A

Viacom Inc.

FOUNDED: 1970

Contact Information:

HEADQUARTERS: 1515 Broadway
New York, NY 10036
PHONE: (212)258-6000
FAX: (215)258-6358
EMAIL: info@viacom.com
URL: http://www.viacom

OVERVIEW

Viacom is one of the leading media companies in the world. The company is a strong force in the television industry and operates such cable networks as MTV, VH1, Nickelodeon, Showtime, The Movie Channel, Flix, Comedy Central, The Sci-Fi Channel, and The All News Channel.

In addition, Viacom produces major television shows, syndicates popular television programs, produces major motion pictures, publishes books, and operates regional theme parks. The company also owns a number of television stations and movie theaters.

COMPANY FINANCES

Viacom reported total revenues of $13.2 billion for the year ended December 31, 1997, and earnings per share of $.84. This compared with 1996 revenues of $12.1 billion and per-share earnings of $.31. In 1995 Viacom's revenues totaled $11.7 billion with per-share earnings of $.24, against 1994 revenues of $7.4 billion and a loss of $.62 per share. In 1997 Viacom's earnings before interest, taxes, depreciation, and amortization were __BODY__.7 billion, compared with $2.1 billion in 1996. Operating income in 1997 totaled $753 million, against __BODY__.3 billion in 1996.

ANALYSTS' OPINIONS

When chairman Sumner Redstone dismissed CEO Frank Biondi in 1996 and took over as supreme leader of Viacom, he took a more hands-on approach to management. Critics believe this hands-on approach has slowed down decision making within the company and are not sure this new management strategy is working.

Analysts believe that Viacom needs to develop marketable icons created in Paramount's motion pictures. An example would be Forrest Gump, where the main character lends itself to a whole host of merchandising ideas. Viacom did make use of the Bubba Gump Shrimp Co. restaurant idea in the film by opening a real restaurant of the same name.

HISTORY

Viacom was formed by CBS in 1970 when the Federal Communications Commission (FCC) dictated that television networks could not occupy cable systems and television stations concurrently in the same market. Viacom purchased cable systems in five states throughout the 1970s. Showtime was started in 1978 as a subscription television service.

Viacom acquired television and radio stations throughout the late 1970s and early 1980s. The company teamed up with Warner/Amex in 1983 to form Showtime Networks. Showtime Networks was a combination of Showtime and The Movie Channel. Warner/Amex became simply Warner in 1986 and Viacom purchased Warner's share of Showtime Networks and MTV Networks, which included the first all-music video channel on cable television.

Sumner Redstone became a prominent figure in Viacom's history when his movie theater chain, National Amusements, purchased 83 percent of Viacom in 1987. Redstone then began attempts to acquire many prominent companies, including Orion Pictures, which he ultimately was unable to attain. His acquisition of Paramount and Blockbuster in 1994 firmly branded Viacom as a major player in the media industry.

The mid-1990s at Viacom have been marked by a number of key personnel changes. The most notable of these changes was undoubtedly Redstone's firing in 1996 of Frank Biondi from his post as president and CEO. It was, however, by no means the only change in upper management ranks. In 1994 Richard Snyder, the chairman of Simon & Schuster, was sacked by Redstone. Steven Barrard, the CEO at Blockbuster, resigned in 1996, followed in 1997 by Bill Fields, his replacement. Redstone replaced Fields with John Antioco, who previously had been a member of top management at Taco Bell.

In 1997 the company sold its radio stations to Evergreen Media and Chancellor Broadcasting for __BODY__.1 billion. That same year the company also ended a long-running battle with Universal Studios over control of cable television's USA Network by selling its share to Universal for __BODY__.7 billion.

STRATEGY

Viacom has applied a variety of strategies in an effort to increase its existing markets and expand to new markets. In the late 1990s Viacom made plans to open a corporate store in Chicago. The store would be comparable to the Disney and Warner Bros. stores and offer various Viacom merchandise based on characters and ideas developed by Viacom's movie and television divisions. Included within the stores would be interactive games, a restaurant, and a movie theater.

Viacom also introduced, through Paramount, a new comic book developed by Marvel Comics. The first issue of the comic book featured "Mission: Impossible" and was released in May 1996, at the same time Paramount's movie of the same name was opening. Viacom is hopeful that the comic book venture will help to generate a demand for licensed merchandise that then can be offered in Viacom stores.

In late 1996 Viacom exercised its option to purchase half of United Paramount Network (UPN). Analysts believe UPN will be a "secure distribution outlet" for Viacom. Viacom's reason for starting the venture was to furnish UPN with a network brand identity that would eventually pay off financially.

