Commentary : PERSPECTIVE ON VIACOM/CBS MERGER : Redstone Knows Content is King : Programming distributed over a wide variety of media and channels is where the real action is now.

The merger mania mantra of “bigger is better” continues to afflict the tele-media industries. Viacom’s announced agreement with CBS is valued at roughly $37 billion. Some aspects of this deal make good sense, but others do not.

Westinghouse Electric purchased CBS in 1995 for $5.4 billion. In 1998, Westinghouse then changed its name to CBS Corp. and started a process to divest the electric manufacturing business. This process was completed this year, leaving CBS and a new Westinghouse Electric. In effect, CBS and Westinghouse are back where they were in 1995, except vast amounts of money changed hands through the many deals along the way. CBS did acquire some additional media properties, but nothing to justify the escalation in its value from $5.4 billion in 1995 to today’s price of $37 billion. But using inflated stock to buy property with real value seems to be the motivation for many of the mergers and acquisitions, most recently, for example, Global Crossing’s acquisition of Frontier and Qwest’s acquisition of US West.

Viacom’s chief, Sumner Redstone, seems to recognize the truth in the old adage that content is king. The CBS acquisition will add the creation of news content and quality programming to the Viacom stable, perhaps a wise move. Redstone has stayed away from owning cable companies and instead has concentrated on the provision of cable content; again, a wise strategy. His past acquisition of Blockbuster put him in the distribution business, not a wise move. But Redstone is now distancing and selling off a part of Blockbuster, perhaps acknowledging that being in distribution is no longer wise.

John Malone’s sale of TCI to AT&T; earlier this year is further evidence that distribution is not where the profits will be in the future. Redstone and Malone understand the media industry and clearly know the paradigm has shifted; content distributed over a wide variety of media and channels is where the real action is. The old advice of looking where the smart money is going is still valid.

Media mergers have been much in vogue. General Electric acquired RCA in order to obtain the NBC network. Disney acquired Cap Cities in order to obtain the ABC network. And CBS was acquired by Westinghouse. But no real synergies ever came from these acquisitions.

Other than filling in missing news programming, Viacom obtains no real benefits from acquiring CBS. What does Viacom know about managing a quality news organization, or running a large broadcasting network?

Some truly synergistic possibilities would have been CBS with CNN, or CBS with the BBC. But sensible mergers no longer seem to occur.

Lasting relationships require both parties to spend time together learning of each other’s strengths and weaknesses. But today’s mergers and acquisitions are hatched over a luncheon or a short fleeting meeting of the chief executives. Today’s deals seem to be based more on infatuation; in effect, corporate flings. Like most relationships based on short-term lust and seduction, such mergers and acquisitions soon end in breakups or with one party left waiting at the altar, like the ill-fated acquisition of TCI by Bell Atlantic that fell apart at the very last moment. Corporate affairs seem little different from human family affairs.