For Thomas Dooley, securing the job as chief executive of Viacom Inc. might be the easy part.
Fixing the struggling media company will take more work.
Late last week, as part of a legal settlement to end a messy boardroom fight with Sumner Redstone and his family, Viacom’s board elevated Dooley, the company’s second-in-command, to interim chief executive. His current appointment lasts until Sept. 30.
Then Viacom’s newly-expanded board will determine whether to keep Dooley in the job more permanently.
Wall Street’s reaction to the settlement, and Dooley’s appointment, was tepid. Viacom shares closed Thursday at $41.41, up 7 cents, but down nearly 5% from last week.
The continued weakness in Viacom’s stock likely is less about Dooley and more of a recognition that there is no quick fix to the company’s myriad problems, analysts said.
Viacom must overhaul its struggling cable TV networks, change the corporate culture to one that encourages creativity, and revive Paramount Pictures. Last weekend, Paramount released another dud: “Ben-Hur.”
The key question is whether someone who has worked within Viacom most of his career — since 1980 — and who is the longtime lieutenant of the ousted chief Philippe Dauman, can stabilize and revitalize a company that has been roiled by months of turmoil.
“Dooley has a lot of fans — on Wall Street and within the company,” said Eric Jackson, managing director of SpringOwl Asset Management, which has been critical of Viacom’s management. “A little of the trepidation with Dooley’s appointment has been a fear among some investors that it might represent more of the ‘same-old, same-old’ as when Philippe was in charge.”
Company insiders privately say that Dauman and Dooley were not in lock-step. The 59-year-old Brooklyn native is considered more approachable and hands-on than Dauman. He delves into details, such as approving changes to the company’s website and helping to design Viacom’s new office space in Hollywood. And, importantly, he enjoys the backing of Redstone’s powerful daughter, Shari, who orchestrated the leadership changes.
Many expect Dooley to make changes, including possibly retooling Viacom’s television networks group, which includes MTV, Nickelodeon, VH1, BET and Comedy Central, which have seen a steep ratings fall. The TV networks are vital, producing virtually all of Viacom’s profits.
“Everyone here is excited for change,” said one company veteran who was not authorized to comment publicly.
Under the settlement, Viacom’s board was expanded with five new members, who were identified by Shari Redstone in June, soon after the fracas broke out over control of the Redstone family’s $40-billion media empire — Viacom and CBS Corp.
Board members are spending this week, and part of next week, meeting with Dooley and learning about the inner workings of the company that has seen its stock plummet 45% in the last two years.
Dooley said he recognizes Viacom has challenges, but he is eager for an opportunity to revitalize the company.
Dooley’s most immediate challenge is improving Viacom’s balance sheet. Ratings firms have warned of potential downgrades as the company’s rating is only two grades higher than junk status.
Viacom spent about $15 billion over several years buying back its stock at prices that are much higher than shares now trade. Viacom discontinued its buy-back program last year to begin to pay down debt, which now stands at $12.8 billion.
“The company under-invested in original content and instead used its cash to pay investors, through share buybacks and a large dividend,” said Neil Begley, a senior analyst with Moody’s Investors Service. “Now, they need a stronger balance sheet.”
Board members must decide whether to cut the dividend. That expenditure costs the company about $600 million a year, Begley said.
Another option is selling a piece of Paramount Pictures. That was the goal of Dauman, but his plan instead infuriated the ailing Sumner Redstone, 93, who objected to selling 49% of the Melrose Avenue movie studio that once cranked out such gems as “The Godfather,” “Terms of Endearment” and “Mission: Impossible.”
Under the settlement, Dauman will have an opportunity to present his plan to sell a stake in Paramount before he steps down from the board on Sept. 13. However, any sale requires a unanimous vote.
Paramount, and its business relationships, will be under greater scrutiny from Viacom’s new board.
The settlement mandates that the studio provide regular updates and information about Paramount’s revenue sources and its business prospects, according to a regulatory filing.
Additionally, Dooley must change the way Viacom approaches business partners, including pay-TV operators and Hollywood movie and TV producers. Content creators have long criticized Viacom’s penny-pinching corporate culture, which seemed to eschew risk-taking.
Another possible scenario embraced by many on Wall Street is a reunification of Viacom and CBS, which were part of the same company until Sumner Redstone split his empire into two halves in 2006.
But it is not clear whether CBS’ board favors a merger, which would probably take at least a year to consummate. That means for now, the pressure is on Dooley.
Dooley joined seven years before Redstone acquired the company in a hostile takeover. He has worked in various capacities, including as treasurer, before a five-year absence from the company following the CBS acquisition.
He rejoined the company in 2006, along with Dauman, and worked as chief financial officer, then chief operating officer — before his elevation a week ago.
“I’ve known him for 30 years and he has the institutional knowledge and he knows all of the financial details,” said Mario Gabelli, whose funds make up the second-largest voting shareholder in Viacom behind the Redstones. “It looks like the CEO job is his to lose.”
Wall Street is reminded of another longtime No. 2 who was elevated to CEO and has surpassed expectations: Walt Disney Co.’s Robert Iger who succeeded Michael Eisner more than a decade ago.
“There is always the potential for an unexpected Iger-replaces-Eisner dramatic improvement,” Cowen & Co. media analyst Doug Creutz wrote in a report this week. “But Dooley is not in nearly as secure a place as Iger was given his interim status, and Viacom’s assets are not nearly as good as Disney’s were back in 2005.”