Karmazin exits Viacom; Freston, Moonves upped
Viacom's Karmazin out, succeeded by Freston, Moonves
June 2, 2004
NEW YORK -- Goodbye, Mel. Hello, Tom and Leslie.
After years of vying for the CEO title in vain and navigating through a rocky relationship with Viacom Inc. chairman and CEO Sumner Redstone, Mel Karmazin caught Hollywood and Wall Street by surprise Tuesday by resigning from all his duties at the industry giant, including his roles as president and chief operating officer as well as board member.
His abrupt departure, which sources said took shape behind the scenes during the past two weeks, left Tom Freston, chairman and CEO of Viacom's MTV Networks unit, and CBS chairman and CEO Leslie Moonves to fill the new posts of co-presidents and co-chief operating officers.
Under a long-anticipated CEO succession plan that Viacom also unveiled after an extraordinary board meeting Tuesday morning, the two executives will be the front-runners to take the top day-to-day operating post, which Redstone now plans to relinquish within three years.
Industry insiders also immediately started speculating about Karmazin's potential next move and the possible departure of Viacom brass passed over in the management shake-up.
While some said Karmazin has few job options at the moment, many suggested that he could end up at the Walt Disney Co. or News Corp. or even buy Viacom's Infinity radio and outdoor group.
It was unclear what had triggered his decision to leave his post now, but Redstone said Tuesday that Karmazin had asked for his release through another unnamed executive about two weeks ago, and his understanding was that Karmazin was "frustrated" with Viacom's stock price and the weak performance of the radio division, which was always close to his heart. Redstone declined to say when he had the last face-to-face chat with Karmazin and hinted that he didn't try to talk him out of his decision to leave.
As far as Viacom brass goes, many zeroed in on Jonathan Dolgen, who as head of the Viacom Entertainment Group has overseen the firm's motion picture and TV production business. In the past, he had been tipped as a possible candidate for the Viacom CEO job, but with the Paramount operations having struggled over the past year, some suggested that he could be on the way out.
"They have taken the two guys running the best-performing parts of the (Viacom) organization," Tom Wolzien, senior media analyst at Sanford C. Bernstein, said about Moonves and Freston. "They are both very good, and the decision gives (investors) some clarity and certainty."
Indeed, the two have supervised some of the fastest-growing Viacom assets, with Moonves having taken CBS to the top broadcast network ratings spot and Freston having expanded and grown the conglomerate's cable networks. Their units taken together produce more than 70% of Viacom's cash flow when excluding video rental giant Blockbuster, which the company is in the process of spinning out, according to analysts.
"They are more content-oriented than Mr. Karmazin, so we would expect content to reascend to 'king' again at Viacom -- not a bad thing," Thomas Weisel Partners analyst Gordon Hodge said about Moonves and Freston.
In their new roles, the two executives will jointly oversee all Viacom operations as directed by Redstone, with Moonves responsible for all broadcast TV operations, Infinity's radio and outdoor businesses and Paramount TV. This leaves Freston in control of the MTV Networks unit, Showtime, BET, the motion picture part of Paramount Pictures, Paramount Parks and book publisher Simon & Schuster.
Freston's and Moonves' new roles are part of a succession plan on which the governance committee of Viacom's board has labored for more than a year and a half, committee chairman David McLaughlin said Tuesday. The three-person committee of independent directors will work with Redstone to find a CEO successor. While anyone else is, in theory, eligible for the post, Redstone said he would bet that the job will end up going to one of the front-runners: Moonves and Freston.
While he declined to provide specifics, McLaughlin said Karmazin was also "a candidate" for the CEO post under the original plan. But Karmazin took himself out of the running by resigning, Redstone said.
Viacom said it won't fill the board seat left open by Karmazin as his departure brings its board to the long-targeted size of 14 members.
