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After an extended battle with Sumner and Shari Redstone, Viacom CEO Philippe Dauman is on his way out: The New York Times reports he's reached an agreement to leave the company, collecting $72 million on his way out the door.
Now, the real work for the Redstones and whoever they find to run the cable TV and film conglomerate: Figuring out how to grow again. One solution would be to try to buy their way into the digital era. Earlier this month, Recode discussed some of the options they're discussing internally.
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Viacom owns MTV, VH1 and Comedy Central, which means that at one time it had some of the most-watched shows on television. "Jersey Shore," "Behind the Music" and "The Daily Show" were reality, comedy and news hits that made network executives spitefully envious.
Then the internet happened and that kind of TV became much less valuable.
The content that made Viacom rich is now the kind of content that makes internet people rich, whether it’s PewDiePie or the Smosh duo or Ryan Higa or any of the thousands of other minor stars making a name for themselves on YouTube and Vine and elsewhere — characters that once might have been hatched within Viacom itself. Many see this as a missed opportunity.
But a management shake-up currently going on could change Viacom’s approach to the internet, with possible acquisition targets that could include BuzzFeed, according to sources. While the publisher has made no public plans to sell and is likely to seek an IPO next year, a proposed new slate of board directors at Viacom could alter that calculus, which we’ll get to a little later.
For those keeping count, Viacom’s third-quarter results showed cable network revenue down 3 percent with a 22 percent drop in operating profit, spotlighting the fact that its TV business is now shrinking. It's the first year-over-year drop in its TV networks division.
Spending on digital investments is part of its and every other media company’s plan, but when looking at Viacom’s bets, it’s interesting to note the ones it hasn’t made:
- Comcast’s NBCUniversal invested $200 million in Recode parent company Vox Media and another $200 million in BuzzFeed.
- Time Warner’s Turner acquired Bleacher Report and led the latest round in Mashable.
- Disney bought Maker Studios for $500 million and is close to taking a $1 billion stake in MLBAM, which powers a lot of online video including HBO’s streaming service.
- Disney is also considering buying Vice, according to sources. After it completes its stake in MLBAM, it’ll take a closer look at the company by this fall, these people say.
- This week, Time Warner joined Fox, Disney and Comcast to become the fourth joint owner of Hulu, which is now planning a live TV streaming service next year.
All these deals are about two things: Buying tech that can help TV companies deliver its content online, or owning young audiences on the web.
Viacom is the only major media company that hasn’t made a serious play in either area, and the company’s chief shareholder is blaming leadership for this lapse, sources say.
‘We don’t have to be first’
The Viacom CEO, Philippe Dauman, is currently embroiled in a Shakespearean saga with the Redstone family. Sumner Redstone, who controls both Viacom and CBS, wants Dauman out. His daughter Shari Redstone, a founder of venture firm Advancit Capital, has helped to assemble a roster of potential new board members she thinks could help revive the company.
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The list includes a crop of executives with more media and technology experience, such as Judith McHale, a former CEO of Discovery, and Nicole Seligman, a former Sony executive.
But probably the most intriguing proposal for a new board director, and the one who could have the most impact on the future of the company (before a new CEO is brought in), is Ken Lerer, the venture capitalist who’s invested in a deep bench of startups, BuzzFeed among them, at which he also serves as chairman.
Some executives see the addition of Lerer as a way to bring digital talent into its ranks but also as a connector to possible acquisitions, sources say. BuzzFeed in particular is seen by some as the natural successor to MTV, a network that was founded on short-form ephemera but that today seems less relevant to millennial audiences.
Dauman is now fighting for his job. The 62-year-old executive, a lawyer by training, is known as a classic balance sheet operator, focused more on the figures and the investors than the content, which isn’t necessarily a bad way to operate a sprawling, multi-billion dollar, international corporation. (It could be argued that Time Warner CEO Jeff Bewkes operates much the same way.)
But at Viacom, the once high-flying company behind MTV that often placed a premium on executives with creative bones, Dauman’s approach was seen as stifling, according to insiders.
And even as the internet drew subscribers and ad dollars away from traditional television, Dauman remained cautious of significant digital investments, known for saying to his troops, "We don’t have to be first."
"Philippe didn’t bring in high profile people who have a real facility for the digital world, or let his people do it," one insider said.
A company spokesperson responds: "Mr. Dauman never stood in the way of hiring decisions at the divisional level. Divisional leaders have full discretion."
