The epic clash over Sumner Redstone's media empire
As the bitter struggle for control of the corporate realm ruled over by Sumner Redstone slowly, at times painfully, spirals into a spectacle of epic proportions, it's naturally moving observers to liken it to "Game of Thrones." It surely is a tangled boardroom clash, drawing in the celebrated executive's closest kin, pinstriped princelings with their own claims to the throne and other courtiers.
And just as with the battle for the Seven Kingdoms, the setting for the popular HBO show, a large corner of the media world is at stake. Over his 62-year career, the 92-year-old Redstone has built a $40 billion empire, including the CBS TV network, Paramount Pictures film studios, MTV cable networks (including Comedy Central and Nickelodeon) and Simon & Schuster book publishers (CBSNews.com is owned by CBS Interactive, a division of CBS Corp.)
Whether Redstone will remain in charge of his empire will depend on the outcome of an increasingly nasty legal battle over whether he's mentally competent enough to make decisions about how his businesses -- and the trust that will assume control of the properties upon his death -- should be run. Here are the main issues at the heart of the dispute.
Who is the rightful heir to the throne? Although most family businesses don't sport stock market valuations topping $24 billion and $16 billion, respectively, for CBS (CBS) and Viacom (VIA), the sheer scale of the businesses at the heart of the combat explains much of the current drama.
Redstone controls the companies through a movie theater chain called National Amusements, which his father founded in 1936. The billionaire now wants to remove Viacom CEO Philippe Dauman and George Abrams, another Viacom board member, from the trust that will control both companies after his death and from the board of National Amusements. This is a stunning turn of events for Dauman and Abrams, both of whom have known Redstone for decades.
In turn, the executives have filed suit in Massachusetts state court to block Redstone's move, claiming he's unduly influenced by his daughter, Shari Redstone, with whom he has recently reconciled after years of estrangement. The executives have accused Shari Redstone of "manipulating" her father by appointing her supporters, including her daughter, to run the trust's board and of isolating Sumner Redstone from his colleagues.
"She has recently and repeatedly arranged to deny requests for Viacom board members to meet with her father," Dauman said in a statement on Monday. "Her singular goal is to assume complete control of his businesses, despite Mr. Redstone's long-term desire for a professionally managed trust and an independent board of directors. "
Shari Redstone has denounced the suit's claims as "absurd." In a separate statement, Sumner Redstone branded Dauman, his one-time protege, as an opportunist, noting that during Redstone's recent successful legal fight with his former girlfriend Manuela Herzer, Dauman described his boss as "engaged, attentive, and as opinionated as ever."
Earlier this month, Viacom's board voted to quit paying Sumner Redstone after it was evident during the Herzer case that he was having difficulty communicating, according to The Wall Street Journal, which cited a person familiar with the matter. His total compensation fell from $13.2 million in 2014 to $2 million last year after Viacom slashed his bonus.
CBS had cut Redstone's pay from $10.8 million in 2014 to $1.76 million last year, when he stepped down as executive chairman of both companies.
Is winter coming for Viacom? The entertainment company's shares have sunk nearly 5 percent this year and are down 63 percent from their 52-week high of $69.17, with investors fretting about the decline in ratings on its cable networks. Even worse in the eyes of Wall Street, Viacom has underperformed CBS shares, which are up more than 17 percent this year.
Had Dish Network (DISH) not agreed to continue carrying Viacom's channels, the media company's stock would have performed even worse. Dauman had planned to sell a minority stake in Paramount Pictures by the end of June to pay down debt and hopefully boost the company's stock price. At first, Redstone reportedly favored the idea, but now he opposes it.
In its latest quarterly results, Viacom reported earnings per share of 76 cents, down from $1.16 in the year-ago period. That was due to some disappointing movie results, such as "Zoolander 2" and "Whiskey Tango Foxtrot," and a bigger-than-expected drop in ad revenue for Viacom's TV networks.
More broadly, growth has proven to be elusive for Viacom in recent years as some of its key networks, including Comedy Central and MTV, have been hit by double-digit declines in viewership and plummeting ad sales as competition with Hulu and YouTube for younger viewers intensifies.
"The clock is ticking." Noted investor Mario Gabelli, whose funds are Viacom's second-largest shareholder, told CNBC Monday that Dauman has six months to turn Viacom's situation around or risk losing his job. His counterpart at CBS, Leslie Moonves, is considered safe since his company has performed better. Gabelli couldn't be reached for comment for this story; Viacom spokesman Jeremy Zweig declined to discuss Gabelli's statement.
Tuna Amobi of S&P Global Intelligence, who rates Viacom shares as a "sell," said the clock is ticking for executive leadership to revive the entertainment giant.
"Every quarter that the results do not turn around at Viacom," Amobi said, "is going to be another quarter where there is intense pressure to do something dramatic."
As if what has happened so far isn't dramatic enough.