Shari Redstone Retakes Control of CBS, but Options May Be Few

September 11, 2018 Updated: September 11, 2018

After watching her father buy and sell more than a half-dozen companies over several decades, Shari Redstone has seized the opportunity to forge her own reputation as a media baron.

Redstone neutralized the threat to her family’s control over CBS Corp. this past weekend by settling a legal fight with the broadcaster’s board. At the same time, the ouster of longtime Chief Executive Officer Les Moonves—who resigned over accusations of sexual harassment by a dozen women, including allegations of assault—eliminated a key foe and gives Redstone a chance to pick a new leader.

With Moonves gone, the 64-year-old Redstone is free to reshape her family’s two media companies, CBS and Viacom Inc. Having installed a loyalist atop Viacom in late 2016, Redstone will now focus on the search for a new CEO at CBS. Chances are, the choice will be more responsive to her wishes and less resistant to the big changes remaking the entertainment industry, even if that doesn’t lead to recombining the two companies as Redstone had sought.

The question is whether it’s too late for CBS to attract a suitor—a scenario many investors have been banking on. Many potential acquirers have done their deals. AT&T Inc. has completed its Time Warner takeover, Walt Disney Co. is digesting 21st Century Fox Inc., and Comcast Corp. is pursuing Sky Plc. Verizon Communications Inc., which has the resources for a big buy, has repeatedly said it’s not interested in CBS. And tech giants, once content to distribute other companies’ TV shows and movies, now make them instead.

“Shari has demonstrated that she is a smart, patient and tough leader,” said Christopher Marangi, co-chief investment officer of Gabelli Funds, the second-largest owner of voting shares at both CBS and Viacom. “Although global scale is of increasing importance, CBS and Viacom each have enough opportunities to prosper as stand-alone entities in the near term.”

Outside Insider

A lawyer, Redstone sat for years on the outside looking in as her father steered CBS and Viacom from his perch atop the family’s National Amusements Inc. Since the early 1970s, the Boston-area movie-theater company has served as his vehicle to build a media empire that included Viacom, MTV, Paramount Pictures and CBS, one of the four major U.S. broadcast networks.

Though she ran National Amusements’ movie theaters, Shari Redstone had a frosty relationship with her famously pugnacious and short-tempered dad. Four years ago, the elder Redstone unsuccessfully offered to buy out his daughter’s 20 percent stake in the holding company.

But if the senior Redstone rode the growth of pay-TV to amass one of the world’s greatest media fortunes, it now falls to his daughter to expand it—or cash out before it’s too late. As one of his last big acts, Redstone, now 95 and incapacitated, split CBS and Viacom into separate companies in 2006, believing it would unlock value for investors.

Prodigal Son

It didn’t. Viacom shares have declined 67 percent from their peak in February 2014 as investors grew concerned about the outlook for advertising-supported cable TV networks. Viewership of MTV and Nickelodeon, the cornerstones of Viacom’s business, has sagged in recent years as young people abandoned TV for online services YouTube, Instagram, and Netflix Inc.

CBS has held up better, thanks in no small part to the salesmanship of Moonves. Viewership of the flagship CBS network, the most-watched in the U.S., has struggled with the rest of the TV industry, while the company has propped up its shares by selling assets, including radio stations and billboards. Its CEO has burned through almost $15 billion on share repurchases since 2011.

“Moonves was the best in the business at steering investors to pretend how amazing CBS was and how the company’s long-term prospects were amazing, benefiting from all of the changes in consumer behavior that were hurting all of CBS’s peers,” BTIG analyst Rich Greenfield said in a note Sept. 10.

Neither company got much of a reward from investors after Sunday’s truce. Viacom shares rose 0.3 percent Monday while CBS declined 1.5 percent, extending its 2018 slide to 6.4 percent. CBS was down another 0.6 percent in early trading Seot. 11.

To his credit, Moonves has moved more aggressively online than Viacom, building streaming versions of its two main networks, CBS and Showtime. The services will surpass 8 million paying subscribers next year—a milestone, but small relative to the market leaders.

Investor Enthusiasm

Much of the enthusiasm investors once had for traditional media companies has shifted to Silicon Valley. Facebook Inc. and Google have already swallowed the advertising business that newspapers and magazines once relied on, forcing publishers to build their own online subscriptions businesses. Facebook and Google are now targeting TV advertising dollars.

Netflix and Inc., meanwhile, are coming for pay TV’s monthly fees. They’re investing billions of dollars annually in moving and TV programming, creating their own studios in the process. Apple Inc., the world’s most valuable company, and Google’s YouTube aren’t far behind.

Against that growing threat, most of Moonves’s peers decided to either get bigger or sell. Bob Iger, CEO of Disney, is swallowing much of Fox, the media company owned by fellow media mogul Rupert Murdoch. Jeff Bewkes, CEO of Time Warner, sold the parent of HBO and Warner Bros. to AT&T.

All the while, Viacom and CBS have been embroiled in internal fights pitting management against the Redstones and National Amusements.

Redstone has shown she’d like to put CBS and Viacom back together, even though the result would still be a minnow compared with today’s media giants. As part of the agreement announced Sept. 9, National Amusements reaffirmed that it won’t propose a merger of the companies for about two years.

That doesn’t mean others can’t.

Moonves’s departure and CBS’s settlement with National Amusements “opens the door a crack to what we believe ultimately could be the best outcome—consideration of merger potential with other platform companies seeking deeper exposure to impactful content,” B. Riley FBR Inc. analyst Barton Crockett said Sept. 10.

“Verizon could reconsider CBS as a way to deepen its content presence and close a content gap with AT&T,” he said.

By Lucas Shaw