Real Media Riffs - Tuesday, Aug 22, 2006

A TALE OF TWO MEDIA CONGLOMERATES - If the story behind the most recent uncoupling of CBS and Viacom were made into a major motion picture, it would be adapted from a Charles Dickens classic. It would be produced by a Viacom studio. CBS would license the broadcast rights, because the network's research would show that the audience most interested in its outcome is an octogenarian. But by the time the television window opened up, it would be streaming all its content online.

Hey, stranger things have happened in the 35-year relationship of two media entities that can never seem to live together, but also have a hard time staying apart. When Viacom Chairman Sumner Redstone unveiled his plan to break Viacom up into two separate, publicly traded companies - CBS and Viacom - there were a lot of theories about his logic. To some, it seemed like Redstone might be doing it simply for his own national amusement. To others, it seemed like a practical solution to Viacom's management largesse. With two top dogs - CBS' Les Moonves and MTV's Tom Freston - growling it out in Viacom's boardroom, the split-up was an inspired way for them to each have their own bone and chew on it too. But what Redstone said at the time, is that it was a way to unlock the underlying value of Viacom's assets for its shareholders.



But the Sumner of the parts has not proven to be greater than the whole. The pre-market cap of Viacom was $55 billion prior to the break-up on Dec. 31, 2005. Based on today's market close, the combined market capitalization of CBS and the new Viacom would be Today's market close, the combined market cap of CBS and Viacom Jr. would be about $50 billion.

Of the two new companies, Viacom appears to have outperformed CBS, though the stocks for both companies have languished since the split. Viacom is currently trading at $36.44 per share for a market cap of $23.983 billion. CBS is trading at $28.18 per share, with a market cap of $20.225 billion.

Of course, this is not the first time CBS and Viacom split up. And we all know what happened the last time. Viacom, which CBS was forced to divest in 1971 following the passage of the Federal Communications Commissions Financial Interest and Syndication Rules, ultimately emerged as the bigger corporate powerhouse and ironically ended up acquiring its former parent in 1999, after the Fin-Syn rules were repealed.

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