In May 1998 Viacom agreed to sell its educational, professional, and reference publishing operations to Pearson PLC for $4.6 billion. The company said the move was part of its strategic program to concentrate "on its core entertainment assets, deliver maximum value to its shareholders, and strengthen its capital structure." Viacom will retain its consumer publishing operations, which under 34 different imprints publish more than 2,000 new titles a year.

INFLUENCES

Viacom has faced many challenges on the way up the ladder to success. The company has learned that bigger is not always better. Viacom's acquisition of Paramount Communications initially proved profitable with the movie Forrest Gump being a box office smash. But since "Gump," Paramount has not turned out any block-buster movies. Viacom hasn't given up on Paramount and believes the subsidiary will become profitable.

The acquisition of Blockbuster Entertainment Group has also cost more than it has paid off. Redstone had promised Blockbuster would be "the No. 1 distributor of music products in the world" when Viacom acquired the chain in 1994. There have been rumors of a spinoff of the video rental chain. Originally, Viacom believed that its size would empower Blockbuster to contract better prices on videos. But Blockbuster has faced some strong competition. Despite Blockbuster being forced to cut prices, reducing its profits, Viacom still believes Block-buster has a future. Viacom plans to expand Blockbuster stores to carry a wide variety of media products.

To reduce debts incurred as a result of acquisitions, Viacom decided to sell its cable television properties. Originally planning to sell to minority-affiliated RCS Pacific L. P., Viacom ended up spinning off its cable properties to shareholders. The change in strategy was made as a result of Congress nixing the loophole that allowed corporations to skirt taxes on television or cable properties sold to minority-led organizations. By spinning off the business to shareholders, Viacom still avoided a capital gains tax since spin-offs to shareholders aren't taxable.

CURRENT TRENDS

One favorable trend within Viacom's motion picture operations has been the phenomenally popular, Oscar-winning Titanic, the James Cameron-directed film released jointly by Paramount Pictures and 20th Century Fox. Through late April 1998 the film had earned approximately $560 million at box offices in the United States and Canada. Titanic was released by Paramount in the United States and Canada, while 20th Century Fox handled its release outside those two markets.

Although Titanic was widely expected to become the biggest box office success in motion picture history, Paramount did come in for some criticism for its handling of the film's television rights. The TV rights were reportedly sold to NBC for $30 million in a deal negotiated by Paramount. Other television networks complained they were not properly made aware of the auction of TV rights and that they would have been willing to spend considerably more than the $30-billion bid by NBC. There were also reports that 20th Century Fox was considering taking legal action over Paramount's handling of the TV rights sale.

PRODUCTS

Viacom's business consists of four main groups: Entertainment, Networks and Broadcasting, Video and Music/Theme Parks, and Publishing. The Entertainment segment, which in 1997 accounted for just over 29 percent of Viacom's total business, includes movie theaters, Paramount Pictures, Paramount Television, Spelling Entertainment Group, and Viacom Interactive Media. Paramount Pictures and Spelling Entertainment Group produce and distribute motion pictures and television programming.

Viacom's Networks and Broadcasting segment, accounting for about 20 percent of the company's total revenues in 1997, includes such cable television networks as The All News Channel and Comedy Central, 50 percent each owned by Viacom. MTV Networks and Show-time Networks are also holdings of Viacom.

The heart of the company's Publishing sector is Simon & Schuster, which operates such imprints as MacMillan Publishing USA and Prentice Hall. Publishing accounted for roughly 18 percent of Viacom's revenues in 1997. Before the sale of the majority of this division to Pearson PLC in 1998, the various company holdings published and distributed educational, consumer, business, technical and professional books, and audiovisual software. Viacom retained its consumer publishing operations.

The Video Music/Theme Parks group, accounting for almost 33 percent of the company's total revenues in 1997, includes Block Party entertainment centers, Block-buster Music, Blockbuster Video, Discovery Zone Inc., and Paramount Parks. Viacom owns 49.6 percent of Discovery Zone Inc., while Paramount Parks operates five theme parks and one water park in the United States and Canada.

In 1996 Viacom and Sprint teamed up to form branded direct-access Internet products. The plan established links to Viacom sites such as Blockbuster Video and the MTV networks on a specially designed "net browser" created by Sprint.

CORPORATE CITIZENSHIP

Nearly 4,000 Viacom employees in the United States, Canada, and the United Kingdom participated in Viacommunity III, the company's third annual volunteer day, on September 11, 1997. The annual event celebrates the spirit of volunteerism and community among Viacom's employees around the world. Among the projects undertaken during Viacommunity III were cleanups of public parks and gardens, the painting of murals, escorting underprivileged children on field trips, and the renovation of tenement housing, schools, and hospitals. The employees taking part in Viacommunity III came from Viacom operations in 22 cities, including New York, Chicago, Los Angeles, Toronto, and London.

