Viacom’s Dauman on Familiar Turf

Sep 11, 2006  •  Post A Comment

Now that the shock of Tom Freston’s firing is wearing off at Viacom Inc., attention is turning to what’s next for the company.

Mr. Freston’s replacement as CEO, Philippe Dauman, is a known quantity for many executives at Viacom, having served on the board and in the executive suites. As a Viacom veteran, Mr. Dauman can call on old acquaintances as he tries to steady a ship that was rocked by Mr. Freston’s surprise firing.

Mr. Dauman and Tom Dooley, who will come in as senior VP and chief administrative officer, are reprising roles they’ve played before. Both executives stepped in to help run the company after Chairman Sumner Redstone got rid of another CEO, Frank Biondi, in 1996.

“They’re not micromanagers,” Geraldine Laybourne, who left Viacom’s Nickelodeon network 10 years ago and now owns Oxygen Media, said of Mr. Dauman and Mr. Dooley. “They know what they know and they know what they don’t know.”

The ability of Mr. Dauman and Mr. Dooley to keep executives at units such as MTV Networks and Paramount Pictures on track will in large part determine whether Mr. Redstone’s dismissal of Mr. Freston is regarded as a success or failure. By removing Mr. Freston so precipitously, Mr. Redstone risks creating insecurity among the managers who have built brands such as MTV and VH1 into reliable earnings machines.

MTV Networks Chairman and CEO Judy McGrath and Doug Herzog, who runs Comedy Central and Spike, are two executives Mr. Redstone should take care to hang on to, Ms. Laybourne said.

“They have the same kind of creative DNA as Tom,” she said, referring to Mr. Freston. He has been partly credited for MTV’s perennial ability to appeal to a new generation of kids, and helped create taglines including “I Want My MTV.”

Ms. Laybourne said she expects Mr. Dauman and Mr. Dooley to “bend over backwards” to preserve the Viacom culture that Mr. Freston did so much to foster. Last time the two executives stepped in, they kept executive changes from rocking operations, she said.

“They did a good job of buffering MTV Networks and protecting the culture,” Ms. Laybourne said. “It’s not like they’re strangers. They [Viacom staffers] know Tom and Philippe have been effective in working with Sumner in the past and that’s worked. It’s not like they’re weighing complete unknowns.”

In a conference call last week, Mr. Dauman said he does not envision himself as an agent of change.

“I do not intend to make a radical shift in strategy,” he said. “Viacom is a healthy company with smart, creative people, strong assets and strong brands.”

Mr. Dauman said he has made calls to Ms. McGrath; Brad Grey, chief of Paramount Pictures; and Debra Lee, CEO of BET. He did not expand on what he said.

One Viacom manager, who asked to not be named, said there has been no comment from management assuring workers everything’s going to be fine, which is unusual given the circumstances.

Mr. Dauman’s emphasis on promoting stability, an apparent effort to calm the troops, failed to impress Merrill Lynch media analyst Jessica Reif Cohen, who downgraded Viacom’s stock to “neutral” from “buy.”

“We are unable to discern any tangible shift in strategy with Viacom’s new management team,” she wrote in a report, adding that it may be difficult to keep all of the company’s senior managers in place. She pointed to Chief Financial Officer Michael Dooley as one executive who is likely to leave the company.

“We also wonder if the dismissal of Mr. Freston will prevent the company from attracting talent, both executive and creative, in the future,” she said.

Those sorts of concerns contributed to a 6 percent drop in Viacom shares after Mr. Freston was dismissed, an indicator that Mr. Redstone’s stated reasons for changing the guard may not be persuasive.

In last week’s conference call Mr. Redstone pointed to Viacom’s share decline since January as one reason he sent Mr. Freston packing. He also said Mr. Dauman would foster better relations with Wall Street and could help Viacom adjust to the digital revolution that’s challenging media companies.

Mr. Redstone noted that when Mr. Dauman and Mr. Dooley were deputy chairmen of Viacom from 1996 to 2000, the company’s stock price tripled.

Ms. Reif Cohen expressed concern about what she said appears to be a short-term focus by Mr. Redstone, along with concern that Mr. Dauman’s history of deal making could lead to acquisitions that could dilute earnings and hurt share prices.

Ms. Laybourne pointed out that Viacom’s cable channels are mature businesses now, and pressure to maintain earnings growth rates has become intense.

“They may need to look at those expectations,” she said.

Richard Greenfield, an analyst at Pali Capital, classified Viacom as a buy after Mr. Freston departed, but offered some advice to the company.

Viacom must focus more on long-term growth and try to dominate the Internet and mobile media competition the way it has succeeded in cable, Mr. Greenfield said. MTV is not “the” destination for teens online and that needs to change, whether through marketing, internal investment or acquisitions, he said.

Viacom staffers on Thursday gave Mr. Freston a big sendoff after he returned to the company’s New York office to retrieve some items from his office. An e-mail alert sent people to the lobby, where he received applause and chants for more than 10 minutes.

His departure left some employees re-examining their faith as to whether Viacom is a place where there is always a home for loyal executives who have participated in building the business.

“While no one here thought they were bulletproof, seeing Tom go makes you feel really unsafe,” said one executive who asked not to be named.