While Moonves said he will retain direct day-to-day management control of CBS for now, Freston hinted that he could leave the duty of running MTV Networks to one of his current executives, with many betting on Judy McGrath to take that job. McGrath is a member of the MTV Networks Management Committee and one of the presidents of MTV Networks Group, overseeing music-related channels.
The appointment of Freston and Moonves reminded Wall Street observers of the current management setup at Time Warner underneath chairman and CEO Richard Parsons. "We view the new management structure as similar to Time Warner's Jeffrey Bewkes' and Don Logan's shared ... roles," Fulcrum Global Partners managing director Richard Greenfield said. "The Bewkes/Logan structure has been exceedingly successful for Time Warner ... giving us confidence in Viacom's latest change."
However, some observers warned that the so-far-friendly relationship between Moonves and Freston could turn sour in the face of competition for the CEO spot.
But in a conference call Tuesday, Redstone said Freston and Moonves "get along well" and that he considers both men friends. "We have been out together before, and we make a great team," he said. Together, Redstone said, they will help him "open a new chapter of the Viacom growth story and take the company to new heights."
Moonves said he "couldn't ask for a better partner" than Freston, who returned the compliment by saying he has "great admiration for Les."
McAlpine Associates founder and analyst Dennis McAlpine said Moonves and Freston "have been in place for a number of years and have performed well during their tenure, (but one) could expect some defections in some of the other divisions that were overlooked -- e.g., Jonathan Dolgen from Paramount."
However, Viacom executives said they expect no additional management losses. Redstone said Tuesday that he talked to "all division heads, from Matt Blank (Showtime) to Sherry Lansing (Paramount)." He said they all "endorsed" the new management setup.
Redstone also thanked Karmazin on Tuesday. "We very much regret Mel's decision to resign, and we wish him well," he said. "He has been instrumental in Viacom's operating success since our merger with CBS, and he leaves with an extraordinary track record of accomplishment."
Redstone once again argued that he hadn't had major strategic disagreements with Karmazin. Asked, for example, about recent speculation that he wanted to do a big merger while Karmazin was against such a move, Redstone repeated his recent promise that "we will remain disciplined" and not use the languishing stock for deals.
Karmazin will stay on as a consultant for 60 days to facilitate the management transition. He also will receive all executive compensation promised to him for the length of his current contract, which ends May 5, 2006. Over those next two years, Viacom insiders expect Karmazin's promised salary and bonus to amount to $31 million, according to sources.
In addition, he owns about 4 million Viacom shares and has options on 8.8 million additional shares that he can exercise over the next two years.
According to a regulatory filing that on Tuesday detailed some of the terms of Karmazin's departure from Viacom, he also agreed to cancel an option he exercised May 19 to acquire 550,000 shares of Viacom common stock.
Karmazin was not available for comment Tuesday beyond a prepared statement. "After more than 20 years with the company, for personal and professional reasons, I have decided to leave Viacom and pursue other challenges," it read. "Viacom is performing exceptionally well with leadership positions in all of its businesses. The company's very talented management team will ensure its continued success."
In a comment for business news cable network CNBC, Karmazin said he would take the rest of this week off and start hunting for a CEO job next week.
On Tuesday, Roy E. Disney and Stanley Gold were quick to take the opportunity of Karmazin's resignation to again tweak the directors of the Walt Disney Co. in their months-long battle with the company's board. The two said that if Disney chairman George Mitchell was not already talking to Karmazin as a possible successor to CEO Michael Eisner, "we would strongly encourage him to do so."
Some on Wall Street also suggested that Karmazin could acquire Viacom's radio group given his upbringing in that business. Said Guzman & Co. analyst David Joyce: "He may buy Infinity Radio and do other acquisitions in broadcasting. He's too entrepreneurial to not do anything."
Redstone shot down rumors that radio stars like shock jock Howard Stern have contracts with the company that are linked to Karmazin's. Moonves admitted that Karmazin is close to Stern, who Tuesday lamented the executive's loss during his show but said it will now be his job "to make them happy."
