Sumner's bell tolls for Mel

Now it's the Tom & Les show at Viacom

By JILL GOLDSMITH, MEREDITH AMDUR

This article was updated at 10:44 p.m.

NEW YORK -- The power-sharing arrangement of Tom Freston and Leslie Moonves promises to catapult Viacom into a succession of policy and personnel changes that will re-shape the company.

The resignation Monday of Mel Karmazin as chief operating officer could jeopardize the position of long-time Paramount studio co-head Jonathan Dolgen, trigger the appointment of a new head of MTV and force changes in other parts of the conglom including the CBS network.

The power-sharing arrangement will result in either Freston or Moonves -- now co-president/chief operating officers -- replacing Redstone, 80, who promised Monday to step down as Viacom CEO in three years.

"This is going to be a fundamentally different company. The whole tone will change," said one high-ranking creative exec.

Karmazin's exit, while sudden, was no surprise.

"Look at it this way. I lasted four years longer than most people thought I would," Karmazin told Daily Variety.

The departing chief operating officer has taken some heat for Viacom's inert stock and the poor performance of the Infinity radio sector.

Doubts about how the two strong-willed top execs would get on surfaced the moment Viacom and CBS announced their merger in September of 1999. It closed in May of 2000.

Karmazin, a longtime radio exec who'd taken the reins of CBS, said then, "This is the deal I've wanted to make, I think, from the time I was bar-mitzvahed."

Redstone surrendered significant control over day-to-day operations in order to acquire CBS with virtually no premium, but he soon chafed under that arrangement. In May of last year, a new contract with Karmazin stipulated that Redstone, once again, had "full and final decision-making authority."

The two execs were personally never close and are said to have disagreed on points from strategic acquisitions to the disposition of Blockbuster. They always insisted publicly they were on the same page. Redstone tended to bad-mouth Karmazin to investors and, for a time, blatantly refused to acknowledge him as a potential successor.

Viacom's stars

MTV Networks topper Freston and CBS chief Moonves are viewed as stars within Viacom and highly regarded in entertainment and financial circles. In an interview, the duo described themselves as fast friends who "have taken vacations and traveled around the world together."

Their split title resembles the model at Time Warner, where Jeff Bewkes and Don Logan divide operational responsibilities for all divisions under chairman-CEO Richard Parsons.

Moonves said he's a "workaholic" who has no plans to replace himself at CBS near-term.

CBS has never been "in better shape. Ad sales are strong, the schedule is as tight as it's ever been with only five new shows. I'm not going to find it necessary in the immediate future to replace myself. I'll still devote a lot of time to CBS and the stations," Moonves said.

Freston, however, said he's mulling a succession plan for MTV Networks and hopes to make an announcement in the next several weeks. He'll promote from within.

That likely means he'll give the top job to Judy McGrath, who runs MTV, VH1, Comedy Central and the new gay-themed network Logo, or he'll split the post between McGrath and Herb Scannell, who heads Nickelodeon, Nick At Nite, TV Land and Spike.

Freston will still oversee MTV Networks as well as Showtime, BET, Paramount Parks, Simon & Schuster and the motion picture operations of Paramount Pictures.

Moonves will run CBS, Paramount Television, radio group Infinity Broadcasting and Viacom Outdoor.

The appointments both encroach on the portfolio of Par co-head Jonathan Dolgen, whose job is now widely believed to be in jeopardy.

"My No. 1 overarching goal is to sit down with Paramount features and see what's going on. They've had a cold streak; it's no secret," Freston said. But he cited "some exciting new hires that Sherry's brought in," referring to Par co-head Sherry Lansing.

Viacom's radio and outdoor advertising divisions are also ailing.

"Radio is still a high-margin business that contributes an enormous amount of free cash flow," Redstone said during a call with analysts. But the company will be reviewing all its holdings. "We have no sacred cows here. We'll do what's in the best interest of Viacom," he said.

Viacom shares dipped 1.2% Monday to $36.81.

Karmazin has always been a Wall Street darling but the faltering radio group and the tepid performance of Viacom stock lately have eroded his allure.

Redstone ruled out any major strategic acquisitions at Viacom's current share price, but told investors Tuesday to expect a ramped-up share buyback effort after the Blockbuster spinoff this summer.

"Mel Who? Management Change Already Discounted," wrote Richard Greenfield of Fulcrum Global Partners.

And while Merrill Lynch's Jessica Reif Cohen thinks Karmazin's exit "represents the loss of an extremely talented operating executive," she is still recommending that investors buy the stock.

Karmazin will stay on for two months as a consultant.

He'll walk away with $31 million to pay out the remaining two years of a three-year contract he signed in May of 2003. His 8.8 million stock options will vest immediately and must be exercised in two years.

Karmazin also owns about 11 million shares of Viacom, some of which he said he plans to sell once he's no longer affiliated with the company.

He's not hindered by a non-compete clause, which means he could take the reins at another media or entertainment company. He said he'd like to be a CEO somewhere else, but dismissed the Walt Disney Co. as a possible destination.

"Everyone knows I hate roller-coasters," he joked.

Disney gadflies Roy Disney and Stanley Gold immediately insisted that the board approach Karmazin. Disney chairman George Mitchell, however, publicly reiterated his support for the current Mouse House management team.

"I'm familiar with the other companies. I don't see an important place for him now. But I wish him well," Redstone said during the call. "He wanted out. He was frustrated. I won't go into the reasons for his frustrations," Redstone added.

Effect on stock

Karmazin also declined to comment on his relationship with Redstone but said the situation had become untenable and was weighing on the stock.

"When I signed my agreement a little more than a year ago, I truly believed that all this Mel-Sumner stuff had disappeared, and unfortunately it had not," he said, adding, "It wasn't good for our stock, it wasn't good for investors and it wasn't good for me. I decided there was no better alternative, since Sumner has control of the company."

Karmazin said he'd made the decision to ankle "a while ago" but wanted to keep it clear of the crucial upfront presentation of the fall sked to advertisers two weeks ago. He informed a few board members confidentially on May 19, the day of Viacom's annual meeting. After the UPN upfront May 20, he told them to pull the trigger.

He and Redstone never spoke directly, a fact which apparently irked the Viacom chairman.

"I heard about this indirectly from another executive who told me that Mel had told him, 'I want Sumner to let me out of my contract.' It was his decision and his decision alone."

The board's governance committee hunkered down and Karmazin's departure became an opportunity to address the nagging question of succession that's been plaguing Viacom.

Redstone said Freston and Moonves will be top candidates when he steps down. He insisted that his daughter Shari Redstone, who runs the family's National Amusements theater chain, "will not play an operational role at Viacom."