In this issue of The Institutional Risk Analyst, we feature composer and media industry observer Michael Whalen on the prospects for CBS in the wake of the departure of CEO Les Moonves. A veteran of three decades in the business of creating and distributing audio and video content, Michael has won two Emmy Awards is a composer of over 650 television and film scores.
Brooklyn | Even before Pulitzer-winning journalist Ronan Farrow identified Leslie Moonves as an alleged serial sexual abuser, a final straw which led to his resignation, you could have been misled into thinking that the merger of CBS (CBS) and Viacom (VIA) was "inevitable." After all, industry insiders and an army of consultants and investment bankers have waited more than two years for this anticipated marriage to consummate.
But was the reunion of CBS and VIA really inevitable?
The “Big 4” television networks (ABC, CBS, NBC, FOX) have been largely put back on their heels as the number of “cord cutters” (people who are disconnecting from their cable television service while keeping the Internet portion) will hit 33 million households in 2018. To give you some perspective, there are about 110 million single family homes in the US.
From any point of view, how Americans are using the giant screens in their homes (don’t call them “televisions” anymore) has radically changed in the last 5 years. After 20 years of pressing and pushing, Netflix (NFLX) rules the content streaming universe -- for now. How does NFLX achieve this? By outspending its peers for content creation and licenses, and being very aggressive about pushing out their competition (both present and future).
Television executives are at a loss at how to attract viewers, retain advertising revenue and keep the boat afloat for another season. The conventional wisdom says that having great content is a big part of how they will survive. But with AT&T (T) unit HBO slipping in overall popularity, this even while having hugely popular series like “Game of Thrones", “Westworld", “Ballers” and others, the answer to the question of how keep viewers is far more complicated.
Into this maelstrom now comes former CBS CEO Leslie Moonves, arguably one of the few senior executives in the industry to respond to the challenge of cord cutting. Mr. Moonves had a successful television career before coming to CBS in 1995. In his many positions at VIA and then CBS, he pushed to break the walls down between the content that CBS was producing and the audience. What was in the way of change? Affiliates and cable companies.
The old local affiliate networks of all the major television networks have been the pipelines for how programming was aggregated from the 1940s to now. Moonves towed the line with affiliates when needed, but in recent years he saw them as an irrelevant albatross. Criticized early on for being reactive without a cogent long-term strategy for CBS, Moonves pushed hard to have CBS be THE first of the traditional television networks to offer their content on an app (read: without a cable company [and their ancient carriage agreements] or a local television affiliate to stand in the way.)
Today “CBS All-access” appears on every Apple (AAPL) TV device and all other iOS platforms with all of the prime time shows plus EVERY EPISODE OF EVERY SHOW EVER PRODUCED, plus one new series created just for streaming. The industry was shocked and viewers are thrilled. Quickly following suit were NBC (powered largely by their multi-channel + internet broadcast of the 2018 Winter Olympics in Pyeongchang), ABC and coming-in way behind has been FOX. CBS arguably has a five year lead on the other networks when it comes to the channel agnostic distribution of content.
From the sidelines, Shari Redstone, the embattled daughter of Sumner Redstone (former CBS & Viacom Chairman) has watched as her own drama played out. At 62, she has been waiting for decades for her opportunity to be THE head of CBS/Viacom. Passed over by the CBS board in 2016, her not-too-secret plans for consolidating CBS/Viacom and replacing the board has been her greatest wish.
Not surprisingly, Redstone does not care for the obsequious Mr. Moonves, this despite his clear success at CBS. Les was named Chairman of CBS in 2016 after her father’s resignation (she is vice chair). In the wake of the resignation, she released this statement: "my father's Trust states his intention that I succeed him as (non-executive) Chair at CBS and Viacom, and also names me as a Trustee after his death."
Redstone stated that she wanted the chairs of each company to be "not a Trustee of my father's trust or otherwise intertwined in Redstone family matters." She only grudgingly nominated Les Moonves as the CBS chair. Philippe Dauman was named Chairman in 2016 (to replace Sumner Redstone), reportedly against Shari’s bitter boardroom protests. For many observers, Dauman’s elevation reportedly was the declaration of war that provided a pretext for now pushing massive changes at CBS.
The multiple allegations of sexual misconduct, harassment and more against Moonves surprised no one who has known him or spent any serious time with him. A charming man, Les liked to flirt with the many actresses that graced his offices for decades (first at Warner Brothers and then at CBS). A longtime joke circulated in the hallways of CBS both in New York and LA was that: “Les needs an HR department all to himself.”
Given the high-pressure politics of a television network, Les’ Achilles' heel with the ladies was known to the entire board of CBS. For years, the company had these complaints and incidents locked-down in the form of payments and settlements to at least three women. More like an episode of “Mad Men” and less like a publicly owned entertainment company, CBS accepted that part of the price of Moonves’ success was in managing this situation with discretion and an open checkbook.
So, was it Ronan Farrow’s #MeToo revelation that ultimately threw out the man that built CBS into the only relevant and profitable television network in the United States? No, it was Shari Redstone. This was her coup d'état. She told the board that CBS would “no longer protect a serial abuser who’s actions could harm the company.” This pitch-perfect political response was anticipated but it was really only to remove a serious barrier to Shari taking control of the entire company.
By having Moonves removed and putting the company into chaos, Redstone has the opportunity to reshape the CBS board and the future of CBS to her vision – finally. Is this risky? Yes, very risky. CBS shareholders LOVED Moonves and his ability to explain the strategy and rally the troops – especially in the tough times. Redstone has no television experience but is said to like the traditional TV affiliates because she understands how that part of the business works.
Obviously, CBS’ ability to stay on top of the charts in the world of content is threatened without a clear vision and strong leadership to continue the evolution that Moonves started. Will CBS cut its own throat to satisfy the ambition of the founder’s daughter? That is a question that Shari Redstone and the boards of both companies must answer to their shareholders.
In the meantime, the key question that should warrant the full attention of investors and the media is where next will Les Moonves land? Where will this proven operator take those decades of experience and contacts? By ejecting Moonves, Redstone is perhaps helping one of her competitors to make up for lost ground.