While analysts said that Tuesday's news finally cleared up the succession picture at Viacom, the company's shares closed down 1.2% at $36.81.
After years of vying for the CEO title in vain and navigating through a rocky relationship with Viacom Inc. chairman and CEO Sumner Redstone, Mel Karmazin caught Hollywood and Wall Street by surprise Tuesday by resigning from all his duties at the industry giant, including his roles as president and chief operating officer as well as board member.
His abrupt departure, which sources said took shape behind the scenes during the past two weeks, left Tom Freston, chairman and CEO of Viacom's MTV Networks unit, and CBS chairman and CEO Leslie Moonves to fill the new posts of co-presidents and co-chief operating officers.
Under a long-anticipated CEO succession plan that Viacom also unveiled after an extraordinary board meeting Tuesday morning, the two executives will be the front-runners to take the top day-to-day operating post, which Redstone now plans to relinquish within three years.
Industry insiders also immediately started speculating about Karmazin's potential next move and the possible departure of Viacom brass passed over in the management shake-up.
While some said Karmazin has few job options at the moment, many suggested that he could end up at the Walt Disney Co. or News Corp. or even buy Viacom's Infinity radio and outdoor group.
It was unclear what had triggered his decision to leave his post now, but Redstone said Tuesday that Karmazin had asked for his release through another unnamed executive about two weeks ago, and his understanding was that Karmazin was "frustrated" with Viacom's stock price and the weak performance of the radio division, which was always close to his heart. Redstone declined to say when he had the last face-to-face chat with Karmazin and hinted that he didn't try to talk him out of his decision to leave.
As far as Viacom brass goes, many zeroed in on Jonathan Dolgen, who as head of the Viacom Entertainment Group has overseen the firm's motion picture and TV production business. In the past, he had been tipped as a possible candidate for the Viacom CEO job, but with the Paramount operations having struggled over the past year, some suggested that he could be on the way out.
"They have taken the two guys running the best-performing parts of the (Viacom) organization," Tom Wolzien, senior media analyst at Sanford C. Bernstein, said about Moonves and Freston. "They are both very good, and the decision gives (investors) some clarity and certainty."
Indeed, the two have supervised some of the fastest-growing Viacom assets, with Moonves having taken CBS to the top broadcast network ratings spot and Freston having expanded and grown the conglomerate's cable networks. Their units taken together produce more than 70% of Viacom's cash flow when excluding video rental giant Blockbuster, which the company is in the process of spinning out, according to analysts.
"They are more content-oriented than Mr. Karmazin, so we would expect content to reascend to 'king' again at Viacom -- not a bad thing," Thomas Weisel Partners analyst Gordon Hodge said about Moonves and Freston.
In their new roles, the two executives will jointly oversee all Viacom operations as directed by Redstone, with Moonves responsible for all broadcast TV operations, Infinity's radio and outdoor businesses and Paramount TV. This leaves Freston in control of the MTV Networks unit, Showtime, BET, the motion picture part of Paramount Pictures, Paramount Parks and book publisher Simon & Schuster.
Freston's and Moonves' new roles are part of a succession plan on which the governance committee of Viacom's board has labored for more than a year and a half, committee chairman David McLaughlin said Tuesday. The three-person committee of independent directors will work with Redstone to find a CEO successor. While anyone else is, in theory, eligible for the post, Redstone said he would bet that the job will end up going to one of the front-runners: Moonves and Freston.
While he declined to provide specifics, McLaughlin said Karmazin was also "a candidate" for the CEO post under the original plan. But Karmazin took himself out of the running by resigning, Redstone said.
Viacom said it won't fill the board seat left open by Karmazin as his departure brings its board to the long-targeted size of 14 members.
While Moonves said he will retain direct day-to-day management control of CBS for now, Freston hinted that he could leave the duty of running MTV Networks to one of his current executives, with many betting on Judy McGrath to take that job. McGrath is a member of the MTV Networks Management Committee and one of the presidents of MTV Networks Group, overseeing music-related channels.