The company also says it’s doubled the size of its digital staff over the last three years.
There’s a clear public relations battle brewing over company leadership, with those in Redstone’s camp painting a picture of Dauman as someone who’s failed to capitalize on the internet. That’s partly true, but it should also be noted that Viacom hadn’t traditionally been a big internet player and a lot of the deals it made, or missed, also came under Redstone’s leadership.
Redstone is now, of course, pushing for some kind of change. In addition to what some see as talent issue under Dauman, the CEO is also criticized for missing on some big franchises, with one executive pointing out, "he spent billions on stock buybacks and dividends, when he could have bought Pixar, Marvel and Star Wars."
The latter examples point to the epic deals Disney CEO Bob Iger struck by acquiring Lucasfilm, Marvel and Pixar. Some of those wagers happened a decade ago, but now they’re franchises that drive a lot of content across media, whether at the box office or on cable TV or on the web.
No Vice
Executives see other missed opportunities.
Vice, for example, the media company aimed at millennials, was once considered a possible acquisition for Viacom, but the executive leadership wasn’t sure of its long-term value, according to sources.
Then, late last year, Disney doubled its investment in Vice for a total of $400 million, giving the company more money to expand on its ambitions. Vice hired former Bloomberg Businessweek editor Josh Tyrangiel to create a new daily news program that’ll air on HBO this fall, as well as a revamped website.
Dauman’s considered if lethargic approach has frustrated executives, leading to what some insiders call a major talent drain. The loss of Jon Stewart and Stephen Colbert, and more recently the comedy duo Keegan-Michael Key and Jordan Peele, are cited as evidence of this, though their departures could also be seen as the natural rise up into more lucrative projects.
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Nonetheless, what’s added to the frustration is the fact that a lot of the content that has driven the company are the kinds of short skits and reality moments that play well online, even if in fleeting two-minute clips now more often seen on Twitter or Facebook or Snapchat.
Viacom counters that it has made many — if lesser known — investments in digital content and technology that’s smartly small. MTV’s International division, for example, has started selling BET online for $4 a month to audiences outside the U.S. Viacom is also the main ad sales partner for Snapchat. The company invested in DigiTour, a startup that puts on concerts and tours featuring YouTube stars. And it has a stake in Roku.
After its near-endless lawsuit against Google was settled, Viacom says it’s now one of the biggest beneficiaries of YouTube advertising. The company also touts its extensive data operation that allows it to target audiences at higher ad rates.
And perhaps more interesting, at least from a narrative standpoint, is a re-think on MTV News. It hired a bunch of journalists from places like BuzzFeed and the now-defunct Grantland to create a faster, webbier presence that includes podcasts. It’s also pushing out more video across its sites as well as producing for Facebook Live.
Never wanted Myspace
Still, none of these moves should be considered signal investments — they’re small bets that nibble at the edges of web technology.
The Snapchat deal in particular is telling. In this, Viacom is playing the role of the ad sales representative, reaping a commission on sales of inventory it doesn’t own — which is traditionally the purview of the media buyer, not the media property.
Viacom’s value has come from owning its audience and the ad inventory that plays to that audience. But in this scheme, Snapchat is the programmer and Viacom is the third-party. (It’s also noteworthy that the Viacom executive who led that effort decamped to Snapchat.)
To be fair, Viacom at one time was much more aggressive in its digital bets, most of which didn’t pan out. It acquired and eventually sold game maker Harmonix. The company also bought a little-known social network called Social Project that went nowhere.
But it is perhaps better known for the startup it never bought. Redstone fired Dauman’s predecessor, Tom Freston, because he failed to acquire Myspace. (It went to Rupert Murdoch.) That story is apocryphal, which is amazing since it also comes from Redstone himself, which is one of the characteristics that made him a favorite among media reporters.
The real reason Freston was fired is more complicated, but Redstone’s jab was as much about him declaiming the need to take risks. Still, Freston’s hesitation on Myspace, even if it were a factor in his firing, was clearly justified.
Also, none of the major media companies ever figured out Web 1.0, leaving in their wake a litany of failures and billions of dollars lost.
The difference now, however, is that the major media companies are making bigger risks with internet investments, now that they have to: Fewer people are willing to pay for the usual TV subscription and everyone’s traditional TV sales are shrinking.
This article originally appeared on Recode.net.
