By Abbey Klaasen and Claire Atkinson
The day the world found out Tom Freston was no longer in charge of Viacom, CBS CEO Leslie Moonves and his top PR guy, Gil Schwartz, were very publicly lunching at Michael’s in midtown Manhattan. Perhaps they were a bit smug-investors liked what CBS was telling them, most recently that it was raising its dividend for the third time since January.
Wall Street loves good stories, and media companies are in the business of telling them. So it’s shocking when a company like Viacom loses control of its own narrative.
But that’s what happened to Viacom CEO Tom Freston, who was succeeded in a post-Labor Day shakeup by former Viacom and private-equity executive Philippe Dauman. The irony was that CBS was initially pegged by Wall Street as the slow-growth company, and Viacom the rocket to a digital future. But the inability of Mr. Freston’s camp to keep that storyline spinning ultimately proved his downfall.
The now-familiar ending: with Viacom’s stock almost 20 percent below post-split highs, Chairman Sumner Redstone cited “deficient communications” with Wall Street and Viacom’s failure to be more aggressive online for his decision to replace Mr. Freston. Mr. Dauman and another new executive, Tom Dooley, Mr. Redstone said, are “go-and-get-it kind of guys.”
From a communications perspective, said one veteran PR executive, the positioning of the slow-growth and fast-growth companies was key. “The expectation for Les was that he was in charge of the slow company and he over-performed,” he said. “It shows you how important expectations are.”
Tellingly, the announcement about Viacom’s new management team was made not by its own outside investor-relations agency, Abernathy MacGregor Group-a company hired by Mr. Freston-but by Citigate Sard Verbinnen, brought in to work on the news by Sumner Redstone’s office. Citigate Sard Verbinnen also worked for Martha Stewart during her legal travails. Senior Viacom staffers were informed the night before the announcement.
Mr. Freston, well-liked and popular with Viacom management and employees as well as with Wall Street analysts, didn’t seem to understand the need to feed expectations with well-timed announcements about digital initiatives the way Mr. Moonves and his team over at CBS did. Cushioned by its reputation as a youth-targeted, savvy marketing operation with enviable assets, the new Viacom seemed to assume its place was secure.
But the Street reacted very differently to the two companies’ progress. CBS revenue in first quarter as a public company grew 4 percent and free-cash flow-expected to be a hallmark of the standalone CBS-was up 12 percent to $585 million. In the next month it grew 3 percent. Viacom’s revenue rose 12 percent but net profit fell 9 percent. CBS’s stock price dropped 1 percent on the earnings news, but in the following month grew 4 percent. Viacom’s fell 2 percent the day of its earnings and continued to drop-down 5 percent in the following month.
Second quarter was a different story: CBS Corp. reported a 1 percent decline in revenue and an increase in free-cash flow of 2 percent, while Viacom, whose stock was hovering at an all-time low, beat most analyst expectations with revenue and net profit both growing 24 percent, fueled by DreamWorks and cable-network gains. But while CBS’s stock continued to grow, up 5 percent since then, Viacom’s only got a brief bump from its strong performance before falling back to around $34 a share, below the $40 price set in January at the time of the split.
Looking back, no one in Viacom’s divisions ever seemed to grasp that it needed to act differently as a public company. A July survey by Abernathy MacGregor, for example, indicated analysts and investors wanted the company to communicate better-especially regarding digital strategy.
Carole Robinson, Viacom’s most senior PR executive as exec VP-corporate relations, declined to comment on Viacom’s communication strategy.
While Mr. Moonves and his team at CBS weren’t necessarily in acquisition mode, they did manage to grow some digital chops-and they milked the publicity out of it. The spring before the Viacom/CBS split Mr. Moonves hired Larry Kramer, a man with Internet gravitas, to head CBS Digital. On Jan. 6, with the separation ink barely dry, CBS touted a deal with Google-at the Consumer Electronics Show, no less. And in March, it launched the biggest TV-on-the-Web play yet with its online and much-buzzed-about simulcast of the NCAA March Madness basketball tournament.
“CBS recast itself as a younger, tech-savvy brand,” said Lee Westerfield, an analyst at BMO Capital Markets. MTV Networks did a decent job communicating its digital properties to advertisers during the upfront, said media buyers, and that resulted in an early upfront deal with OMD that gave the Omnicom media agency first look at digital properties. But it still faces uncertainty in terms of how it will stay relevant in a MySpace world. “Social networking to teens today is what MTV was to teens in the 1980s,” said Gail Stein, client-communications director at OMD.
And that may point to the real trouble with Mr. Freston’s management tenure, which many inside Viacom suggest started even before the split-when the company lost out on MySpace, the Web’s fastest-growing property, last summer. As it stands, according to Nielsen//NetRatings’ July data, aggregate Viacom-owned sites rank 23rd in terms of unique Web visitors. News Corp. has rocketed to No. 6. When Rupert Murdoch bought the site, no one was sure exactly if and how he’d recoup the investment-but a year later he has a $900 revenue guarantee from Google and a reputation among investors as a smart Internet opportunist.