Media big shots are spurred by two incredibly powerful forces: 1) the compulsion to build glitzy, synergistic entertainment empires that dominate every aspect of popular culture; and 2) the need to see their net worth rise year after year. Usually, these two factors are complementary—the bigger the empire, the bigger the profits. But this spring, there's evidence that moguls have to choose between size and wealth. And so far, they are choosing cash over ego.
Viacomis the vast conglomerate that has been the life's work of Sumner Redstone, a wily and voracious entrepreneur who turned a movie theater chain into a sprawling media megaplex. Redstone's kingdom, built largely through acquisitions, includes CBS, MTV and Comedy Central, 40 television stations, a television production company, 180 radio stations, outdoor advertising, Paramount Pictures, the prestigious Simon & Schuster publishing imprint, and several theme parks.
But now the octogenarian CEO is unbuilding his empire. Yesterday Viacom agreed to sell its Canadian movie theater business. And today, Viacom announced it would split into two publicly traded companies.
A similar process is underway at Clear Channel. Founded and built by Lowry Mays, Clear Channel used a high-flying stock and aggressive acquisition strategy to grow into what critics view as a Bush-friendly radio cyborg that exercises Dr.-Evil-style domination over America's airwaves. The company's recent history is Roman in its relentless expansion and conquest. Clear Channel's vast holdings today include 1,200 radio stations, Rush Limbaugh's show, a concert promotion business, 40 television stations, and 776,000 billboards. But as Business Week reports this week, Clear Channel is slimming down. In late April, it announced a plan to spin off the concert promotion arm and sell 10 percent of the billboard business to the public.
What gives? How come these guys no longer think it's good to be the king of all media?
1. Faulty addition. In the case of both Viacom and Clear Channel, there is less synergy than they hoped. 2 + 2 + 2 + 2 doesn't even add up to 8, much less 10. For investors, having a dizzying array of businesses lashed together doesn't seem to add any value. Where is the logic of, say, having a billboard company under the same umbrella as Simon & Schuster (free ads for Bob Woodward's next book?). And you'd think that with a bazillion radio stations, Clear Channel ought to be minting money with its concert business, but it's not. The five-year stock charts of Viacom and Clear Channel bring to mind the downhill slopes of Aspen. More important, they did horribly in 2004, even as the broader market and the economy did well.
2. Not all media are created equal. The reigning conventional wisdom held that old media like radio stations and broadcast networks were always immensely valuable properties because they reliably threw off cash and had the sort of market position and reach that couldn't be duplicated in newer forms of media like cable or the Internet.
But at both Viacom and Clear Channel, there seems to be a new conventional wisdom: Old media sucks because it is condemned to slower growth. Viacom has divided its stable into Ferrari businesses (high-growth-potential companies like MTV that deserve a high multiple in the marketplace) and Toyota Camrys (reliable vehicles that putt-putt along, like CBS, radio, and outdoor advertising). At Clear Channel, there's a growing awareness that its radio division is on the wrong side of some macro trends, such as Podcasting, digital music, and satellite radio.
3. Receding heir lines. All media moguls believe they're irreplaceable. Guys like Michael Eisner and Sumner Redstone have such a hard time tapping successors not just because they love their job, but because they don't think anybody else is quite smart enough to do it they way they can. After pushing away erstwhile successor Mel Karmazin, Redstone installed Tom Freston and Les Moonves as co-presidents and chief operating officers. In the Viacom split-up, Freston, who helped create MTV, gets the cable channels and movies; Moonves gets CBS and UPN, plus Paramount TV, radio, outdoor advertising, Simon & Schuster, and the amusement parks. Meanwhile, Redstone's 51-year-old daughter Shari, who was named to the new post of non-executive vice chairman of the board, may have to wait a long time before Dad surrenders his crown.
At Clear Channel, a concern over succession may also be at the root of the downsizing. Lowry Mays has had health problems, and his two sons essentially run the company. Mark is president and CEO, and Randall is chief financial officer. But again, investors have expressed doubt that they will be able to deliver the same kind of returns that Lowry Mays did.
Finally, it may be that entertainment assets are not as glamorous or exciting as they used to be in the 1990s, especially now that the Internet has matured as a business. Barry Diller, for example, one of the great Hollywood dealmakers of the 1990s, last week announcedthat he was selling his stake in Vivendi Universal Entertainment. He'll focus instead on rapidly growing Internet businesses like Expedia, Hotels.com, Lending Tree, and Match.com. Neither he nor his investors seem to care that the only television property Diller controls days is the extremely uncool Home Shopping Network.