unlawful corporate takeover”. Mr Redstone’s lawyers filed their own suit in response.

The share price has surged as the lawsuits have flown. The removal of Mr Dauman from the trust raises the prospect of his dismissal from the firm. That seems to promise the change in strategy at Viacom that many believe is overdue. Eric Jackson, an activist investor who has blasted Mr Dauman’s leadership, believes the share price, currently around $42, could rise by another $10 or more if Mr Dauman is fired. A long-standing confidant of Mr Redstone, and a spring chicken by comparison at 62, Mr Dauman has fallen out of favour as Viacom has floundered. The company’s share price fell by close to 40% over the past year. For nearly a decade before that under Mr Dauman it was the worst performer in its peer group. Since September 2006 Viacom’s shares have nudged up a little while Disney’s have more than tripled in value.
All parts of Viacom are underperforming. Its movie business, Paramount, has lagged behind the other big Hollywood studios for four years in a row; in April it reported a quarterly loss of $136m after disappointing box-office receipts for “Zoolander 2”. The company’s portfolio of cable channels, including MTV, Nickelodeon and Comedy Central, has lost more viewers in America than its big competitors—a decline of 35% over the past five years, by one measure. The cable networks remain lucrative but profits are falling as subscribers turn off and advertisers turn away.
Mr Dauman’s critics claim that he has run the company like the lawyer he is at a time when it required a creative leader. They say he never came up with a strategy for growth, resisting efforts to embrace the digital era. He pushed an aggressive buy-back programme to support the share price, which Mr Redstone was known to watch assiduously. If he kept Mr Redstone’s confidence, former executives say, he lost that of his workforce. Senior bosses and talented TV stars have left to work elsewhere. The 52nd floor of the Viacom building in New York, where Mr Dauman’s office is located, is a mirthless place, “like the gallows”, says one former employee.
If Mr Dauman is to keep his job it will require some fancy footwork. Ms Herzer’s lawsuit had challenged Mr Redstone’s competence to write her out of his will, which he did last autumn; she accused Shari Redstone of manipulating her father to her own benefit. If Ms Herzer had won her suit, control of Viacom and CBS might have gone to the trust on which Mr Dauman and an ally on Viacom’s board, George Abrams, held seats (Mr Abrams was also removed on May 20th).
At the time, Mr Dauman, in support of Mr Redstone and his daughter, gave sworn testimony on the nonagenarian’s “engaged and attentive” state of mind (though the decisive testimony was Mr Redstone’s own, in which he repeatedly called his former paramour a “fucking bitch”, in a lucid but deeply unpleasant videotaped tirade). Now, to regain his position at the trust, and, perhaps, to remain in the 52nd-floor suite, Mr Dauman is having to make the opposite case. Fortunately for him, lawyers are good at presenting either side of an argument.