The Merged Beast of Viacom and CBS Slouches Toward Dominance

The new company will be the business equal of Time Warner and its influence will extend over a huge swath of media culture, challenging even Disney's power.
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This deal is for real.

The entertainment business is usually as heavy on hype as it is light on bottom-line profit. But when

Viacom

(VIA) - Get Report

Chairman Sumner Redstone said Tuesday that his company's $35 billion merger with

CBS

(CBS) - Get Report

marked a "momentous occasion ... in the life of the media industry," he spake the truth. By any standard, the CBS/Viacom deal will create a cultural and economic giant.

Depending on who's counting, the new Viacom will be either the world's largest media and entertainment company, or a close second to

Time Warner

(TWX)

. In fiscal 2000, it will have close to $25 billion in revenue and $5 billion in cash flow, according to analysts' estimates. That's slightly smaller than Time Warner, the company's New York neighbor, but one-fifth of Time Warner's revenue and 40% of its cash flow comes from the distinctly unglamorous business of running cable systems. And based on Tuesday's closing prices, Time Warner and the new Viacom will have essentially the same market capitalization, around $75 billion.

The company will have extraordinary cultural influence, from the young and restless hipsters of

The Real World

to the aging but not yet toothless reporters of

60 Minutes

. Its properties will include

CBS

, the nation's most-watched television network,

Paramount

, one of Hollywood's big six movie studios,

MTV

, which has defined youth culture almost since it was founded two decades ago, and dominant radio stations in many of the nation's largest markets. And don't forget

Nickelodeon

, the leading children's television network,

UPN

, which has strong African-American viewership and

VH1

. Among entertainment conglomerates, only

Disney

(DIS) - Get Report

can compare. But both the stock and the self-confidence of the Mouse have slipped this year, while Viacom and CBS have surged ahead.

In the music business, the new Viacom's power will be especially obvious, thanks to the combination of CBS's

Infinity Broadcasting

(INF) - Get Report

subsidiary, the biggest radio station group in the nation, with MTV and VH1. While the company won't be an important player in the recording industry, it will probably have more power to make or break hit songs than

Seagram

(VO) - Get Report

,

Sony

(SNE) - Get Report

or any of the other five major labels.

The combination will give CBS CEO Mel Karmazin a new and much larger stage. While the company will retain Viacom's name and the 76-year-old Redstone will remain its chairman and chief executive, Karmazin will become president and chief operating officer, with primary responsibility for day-to-day operations. Redstone is so serious about giving Karmazin control of the new Viacom that he will boot his two chief deputies, Tom Dooley and Philippe Dauman, to make sure Karmazin has room to breathe. (Dooley and Dauman will continue to serve on the combined company's board.)

Karmazin, a hard-charging penny-pincher, has a superb track record of earning money for his investors. But his record as a commissar of taste is less reassuring; Karmazin's history of supporting trash-talker

Howard Stern

and other low-rent amusements may make cultural poo-bahs long for the pretentious but well-meaning efforts of Michael Eisner and Disney. At the press conference announcing the deal today, Karmazin repeatedly embarrassed reporters for CBS-owned radio stations by gleefully pointing out their affiliation.