A letter from National Amusements Inc. to the boards of Viacom Inc. and CBS Corp. late last month urging a merger has sparked a new debate over the merits of rejoining the entertainment giants. Sumner Redstone, National Amusements’ chairman and chief executive, and his daughter, Shari, its president, control about 80 percent of the shares in each company. The pair recommended in the letter that Viacom and CBS negotiate an all-stock transaction. If such a deal were to happen, what would it mean for the L.A.-based crown jewels on both sides: Paramount Pictures and CBS Television?

Companies’ Star-Crossed Show Business Relationship

Viacom Inc. and CBS Corp. have a long, intertwining history. Established as CBS’ syndication arm, Viacom was spun off in 1971 as a public company after the Federal Communications Commission barred television networks from owning syndication companies – a rule that was eventually reversed in 1993.

Viacom grew by acquiring television stations and cable programming services, becoming a wholly owned subsidiary of Sumner Redstone’s National Amusements Inc. in 1987.

Viacom acquired Paramount Communications Inc. and Blockbuster Entertainment Corp. in 1994, making it one of the largest entertainment companies in the world. The company completed its biggest acquisition in 2004 when it bought former parent CBS for $39.8 billion. But the companies split the next year amid a stagnating stock price and internal tensions between Leslie Moonves, CBS’ chief executive, and then-Viacom chief Tom Freston. The resulting CBS, headed by Moonves, retained most of the prior firm’s broadcast TV assets, including its various syndication companies. Freston took the reins of the relaunched Viacom before being replaced in September 2006 by Philippe Dauman. National Amusements retained a controlling interest in both companies after the 2005 spinoff.

– Omar Shamout

3 ways a Viacom-CBS merger would impact Paramount Picturesways a Viacom-CBS merger would impact Paramount Pictures

1. The Moonves effect.

CBS has been thriving under the leadership of Chairman and Chief Executive Leslie Moonves – whom the elder Redstone has called a super genius. With struggling Paramount parent Viacom set to lose interim Chief Executive Tom Dooley next month, and the film studio suffering from a series of box-office busts, including a recent $115 million write-off on a movie that hasn’t been released, Moonves could provide the leadership needed to right Paramount’s ship. CBS TV has been the most-watched network 13 of the past 14 years, and analysts at New York-based investment firm Gabelli & Co. estimate the network will generate $14.6 billion in revenue this year, an increase of 5.1 percent from $13.9 billion in 2015. Per-share earnings are projected to hit $4.05. “Moonves is so incredibly savvy,” said Mary Murphy, a senior lecturer at USC’s Annenberg School of Journalism. “He knows his audience and programs for it.”

2. Full stream ahead.

Moonves said in a July earnings call that his Showtime streaming service and the CBS All Access streaming service each surpassed 2 million subscribers. Both portals provide opportunities for Paramount to deliver premium content to more viewers, increase fan engagement, and launch crossover marketing initiatives for its film properties. For example, as Paramount plans future installments of its “Star Trek” film franchise, CBS is developing a “Star Trek” TV series specifically for All Access, so opportunities for overlap abound. Also, while cord-cutting and skinny bundles have spooked TV advertisers, Showtime’s subscriber-based model is immune from those negative market forces, according to analysts at Sanford C. Bernstein & Co. Paramount’s library of films could see a long and healthy life on those platforms and also draw new subscribers to the sites.

3. Content engine.

While Sumner Redstone has made his opposition to the sale of Paramount, in part or in whole, quite clear, analysts have worried about its continued struggle to produce hits. It came in last among the major studios last year in terms of box-office gross. Reassembling the company would give CBS a major film studio (as opposed to mini-major CBS Films), a major broadcast television broadcast network, and a number of outstanding cable networks, both basic and premium. “It’s a stronger entertainment engine than it is as two separate companies,” said Lindsay Conner, a partner at Manatt Phelps & Phillips who heads the law firm’s film, TV, and digital content practice group. A recent report from Sanford C. Bernstein suggested those synergies work both ways: “The biggest missing piece of Paramount, structurally, is the lack of a TV production business.”

3 ways a Viacom-CBS merger would impact CBS Television

1. Global reach.

CBS Television could benefit from the international capabilities of Viacom’s networks and the Paramount studio. “The international marketplace for premium content is exploding,” Moonves said at a recent Goldman Sachs investor conference. While CBS does one-off international distribution deals for its properties, Viacom is already home to premier global media brands that create a host of content for audiences in 180 countries. Viacom’s media networks reach more than 3.5 billion TV subscribers worldwide, according to the company, and Paramount Pictures is a major, if lagging, global producer and distributor of filmed entertainment.

2. Production synergies.

When CBS Television and Paramount were part of the same studio lot in Hollywood, they shared production facilities and resources. This kind of operational synergy makes a lot of sense, said Brett Harriss, an analyst at Gabelli & Co. who cited Twentieth Century Fox Film Corp. and Warner Bros. Entertainment Inc. as examples of hybrid TV-film studios that have been particularly successful. Along those lines, as Paramount Studios undergoes a large-scale expansion, the facility would have even greater capacity for CBS TV shows and producers to share soundstages, offices, and personnel – and create huge cost savings.

3. Forever young.

For all the success Moonves has had leading CBS Television, its audience is largely older and tends to be less diverse than watchers of its digital and cable counterparts. Viacom’s flagship cable networks MTV, Comedy Central, and Nickelodeon, which skew younger, could help bring in new viewers, and subsequently new advertising partners. While Viacom has been challenged of late by the migration of young people away from traditional TV, said Harriss, Moonves could help figure out ways to re-engage those audiences. “Moonves could rebuild and rebrand Comedy Central, Nickelodeon, and some of these other niche networks,” added USC’s Murphy. “Remember, his background is in programming. That’s what he does best.”

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