Viacom Inc. Chief Executive Frank Biondi Jr. became the entertainment industry’s latest executive casualty when he was fired from his post by Chairman Sumner Redstone, who said he would assume the day-to-day responsibilities for running the entertainment giant.
The abrupt ousting of Biondi, who was highly regarded on Wall Street, follows some recent disappointments at the company, including softer results at both its Blockbuster Entertainment and Paramount Pictures units as well as the departure of the highly regarded head of its Nickelodeon cable channel.
Viacom’s operating units include some of the best-known brands in the entertainment business: Paramount, MTV music cable network, Nickelodeon and Blockbuster video stores. The entertainment product of Viacom--a company with $10 billion in annual revenue--includes such movies as “Braveheart,” hit television shows such as “Frasier” and even TV’s irreverent “Beavis and Butt-head.”
Wall Street was clearly distressed by Redstone’s move, and analysts expected the stock to take a drubbing when trading opened today.
“Biondi was the voice of reason and the referee,” said Christopher Dixon, an analyst at PaineWebber Inc. “The risk now is that Daddy is sitting at the head of the table with all his children jumping up and down for attention without a mediator.”
Biondi’s firing marks the latest in an unprecedented string of executive upheavals and shake-ups over the last year in entertainment. Other top executives to lose their jobs recently include Sony Corp. of America President Michael Schulhof and Time Warner Inc. music chief Michael Fuchs.
Biondi’s departure underscores that decisions at Viacom start and end with the 72-year-old Redstone, an impatient billionaire whose National Amusements Inc. owns two-thirds of Viacom’s stock.
Redstone informed Biondi after receiving approval from Viacom’s directors during a board meeting Wednesday. According to Biondi, Redstone approached him during the afternoon and said, “ ‘I don’t feel comfortable getting into a lot of detail, I just want to make a change.’ ”
Biondi, 51, who was regarded as Redstone’s heir apparent and had been with the company since 1987, said he accepted the decision, although he disagrees. “He owns the company,” Biondi said.
In an interview, Redstone said he wants Viacom to “move faster” and that Biondi’s management approach wasn’t working. Viacom in 1994 transformed itself from a cable and theater company into an entertainment industry behemoth by buying Paramount Communications Inc. and video giant Blockbuster Entertainment for cash and stock worth about $18 billion total.
“What Viacom needs is a nimble, immediately responsive hands-on operator who can create alliances fast and seize opportunities overseas,” Redstone said.
He added: “His style of operating is laid-back, decentralized and not hands-on. I endorsed that in the old Viacom, but I came to see that Frank’s style is not the management style for this company. It does not work.”
One source of irritation for Redstone was the slow pace of Viacom’s international expansion, which has not kept pace with such competitors as Rupert Murdoch’s News Corp. Specifically, sources said, Redstone believed that Biondi was moving too slowly in forming strategic alliances with foreign partners to expand the global reach of its cable networks.
Redstone also has been disappointed with the performance of Paramount Pictures, although in an interview he blamed unreasonable targets set for it rather than the executives in charge--Viacom Entertainment Chairman Jonathan L. Dolgen and Paramount Pictures Chairman Sherry Lansing. Redstone, who built his fortune starting with a few movie theaters, believes the studio has been releasing too many films in a glutted marketplace, resulting in films such as Paramount’s “Sabrina,” starring Harrison Ford, falling short of expectations.
“I don’t want numbers or market share, I want good pictures,” Redstone said.
Shortly after Viacom bought Paramount, the studio moved into higher gear under pressure from parent Viacom, aiming toward a goal of about 25 movies a year as other studios were gearing up to increase their output as well. The studio has recently decided in budget meetings to trim the number of pictures, sources said.
Although most of the company’s businesses are said to be meeting their financial targets, problems have surfaced. Results at the company’s Blockbuster unit have slowed--although sources say the division’s results have rebounded. Last month, Geraldine Laybourne, who built the successful Nickelodeon channel for Viacom, left to run the cable ventures for Walt Disney Co., which will soon acquire Capital Cities/ABC Inc.
Redstone plans to fill Biondi’s shoes himself. He named two young executive vice presidents, Thomas Dooley, 39, and Philippe Dauman, 41, as deputy chairmen and said those two will join five heads of operating units and Redstone himself on a new executive committee.
“I know people think I’m a little old. If [Senate Majority Leader Bob] Dole thinks he can run America, I can run Viacom. I could decide if I get tired to bring in a CEO. If I do that, it will be someone who works at Viacom today,” Redstone said. He mentioned Dolgen and Tom Freston, chairman and chief executive of MTV Networks, as capable candidates. But Redstone is particularly close to Dauman, who is Redstone’s designated successor should Redstone die.
Viacom executives said they had no clue that Redstone would fire Biondi. The ouster comes as a shock to the entertainment industry because, on the surface, Redstone and Biondi seemed like a strong executive team. Last year, New Yorker magazine titled a Biondi profile “Redstone’s Secret Weapon.”
Analyst Dixon said that without Biondi’s steady guidance, he worries that cash flow, which has been on target since the company took over Paramount Pictures, will become more erratic. “You are no longer betting on Viacom, you are betting on Sumner,” he said. “It may not be a bad bet, but it’s just a bigger ride.”
Viacom Class A shares fell to $39.50 in after-hours trading on the news. The stock had risen 75 cents to $40.625 on the Amex in regular trading.
While Dixon predicted that the stock would take a deep plunge into the low $30s today, other investors were not as dire, betting it would fall only a couple of points because the problems at Blockbuster and the studio were not deep.
Redstone said he can’t worry about the short-term stock price. “If we do what we think is right, the stock will take care of itself,” he said.
He added: “Wall Street is unhappy and concerned. They have always seen us as a successful team.”
Biondi, who is expected to get a multimillion-dollar settlement, said Redstone “was very generous,” adding that he will maintain a temporary office at the company.
Said Redstone: “I have a lot of affection for Frank. The contribution he made was wonderful.”
A former HBO and Coca-Cola TV executive, Biondi is known for a quick mind and solid grasp of numbers. He is credited with helping Redstone quickly integrate Viacom’s divisions after the company bought Paramount and Blockbuster in two of the biggest entertainment mergers in history.
Mario Gabelli, who holds Viacom stock in the Gabelli Fund, said he doubts Redstone can run the company with all of the lieutenants reporting to him. He predicted that one will rise from the pack to replace Biondi. “It has to be someone who can create financial relationships on a global basis,” he said.
Sources confirmed that one major thorn in Redstone’s side has been Viacom’s lack of international growth. While Viacom has preoccupied itself with selling such assets as its cable operation and Spelling Entertainment to pay down debt from the Paramount purchase, its competitors, such as Murdoch and Disney, have been busy signing deals to dramatically expand abroad.
But Biondi took exception to such criticism.
“There was no one pushing overseas as hard as I was,” he said in an interview late Wednesday. “We have been building 1,000 Blockbuster stores a year and lots of theaters. The networks are expanding.”
* DECISION MAKER
Redstone has strong track record. D12
Biondi likely to land on his feet. D12