Karmazin Has NBC in Mind for Viacom

By SALLIE HOFMEISTER

June 10, 2001 12 AM PT

TIMES STAFF WRITER

NEW YORK —

When Mel Karmazin talks about advertising, the media world listens.

The chief operating officer of Viacom Corp. has more authority on the subject than perhaps any top executive in the entertainment industry. He started as a radio advertising salesman and went on to build CBS into one of the nation’s largest television, radio and billboard companies before merging it with Viacom last year to create--at the time--the nation’s biggest seller of advertising.

But some entertainment executives wonder whether Karmazin, in his zeal to protect Viacom’s stock price, could be risking his credibility by going out on a limb with his bullish comments on advertising trends. Usually reluctant to grant interviews, Karmazin has been quoted in the media repeatedly in recent months predicting that advertising will pick up during the last two quarters, bringing an increase in spending again this year.

That contradicts the consensus on Wall Street, which against a backdrop of corporate layoffs and gloomy economic indicators has forecast a flat year at best.

In a broad-ranging interview, Karmazin elaborated recently on his views about not only the advertising climate, but also other issues facing Viacom, including management succession, media consolidation and the push for high-definition television.

Virtually unknown outside the radio industry just five years ago, when he sold Infinity Broadcasting to CBS to become its largest individual shareholder, Karmazin today is in charge of running the world’s second-largest entertainment company. Viacom owns 180 radio and 35 television stations, billboards, the CBS and UPN broadcast networks, Paramount Pictures studio, Blockbuster Video, and cable channels MTV, VH1, Nickelodeon, the National Network and the recently acquired Black Entertainment Television.

Many top executives at Viacom, accustomed to the creative and operating freedom under Chairman Sumner Redstone, were nervous about life with Karmazin. A workaholic with no hobbies, he lacked experience in cable, video retailing and movie-making and had a reputation as a ruthless cost-cutter and a demanding, bottom-line-oriented boss.

But Karmazin’s style turns out to be compatible with Viacom’s creative culture. He compares managing Viacom with holding a dove. “If I squeeze too tight, I would kill the dove and if I were too loose, the dove would fly away,” Karmazin said.

Almost from Day 1 of the merger, speculation has swirled about the potential clash of egos between the combative Karmazin and Viacom’s passionate Redstone. Karmazin dismisses the talk and, after spending the last year at CBS headquarters, is finally moving his office down the hall from Redstone on the 52nd floor of Viacom’s Times Square digs.

Question: You’ve always been press-averse. What changed?

Answer: I don’t like a lot of publicity, but a lot of people have been very negative about advertising, and I think they are very wrong. I thought that was something I’d speak out on.

Question: So you disagree with Wall Street predictions about lower advance ad sales this summer?

Answer: Advertisers are always crying poverty. No advertiser has told me they are not spending more on advertising. I am absolutely bullish.

Question: But this year lacks the momentum of previous years.

Answer: Nobody really cares about whether advertisers buy a schedule in May, June, July or August. What I care about is that by the time the season begins, we’ve sold out that inventory. We are very optimistic.

Question: CBS reaches the most people, but it’s still in last place in the 18-to-49-year-old demographic that advertisers covet. Do you care?

Answer: You are blessed with whatever demographic you are blessed with, and you find advertisers to buy that demographic. CBS has had amazing growth in younger demos and its average age has dropped. But I’m not even interested in that because at a time when there is so much fragmentation, advertisers are looking to reach the most people. That is called broadcasting.

Question: What’s the most exciting trend in programming?

Answer: Speak to [CBS Television President and CEO] Leslie [Moonves]. Why are you bothering me about programming? I don’t watch shows, and I don’t pick the programs. You want me to talk about reality shows?

Question: Not necessarily. But as COO of the second-largest entertainment conglomerate I expect that you have thoughts about programming.

Answer: Who’s No. 1? Who’s No. 1?

Question: AOL Time Warner is three times Viacom’s size.

Answer: No. Absolutely not. They’ve got the cable systems. I’m not going to debate it with you if you believe that Motel 6 is bigger than the Four Seasons. In my opinion, Viacom is the Four Seasons.

Question: And AOL Time Warner is Motel 6?

Answer: Holiday Inn. The most exciting trend in programming is the cash flow we make. The shows that are financially successful are the ones that excite me.

Question: Of all the regulations in place now, which one would you most like to see eliminated?

Answer: The one that restricts you to just one [major] network. If General Electric were interested in selling NBC, we’d be interested in buying.

Question: What would NBC do for you?

Answer: There would be efficiencies. The cost of programming is going up, the costs of print and advertising are going up, and you want to be able to continue to make great content. Advertising agencies have consolidated, and there must be a media consolidation to deal with the media-buying consolidation.

Question: The media have consolidated. There are only six majors left.

