No. 5, Fall/Winter2000

Special Issue:
The Arab World

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Sumner Redstone:
The oldest member of the MTV generation,
touring the Arab Gulf, is still "fired up"
by Viacom's international prospects,
writes TBS Contributing Editor Chris Forrester

Related story: Viacom in the Middle East


DUBAI: Investment bankers are generally a strange bunch. Take any leading stock and some will take a buoyant view while others are more or less pessimistic, even though they are all working from much the same set of data and company core information.

But in regard to American media giant Viacom—which has assumed a major role in the Arab pay-TV market in cooperation with KIPCO—the analysts are near-unanimous.

The analysts are all predicting near-spectacular gains in Viacom's market value as the company begins to reap the rewards of US domestic success and, in the words of Katherine Styponias of Prudential Securities, "phenomenal growth" internationally.

At the end of September Viacom's stock stood at about $60 a share. Prudential is predicting an $87 price target, but the Pru are at the bottom end of the forecast table. Sumner Redstone, Viacom's chairman, reports a more bullish view. "Various top analysts have targets for our stock price over the 12-18 months of $100+ per share. Sometimes higher. In August, Fortune magazine listed the ten best stocks to hold for the next ten years, not just in media. And Viacom was the only major media company to be listed. They said if you missed Microsoft, Intel or Cisco, then don't fret because these ten stocks are going to do in the next ten years what those others did in the past. We were happy to see the report because we happen to agree. The report also found considerable growth in consumer media usage, which continues to grow. Last year it was up almost 4% to 9.3 hours a day and is predicted to rise to more than 10 hours a day by 2004. This means consuming Viacom's product, even now, accounts for more than half of America's waking hours.

"At the same time ad-spend is climbing as almost every industry tries to maintain or gain market share in the face of growing competition. These trends are good for Viacom. Ad spend in the US is expected to be up 10%, cable ad-spend is expected to be up 17% for this year. Broadcast will be up 7%, radio up 12%, outdoor 10%. We are in the four fastest-growing areas of the media. The longer projections are awesome. The ad market is expected to expand at a compound 8% to $320 billion, by 2004. One recent report said that Viacom commands more than 25% of the USA's ad-spend."

If, from these comments, quoted verbatim, you get the impression that Sumner Redstone has more than a casual commitment to his company, then you'd be right. He is evangelically passionate and highly committed to Viacom, rattling off the statistics, and given his age (77) it is a remarkable performance. Redstone spoke to TBS in Dubai, during the middle of a whirlwind tour that included stops in London, Milan (to meet with Silvio Berlusconi), Kuwait (to meet with KIPCO's Faisal al-Ayyar, see Viacom in the Middle East), Dubai, and finally to Frankfurt.

This international activity, and its future growth prospect, is very high on Redstone's agenda. The brands are all around us in the Arab world (as well as many other regional markets in the global economy)—from Paramount Pictures, to Blockbuster Video, to MTV Networks and Nickelodeon, and in the United States the recently acquired CBS network and Infinity, a giant radio group. Redstone says MTV Networks is currently contributing $1 billion dollars to Viacom's income in the US from some 70 million US homes, but only $58 million internationally where it reaches 270 million homes. "The key number is 4%. That means 4% of the eyeballs are in the US, the rest—that is, 96% of the eyeballs—are not in the US. The next 7 or 8 years will see that [MTV] figure come into harmony. However you look at it that 96% represents our future growth. I am so fired up by our international prospects. They used to say MTV is a fad. Well, that fad is helping us buy back our own stock."

Viacom has just done a deal with US satellite pay-TV outfit DirecTV, where all of DirecTV's PPV movie channels are to be branded "Blockbuster," a deal which Blockbuster chairman John Antico described as being likely to add 15% of annual cashflow to Viacom, starting next year. Redstone: "As far as Blockbuster is concerned, and we have thousands of stores around the world, part of our general philosophy is to drive all of our businesses overseas. We recently did a deal with Enron, which has every major US phone company aboard, to deliver VOD (video on demand) in a similar way to an ADSL (asymmetric digital subscriber line), and in a secure way, into homes. We have to talk to the other studios to get the content, because Blockbuster only owns that content for video store distribution and not for video distribution, and we are pursuing that agenda as we speak. Remember DirecTV is going to rebrand its PPV channels as Blockbuster. It is a huge manifestation of the Blockbuster brand." In other words, don't rule out Blockbuster-branded channels internationally.

Broadband cable's nibbling away from Viacom's core offerings, at least in terms of streamed video, has not yet impacted the company's Blockbuster market share. "We have not seen any erosion in any of our stores, indeed our market share is growing. Last quarter our share [in video distribution] grew another 2%. Blockbuster now owns 33% of that entire business. I believe in the not too distant future you will see Blockbuster with 40-50% of that market. Now if there's any erosion, and we have not seen it yet, then we will make up for it by having more market share. One thing is clear, no one technology ever destroys another. Even with electronic distribution, which might come in with big numbers, although it hasn't done so yet, people will still shop in the stores with their kids. It is a very different experience."

