Freston's Sumner bummer

Familiar faces replace Viacom chief

By JILL GOLDSMITH

Sumner Redstone has wielded the ax yet again.

Two weeks after sending Tom Cruise to the showers, the Viacom honcho fired Tom Freston over disagreements on Internet strategy and disappointment over the price of Viacom shares.

Replacing Freston as CEO will be two longtime advisers and former top execs: Philippe Dauman, 52, who becomes CEO, and Thomas Dooley, 49, who assumes the job of chief administration officer.

Dauman and Dooley served as deputy chairmen of Viacom from 1996-2000.

"Effectively, Tom and I ran the company for Sumner. We split up oversight of certain divisions and worked very closely together. It's not quite the same as being CEO, but it certainly served well to prepare me for this," Dauman told Daily Variety.

He said he got the offer three weeks ago. The board approved it Monday, and Redstone fired Freston that evening, apparently to the MTV maven's great surprise.

Viacom will take an unspecified severance charge for Freston's early departure. Those details, and the financial terms of Dauman and Dooley's contracts, will be laid out in SEC filings later this week. Press reports on Tuesday suggested that Freston would receive $30 million upfront and another $30 million over time.

Wall Street and Hollywood were equally bemused by the abrupt news despite signs of strain between the two men -- particularly Redstone's pique at losing MySpace to News Corp. He blames Freston for letting it slip away.

"When Phil and Tom were at the company, no important deal ever got away from them," Redstone told Daily Variety.

Viacom stock tripled during the Dauman/Dooley era, he added, and he'd become convinced that Wall Street lacked confidence in Freston. He said Viacom's poor communication with investors was in part behind the 10% drop in the stock price since Viacom and CBS split in early January; CBS shares are up for the year.

Some MTV insiders questioned Redstone's interpretation of the MySpace chronology. They recalled that Freston, 60, and his team were deep into the due-diligence process when they were blindsided by a bid from Rupert Murdoch. They say the Viacom board, including chairman Redstone, made the decision to back off. The board figured it was a losing proposition any way around to start a bidding war with Murdoch, who is known to pay stratospheric prices for assets he wants.

"Sumner has a real problem because it's a Rupert thing and the great press Rupert is getting," said a former Viacom exec.

Dauman does have a strong background as a transactional attorney that could serve Viacom. He worked with Redstone to acquire Viacom, then Paramount, then Blockbuster. He even helped hash out the merger with CBS that led to his being shunted out of day-to-day operations when Mel Karmazin came on board.

Arguably, that was the deal that heralded a long downward turn in Viacom stock. Redstone grew so exasperated with the stagnant shares that he split the companies up again in January, giving Freston oversight of the Paramount film studio and MTV Networks.

Leslie Moonves inherited CBS, radio, outdoor advertising, Showtime and a handful of other assets. While he chafed at being called the slow-growth, "value" company, vs. Freston's "growth" company, CBS stock has outperformed Viacom's and Moonves still has his job. In the fierce rivalry between the two that started when they were named co-chief operating officers in 2004, he's the unequivocal winner.

"We're happy to be the underdog," Moonves cohorts were quick to say early on. They clearly had a point.

Some industry players have speculated that Moonves' grand ambition may be to ultimately run both companies. But Dauman's appointment, which Redstone insists is a long-term deal, not a quick fix, would put the kibosh on that possibility.

And some analysts speculate that Viacom may, or at least should, consider a major merger with the likes of Comcast or Yahoo.

Dauman dismissed the prospect of any large deals on the horizon -- odd since Redstone touted his dealmaking ability and promised Viacom would never again lose a major acquisition to a rival.

It's not clear if the golden age Redstone recalls can be revived in a different era that's witnessed huge changes in media and technology.

MTV Networks, one of the crown jewels of the entertainment world, has been squeezed by a relentless advertising downturn. "There's no one on the face of the earth who can move the needle in the other direction," said one Wall Streeter.

And Paramount's in the midst of an arduous turnaround process.

Instead of welcoming the management shift, Wall Street slammed it, driving the stock down a hefty 5.36% to close at $34.97.

Merrill Lynch analyst Jessica Reif Cohen pulled her "buy" recommendation from the stock "given the significant uncertainty with regard to both why the change was made and what it means for the company moving forward."

Dauman and Dooley, she noted, "are confidants of (Redstone) but do not have significant experience running a major entertainment company. Furthermore, they were deeply involved in Viacom's attempt to turn around Blockbuster, which was not successful.

"We think it is more likely to be regarded as an attempt by Mr. Redstone to reassert himself in an operating role, a development that is not likely to be warmly received in the investment community."

Execs who served under Dauman and Dooley assert that they exercised a coherent, orderly management style and were strict about financial controls. Current studio honchos like Grey, they said, will operate under much tighter fiscal scrutiny.

Dauman will report to Redstone. Dooley and Viacom's division heads will report to Dauman.

The two men have agreed to invest, respectively, $5 million and $4 million, of their own money to buy Viacom stock. Dauman said no one else had been let go, or, to his knowledge, resigned as of late Tuesday.

That could change. People on both coasts are waiting for the next shoe to drop.

"It's my first day on the job. It's Tom Dooley's first day on the job. We need to sit down with all our executives ... to figure out the right kind of organization going forward. From my perspective, we have a very strong group," Dauman said.

Redstone said he has "great respect" for Freston and wants "to personally thank him for his tremendous contributions to Viacom over the past 20 years. Tom successfully built MTV Networks into an unmatched force in the entertainment industry and assembled a best-in-class operational team to build on that foundation. Tom has been a friend and a colleague for many years, and we wish him well as he moves on to the next stage of his career."

Freston said: "I have every confidence that Viacom is well positioned to prosper under Philippe's leadership. I will do all I can to ensure a smooth transition."