Interesting seeing how both IGN and MySpace slipped through Sumner Redstone’s fingers and into Rupert Murdoch’s hands. Those deals took place in 2005. That same year, Viacom split from CBS Corp., since then, Viacom shares are down about 16%; News Corp. shares have risen 25% since the beginning of this year, with much of that momentum coming from Wall Street’s positive perception of MySpace, whom today RBC analyst Jordan Rohan said could be worth $15 billion by 2009. Earlier this month, on September 5, Viacom replaced Tom Freston with Philippe Dauman (at the time Viacom’s shares had slipped 24% since the separation from CBS). That same day, some called for a Yahoo!/Viacom deal (more on that in the end of this article).
Playing Catchup to News Corp. While Mr. Daumann has at his arsenal some of the most powerful brands in media - notably MTV and Comedy Central - he may find his biggest challenge will be figuring out how to succeed in online media. Fittingly, Mr. Dauman is a lawyer and dealmaker, skills that will come in handy for Viacom if they are to narrow the gap on the Web with News Corp., whose COO and President Peter Chernin this week called the “most powerful media company on the Web.” Time Warner notwithstanding/included, he might have been right. If you needed validation, look to Google’s $900 million deal with News Corporation’s Fox Interactive Media’s properties.
Look Online for Growth?
“The new management at Viacom will be judged on which Internet acquisitions the executives have their sights on,” said Aryeh Bourkoff, entertainment analyst at UBS Securities, who has a neutral rating on the shares. It’s a fait accompli that Viacom will look towards beefing up its online portfolio, which includes Neopets, iFilm and other notable Internet brands. But if the rumors are true, Viacom has not been as successful as it should be with its acquisitions, mainly, it has injected too much bureaucracy in some of the upstarts it has acquired. As such, it might make more sense to invest in, and not outright acquire, digital companies.
Small is Beautiful
“The sense is that they’ll be small, fill-in acquisitions,” Bourkoff continued, “but given the need for a change from Tom Freston, the issue will be whether they can catapult the company into the Internet era, and if not, will that be an overhang?”
Win-Win Partnership?
During a conference call held when Dauman’s appointment was announced, he said he was aware of a number of innovative Web-based startups that “view our brands and the marketing talent, the creative talent that we bring, as a tremendous asset to them to transform their companies.” In fact, Dauman added that Viacom will “enter into partnerships with them” or “bring them inside.” Indeed, as a business journalist (can I call myself that?) and entrepreneur (what about that?), I can tell you that if Viacom comes knocking (of course, I am not saying that…), I’d almost prefer if the deal was a partnership or an investment leaving our company autonomy to grow it while tapping into Viacom’s strengths.
Integration, Culture
Having been involved in an acquisition by a large media company, any reasonable entrepreneur sees the great upsides of a large media company serving as a big brother; unfortunately, I also saw first hand the not-so-great aspects first hand. Point of the story is, in Viacom’s case, the last thing they should do is aim for the fences with one hit-or-miss company.
Was Facebook a Steal?
And admittedly, it is impossible to know which online companies will be hits or misses. In hindsight, MySpace.com’s “anything goes” environment and viral/word-of-mouth marketing benefits helped it bury Friendster and company. Other newer sites like YouTube and Facebook could become MySpaces, but let’s face it, they can turn out to be Friendsters as well. That is not a knock at anyone, not even Friendster, let alone YouTube or Facebook, it is just a fact that it’s hard to know who will be who. In this context, it makes a lot more sense to make small investments in a number of startups and not wait for one to get too big, and too expensive. Such was the case with Viacom’s overtures to Facebook, who asked for a whopping $2 billion earlier this year. I give all of the credit in the world to Facebook and its founder, but Viacom did the right thing by balking.
Of course, a cynic would say that what if Facebook goes on to scale like MySpace did and $2 billion becomes a bargain.
Well, good for the cynic, let him pay that fee.
Viacom/Yahoo! Hookup?
And when it comes to home run swings, what about the rumor of a deal with Yahoo!? First’s thing first, the tale of the tape: according to Google Finance, Viacom’s got a market capitalization of $27 billion while Yahoo! is worth some $34 billion, so it would not really be an acquisition, rather, it would be a merger of equals. The problem, really, is that Yahoo! is not in the content business, while Viacom is. While Yahoo! has some content initiatives, the company is largely a distribution play. Incidentally, Viacom has numerous distribution channels offline, so maybe a combined company would be a distribution powerhouse. But the real problem lies in the fact that Yahoo! has autonomy to work with any media company, including Viacom’s competitors. Yahoo! has advertising relationships with the largest Fortune 500 companies including the big media firms… with Viacom as its new sibling, that would probably change to some extent. In fact, the same way that I humbly argue that a company like IGN would be worth more outside and not inside News Corporation (as a stand alone company, in fact), Yahoo! would be worth more independent than tied down to one media company. Furthermore, I am sure that Terry Semel could do wonders for Viacom’s Paramount, but the simple fact is that Yahoo!’s culture is too large and too unique for it to be molded into Viacom. The odd thing is that after the split from CBS, Yahoo has 9,800 employees while Viacom has 9,200 (again, according to Google Finance). All to say, while both Yahoo! and Viacom need a good tonic, I personally doubt that two negatives would make a positive in this case. When the ink from Mr. Dauman’s pen dries up, it will be Viacom’s new digital initiatives - and the structure of those initiatives - that will define its role in this ever-changing media landscape.
Read more.
Of the companies mentioned, I own shares in Yahoo! - but that does not mean you should too.
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November 6th, 2006 at 9:59 am
[…] That is essentially/excatly what Viacom’s Philip Dauman said when he replaced Tom Freston. […]
November 6th, 2006 at 3:03 pm
[…] Now we’re pointing out the irony and - with all due respect - the nearsightedness of both companies saying one the one hand that “we’re looking for young promising businesses” and “the next YouTube.” […]