Which isn't to say the road to profitability at Blockbuster has been straightforward. Blockbuster and Paramount were acquired in 1994 in a grueling bidding war that cost Redstone some $11 billion-worth of debt—and warehouses filled to overflowing with tapes and merchandise nobody wanted to buy. At the time he said "Our ad campaign said 'One World of Entertainment,' whatever that meant! Everything was bad and there was a total lack of focus." But not for long. Prudential Securities says Blockbuster's most recent quarter's results of $1.21 billion were 17% ahead of 2Q99, and $200 million ahead of expectations. And it's international growth that is outpacing domestic, albeit from a lower base. Four hundred new Blockbuster stores will be opened this year, and 300 next. Who says the video rental market is dying?

"We have the most powerful brands in the world, and in the 13 years since we acquired Viacom MTV has grown into a world brand—in fact Interbrand just picked it as the number 1 world brand. And Nickelodeon might not be as well known but our Nick channels have been opening up all over the world. Nick with its channels and products is opening other doors with movies. The same is happening with VH-1, and it is our intention to take all our brands around the world."

Redstone frequently used the word "synergy" is his responses, and for once the word has relevance. Whether the synergistic opportunities come about from promoting Paramount's summer hit "Mission Impossible 2" on Viacom's own radio stations, cable networks or billboard and bus posters, the combined effect helped generate a theatrical worldwide gross of $431 million. Then the movie gets heavily pushed in the Blockbuster stores. And the store's customers can also view the latest DirecTV sat-dishes. That's synergy.

In November Nickelodeon will release "Rugrats in Paris," expected to do at least as well as the first Rugrats movie, which grossed $141m—for a cost of just $25 million. Redstone, without naming names, said "there are other studios which might spend $125 million to make a similar animated movie." The benefits to the Nick channel itself, plus the licensing and merchandising of Rugrats characters, is obvious. More synergy.

And then there's CBS, perhaps the most synergistic deal of all. Viacom bought the network—and its portfolio of radio stations--in September 1999 for $36 billion. The deal rocked the broadcasting establishment. That Viacom, "the MTV station" as one hostile critic put it at the time, could buy a network was an audaciously cheeky move. But ratings success had eluded the network, which was increasingly seen as the network for older viewers. That has changed, largely thanks to the "Survivor" TV show which has been a ratings winner whenever shown. "The season finale for CBS' 'Survivor' series was picking up $600,000 for every 30-second spot, and we managed to stretch that show to three hours to fit them in. In January, on the same night we air the Super Bowl, we will air the first of the new series of 'Survivor'. I don't expect anyone to be watching any other network on that night!" says Redstone.

Add these various elements together and Viacom is far and away the largest recipient of ad revenue across the globe. "Viacom is the number-one producer of content for TV, for syndication. Viacom is the preeminent distributor of news, entertainment and sports around the globe. Viacom is a company which pioneered international markets with its unique brands to take advantage of explosive overseas growth," says Redstone.

Viacom is also responsible for creating some of the most popular shows on the planet; many are seen on CBS, but some appear on competitor networks. Then after being shown they fall back into Viacom's hands for the really profitable task of syndication. Shows like Spin City, Clueless, Sabrina, Nash Bridges, Judge Judy and Entertainment Tonight are all part of Redstone's syndication portfolio.

And some of these international markets, almost virgin territories for Viacom, are beginning to come right. "In the first six months of this year, our Asia ad income is up 72%. We have grown from 72 million to 110 million subs, in Europe from 62 million to about 86 million subscribers. A recent MTV music show in Mandarin, produced with our partner China Central TV, reached 800 million people. It is difficult to exaggerate these sorts of numbers. Five hundred million were in China, 180 million in the rest of Asia and another 130 million elsewhere," says Redstone.

"We have a multimedia presence in every one of the world's major markets. Indeed, 80% of our earnings comes from the fastest-growing sectors of the media: TV, cable, radio and outdoor, and we're the only company that's in all four of these media businesses. My view is that there's a growth trajectory for Viacom that far exceeds the competition. We are the only company that can offer the advertiser every single demographic, from Nickelodeon through MTV to CBS," he says.

Redstone added: "As far as overseas expansion is concerned, in outdoor we have recently bought companies in Italy, France, Ireland and Holland. VH1 will be launching the VH1 radio network starting in October. MTV will be producing the halftime show for January's Super Bowl. We have been working for this sort of synergy for the past 13 years. We are now reaching a half billion TV viewers overseas. As these economies grow we will benefit. Take MTV, which is in 340 million homes, just 70 million in the US. Key to this growth is customization. MTV is the number-one music channel all around the world because it is a local product, and this translates into double digit ad-sales growth." TBS

Copyright 2000 Transnational Broadcasting Studies
TBS is published by the Adham Center for Television Journalism, the American University in Cairo

E-mail: TBS@aucegypt.edu