Answer: Let’s assume the advertising pie is going to be more than $250 billion and Viacom’s revenues are estimated by various analysts to be $25 billion and 50% of our revenue comes from advertising. That $12.5 billion is about 5% of the $250-billion pie. That’s not Microsoft. I don’t believe a company that controls only 5% of the advertising should be finished consolidating.

Question: Network economics have been deteriorating for years. Why would you want double exposure with CBS and NBC?

Answer: The American public likes television. Therefore, advertisers like to buy television. I like to be where the advertisers are. We believe very strongly in free, over-the-air broadcasting. Reaching 100% of the country is part of the reason advertisers spend more money on broadcast networks than on cable networks. The ‘Oh wow’ events like the NFL, the Super Bowl, the Grammy Awards and “Survivor”--they are all on broadcast television. The reason is because you can generate more advertising money from the larger audience on a network.

Question: Why is CBS such a champion of high-definition television when so few people have digital TV sets to receive the signals?

Answer: People will move from analog to digital. That’s going to be driven by high-definition television. We’ve done the Masters’ [golf tournament] and the Super Bowl in high-definition, and the picture quality is extraordinary. If more people will buy sets, we can charge advertisers more money because more people will be watching. In Indianapolis this past March, for March Madness with the NCAA Tournament, we put multiple games on our digital signal so someone watching the CBS station in Indianapolis was able to see four games instead of one. Maybe that’s a business model in the future. Maybe the digital spectrum will be used for movies on demand.

*Question: AOL Time Warner owns cable systems, while News Corp. could soon own DirecTV. Is Viacom interested in expanding into cable or satellite distribution?

Answer: We don’t believe we need to own the distribution to get our content carried. We tend to like businesses that don’t have inventory and are not very capital intensive [like cable]. I’m not ruling out what we might be doing a year from now.

Question: Since Yahoo’s stock hit the floor, Viacom has been seen as a likely suitor. Under what conditions would you buy Yahoo?

Answer: Yahoo is a great brand and a great service. I use it daily. Its functionality is terrific. I have for years been a skeptic about the advertising model on the Internet. Yahoo has 185 million users, and the analysts are estimating they are not making a profit this year. And what happens in the era of wireless when you get the information you need on your cell phone? That screen isn’t conducive to seeing 30-second commercials.

Question: In building CBS into the second-largest radio broadcaster, you paid some of the highest multiples in history. Did you overpay?

Answer: Of course not. We paid more than what I would have liked for almost everything we’ve bought. In 1981, [Infinity] bought what is now WXRK in New York and we paid $16 million, the highest price ever paid for an FM station. Today, that station generates over $30 million in profits. The only time you overpay is when you don’t grow the business.

Question: In five years, what’s Viacom going to look like?

Answer: A lot bigger, given our 20% annual growth targets. In the digital world, there’s an opportunity to get more channels out there. We would continue to expand in our core competency. I don’t see us expanding into new businesses like music. And Sumner Redstone will still be saying his stock is cheap.

Question: Any interest in print media?

Answer: Viacom is only interested in the fast-growing sectors. We’re a growth company. Magazines and newspapers are slower-growth.

Question: Is Sumner interested in handing the reins to his children, as News Corp. chief Rupert Murdoch is preparing to do?

Answer: Our board is blessed with a depth of management. Assume that Mel got on the wrong airplane, there is such depth in the company that there are plenty of people to help Sumner.

Question: Some speculate that Sumner may be interested in grooming his daughter Shari. Are there any signs of that?

Answer: She’s a very talented woman, but I have not heard those words from anyone.

Question: Your contract expires in two years.

Answer: I don’t need a contract. I don’t care about a contract. My interest is doing whatever is in Viacom’s best interest. I am a large shareholder. As long as I’m interested in what I’m doing, I’ll come in every day. And when I’m not, I’ll hire a pro and learn how to play golf.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Mel Karmazin

Born: 1943, Manhattan, N.Y.

Grew Up: Long Island City, Queens, N.Y.

Father’s occupation: Taxi driver

High school job: Typist at New York advertising agency

College: Bachelor’s of business administration, Pace University

Career highlights: Account executive, Zlowe ad agency, 1960-67; sales manager, WCBS-AM, 1967-70; Metromedia, 1970-81 (general manager, WNEW-AM and FM, 1975-81); president, Infinity Broadcasting, 1981-96; CEO, Infinity, 1986-96; president, CEO, CBS Station Group, 1996-98; chief operating officer, CBS, 1998; CEO, CBS 1999-2000; president, chief operating officer, Viacom Corp., 2000-present

Family: Two children, Craig and Dina

Viacom at a Glance

2000 revenue: $23.4 billion*

2000 cash flow (earnings before interest, taxes, depreciation and amortization): $5.4 billion*

2000 pro forma revenue, by unit

(in millions of dollars)*

Total: $23,359

Publishing: $596

Online: $113

Cable networks: $4,082

Television: $7,255

Radio and billboard: $4,037