Viacom, CBS work on strategy to exploit ads boom

By Steve James

NEW YORK (Reuters) – Viacom Inc. and CBS Corp., while still awaiting federal approval of their merger, are planning how the combined entertainment giant will take advantage of an advertising boom in the new millennium, Viacom’s head said Monday.

“The new Viacom will be a global advertising powerhouse and the No. 1 outlet on the planet for connecting advertisers with the audience they need to reach,” said Chairman and Chief Executive Officer Sumner Redstone, whose company owns cable TV’s MTV, VH1 and Nickelodeon and the Paramount movie studios.

Redstone told a media industry conference that the new Viacom — driven by MTV, which reaches 25 percent of all TV households in the world — would focus on capitalising on “the unprecedented boom in advertising.”

First, however, Viacom and CBS must win federal approval for their planned $37 billion merger. Redstone told reporters Monday he saw no federal roadblocks to the merger of the two entertainment powerhouses.

“Nothing will stop this deal,” he said, adding that he was “optimistic” the merger would be approved by next February, March or April. Last month, CBS said it could sell as many as 10 radio stations because of federal limits on the number of radio and TV stations owned by one company in each U.S. market.

“We have had good meetings” with the Securities and Exchange Commission and the Federal Communications Commission, Redstone said of talks he and CBS President and CEO Mel Karmazin have had with federal regulators.

In fact, Redstone said he and Karmazin are already planning their 21st century strategy. “Mel and I have been meeting on a regular basis,” he told the media industry conference.

“We are working through the details, formulating the strategies that will propel the new Viacom into the new millennium and beyond.” Karmazin attended the session but did not speak publicly.

Painting a rosy image of the future, Redstone said: “Our merger with CBS puts us in the best competitive position in our industry. The new Viacom won’t suffer from the kind of indigestion that usually accompanies a large merger.

“The combination of Viacom’s powerful cable networks, the CBS network, both companies’ stations groups, CBS’ radio and outdoor advertising properties and a diverse portfolio of Internet assets creates a unique plaform to reach consumers.”

Redstone cited PaineWebber estimates that Viacom’s market capitalisation could increase over the next few years by $40 billion. He also noted that the investment house estimated the advertising market would grow at a 7 percent annual pace, expanding to $325 billion by 2006 from $213 billion today.

One of the keys to tapping this ad revenue was through MTV, said Redstone, noting that the youth-oriented music channel already reaches 300 million homes, or a quarter of the world’s TV homes. The children’s channel, Nickelodeon, is now seen in 142 countries.

“The key to MTV Networks’ success around the world — and to its future growth potential — is its ability to customise content to appeal to local youth and to offer advertisers the most effective way to reach the lucrative target market,” he said.

Redstone said local ad sales growth would be 43 percent this year overall and more than 50 percent in Asia, while MTV ratings were up all over the world, from 600 percent in China to 36 percent in Mexico.

PaineWebber media analyst Chris Dixon said he believed this was the “beginning of a new media age — the ongoing consolidation of the industry, represented by such mergers as Viacom and CBS and the extraordinary growth of dot-com advertising.

“I don’t think any one of us could have predicted there would be 10 or more companies that didn’t exist two years ago willing to spend up to $3 million for a 30-second (advertising) spot in the (National Football League’s) Super Bowl.

“Many of us get caught up in the newest technology and the latest IPO (initial public offering), but at the end of the day it’s all about using this technology to access information and to be entertained,” said Dixon.