The appointment of Freston and Moonves reminded Wall Street observers of the current management setup at Time Warner underneath chairman and CEO Richard Parsons. "We view the new management structure as similar to Time Warner's Jeffrey Bewkes' and Don Logan's shared ... roles," Fulcrum Global Partners managing director Richard Greenfield said. "The Bewkes/Logan structure has been exceedingly successful for Time Warner ... giving us confidence in Viacom's latest change."
However, some observers warned that the so-far-friendly relationship between Moonves and Freston could turn sour in the face of competition for the CEO spot.
But in a conference call Tuesday, Redstone said Freston and Moonves "get along well" and that he considers both men friends. "We have been out together before, and we make a great team," he said. Together, Redstone said, they will help him "open a new chapter of the Viacom growth story and take the company to new heights."
Moonves said he "couldn't ask for a better partner" than Freston, who returned the compliment by saying he has "great admiration for Les."
McAlpine Associates founder and analyst Dennis McAlpine said Moonves and Freston "have been in place for a number of years and have performed well during their tenure, (but one) could expect some defections in some of the other divisions that were overlooked -- e.g., Jonathan Dolgen from Paramount."
However, Viacom executives said they expect no additional management losses. Redstone said Tuesday that he talked to "all division heads, from Matt Blank (Showtime) to Sherry Lansing (Paramount)." He said they all "endorsed" the new management setup.
Redstone also thanked Karmazin on Tuesday. "We very much regret Mel's decision to resign, and we wish him well," he said. "He has been instrumental in Viacom's operating success since our merger with CBS, and he leaves with an extraordinary track record of accomplishment."
Redstone once again argued that he hadn't had major strategic disagreements with Karmazin. Asked, for example, about recent speculation that he wanted to do a big merger while Karmazin was against such a move, Redstone repeated his recent promise that "we will remain disciplined" and not use the languishing stock for deals.
Karmazin will stay on as a consultant for 60 days to facilitate the management transition. He also will receive all executive compensation promised to him for the length of his current contract, which ends May 5, 2006. Over those next two years, Viacom insiders expect Karmazin's promised salary and bonus to amount to $31 million, according to sources.
In addition, he owns about 4 million Viacom shares and has options on 8.8 million additional shares that he can exercise over the next two years.
According to a regulatory filing that on Tuesday detailed some of the terms of Karmazin's departure from Viacom, he also agreed to cancel an option he exercised May 19 to acquire 550,000 shares of Viacom common stock.
Karmazin was not available for comment Tuesday beyond a prepared statement. "After more than 20 years with the company, for personal and professional reasons, I have decided to leave Viacom and pursue other challenges," it read. "Viacom is performing exceptionally well with leadership positions in all of its businesses. The company's very talented management team will ensure its continued success."
In a comment for business news cable network CNBC, Karmazin said he would take the rest of this week off and start hunting for a CEO job next week.
On Tuesday, Roy E. Disney and Stanley Gold were quick to take the opportunity of Karmazin's resignation to again tweak the directors of the Walt Disney Co. in their months-long battle with the company's board. The two said that if Disney chairman George Mitchell was not already talking to Karmazin as a possible successor to CEO Michael Eisner, "we would strongly encourage him to do so."
Some on Wall Street also suggested that Karmazin could acquire Viacom's radio group given his upbringing in that business. Said Guzman & Co. analyst David Joyce: "He may buy Infinity Radio and do other acquisitions in broadcasting. He's too entrepreneurial to not do anything."
Redstone shot down rumors that radio stars like shock jock Howard Stern have contracts with the company that are linked to Karmazin's. Moonves admitted that Karmazin is close to Stern, who Tuesday lamented the executive's loss during his show but said it will now be his job "to make them happy."
While analysts said that Tuesday's news finally cleared up the succession picture at Viacom, the company's shares closed down 1.2% at $36.81.
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