GLOBAL PRESENCE

Viacom is actively involved in 100 countries around the world. CEO Sumner Redstone is intent on making Viacom an international rival to Rupert Murdoch's News Corp. and Turner Broadcasting System. Viacom has various international programming ventures. The company owns 100 percent of MTV Europe and has an interest in MTV Asia. Viacom's cable networks continue to expand internationally, but the company plans further expansion in other facets of its business.

In 1995 Viacom and British Sky Broadcasting joined together to develop a Paramount television channel in the United Kingdom. The lineup included past and current comedy and drama series, many of which had not previously been screened in the United Kingdom. Paramount movies were not included since they were licensed to the British company's premium film channels.

Growth in the media industry has been shifting more toward Europe. When Bertelsmann and Compagnie Luxembourgeoise started a joint venture media company, Viacom responded with its own joint venture in direct competition. In 1996 Viacom teamed up with Kirch Group of Germany in order to expand Viacom's presence in Europe. Kirch offered all of Viacom's existing and future cable channels in its digital pay television service to consumers. The deal also gave Viacom an option to acquire a percentage of Tele 5, a Spanish broadcaster.

EMPLOYMENT

In Viacom's search for qualified employees, the company offers both paid and unpaid internships. New employees are trained on the job and are provided with seminars, workshops, and classes to supplement their training. The company administers regular performance reviews and promotes from within whenever possible. Viacom encourages employee participation in professional organizations and job fairs. The company provides tuition reimbursement as well.

SOURCES OF INFORMATION

Bibliography

Burgi, Michael. "Summarily Sumner." MEDIAWEEK, 22 January 1996.

Dawtrey, Adam. "Paramount Sets U. K. Channel." Variety, 11 September 1995.

Dun & Bradstreet Information Services, North America The Career Guide 1997: Dun's Employment Opportunities Directory. Bethlehem, PA: Dun & Bradstreet, Inc., 1996.

Flint, Joe. "Is Sumner Redstone Losing His Grip?" Entertainment Weekly, 15 August 1997.

Guider, Elizabeth. "Viacom Finds __BODY__.8 Billion Ally in Kirch." Variety, 15 April 1996.

Hofmeister, Sallie. "Seagram to Buy USA Networks for __BODY__.7 Billion." Los Angeles Times, 23 September 1997.

Jensen, Jeff. "Viacom Eyes Venues for Merchandising: Stores, Comics Hope to Follow the Cash-Lined Path Traveled by Disney, Warner." Advertising Age, 8 April 1996.

Johnson, Deborah. "Viacom, Kirch Make Pay-TV Deal: German Media Company Will Put MTV, VH1 and Nickelodeon in its Planned Digital Packages." Broadcasting & Cable, 15 April 1996.

Lee, Carrie. "Viacom: At Last, the Picture Clears." Financial World, 29 August 1995.

McClellan, Steve, and Lynette Rice. "Viacom to Buy Half of UPN: Is Investing $160 Million in Fledgling Network. Broadcasting & Cable, 9 December 1996.

Milliot, Jim. "Viacom Developing Company Stores." Publishers Weekly, 3 June 1996.

Morrison, Shauna, ed. Standard & Poor's 500 Guide. New York: The McGraw-Hill Companies, Inc., 1996.

Peers, Martin. "Viacom Finds Bigger Is Not Quite Better: Core Cable Units Outpace New Acquisitions." Variety, 19 August 1996.

Roberts, Johnnie L. "Doing it His Way: Viacom's Sumner Redstone Is Tough. But Sacking His No. 2 Won't Solve His Problems." Newsweek, 29 January 1996.

Spain, Patrick J., and James R. Talbot, eds. Hoover's Handbook of American Business 1996. Austin, TX: The Reference Press, 1995.

"Viacom Inc." Hoover's Online, 1998. Available at http://www.hoovers.com.

"Viacom Inc. Struck a Deal with Sprint." Broadcasting & Cable, 21 October 1996.

For an annual report:

on the Internet at: http://www.viacom.com/10kcover.html

For additional industry research:

Investigate companies by their Standard Industrial Classification Codes, also known as SICs. Viacom's primary SICs are:

2731 Book Publishing & Printing

4841 Cable & Other Pay Television Services

7812 Motion Picture, Video Tape Production

7841 Video Tape Rental