CBS and Viacom announced Tuesday that they had agreed to reunite, forming a company they hope will be strong enough to tackle the emerging behemoths of the media landscape.
The combined firm will include a film studio, Paramount Pictures, as well as the CBS network, cable channels such as MTV and Comedy Central and a host of digital platforms.
Executives hope the range of assets will help the firm compete in a market that presents it with some serious headwinds. Netflix, to take one competitor, has become the dominant entertainment subscription service with some 150 million global subscribers, while Disney has the four highest grossing movies in the U.S. this year. (Their total receipts exceed $2 billion.)
"Together we will do more than we could have done on our own," Bob Bakish, Viacom's current president and chief executive who will assume the same role at the combined firm, explained in a call with Wall Street analysts. "Simply put, the combined company will be one of only a few with the breadth and depth to ... shape the future of our industry."
The company will seek to develop its digital offerings to consumers, which currently consist of niche offerings such as CBS All Access and Showtime services.
The all-stock deal will see each Viacom share converted to .59625 of a CBS share. CBS' market capitalization of $18 billion is about 50% larger than Viacom's.
Joe Ianniello, who had been president and acting chief executive at CBS, will now be chairman and chief executive of the company's CBS division. The combined company will be known as ViacomCBS. The deal will close by year's end, the company said.
Shari Redstone, the current vice chair of both companies who has a controlling interest in both firms, will serve as chair of the board of the combined company. In addition to Bakish, the board will be composed of six CBS appointees, four Viacom appointees and two people from Redstone's holding company, National Amusements.
Redstone noted in a statement that she thought the combined unit "can realize the incredible power of their combined assets." She promised "a world-class, multiplatform media organization that is well positioned for growth in a rapidly transforming industry."
The merger concludes a drama that had been brewing for months and amounts to a victory for Redstone, who had been pushing for the reunion.
After several years of circling one another, the two boards began intensifying their talks in recent weeks, according to a person who was familiar with the negotiations but not authorized to speak about them publicly.
Adding urgency to their discussions was the emergence this summer of the streaming strategies from competitors such as WarnerMedia and Comcast. Without Leslie Moonves, the disgraced former CBS executive fired for sexual harassment and opposed to the reunion, those talks could proceed more smoothly.
Still, hammering out a price was not easy, as the two sides disagreed on just what fraction of CBS Viacom shares were worth.
The deal evoked the moment 20 years ago when the companies initially came together after Viacom bought CBS's then parent Westinghouse. At the time, the two lead executives, Sumner Redstone and Mel Karmazin, touted the synergy the combination of Viacom and CBS would bring.
There's less talk about synergies this time, in part because there are so many outside providers to sell content to, and in part because such talk didn't bear a lot of fruit the first time around.
Still, there will be opportunities for Viacom and CBS to take advantage of being in the same tent. Among them are the ability to stock its CBS All Access streaming service with Nickelodeon programming, fulfilling Ianniello's appetite for more children's content.
"Kids programming is a huge opportunity to drive subscriptions," he said on the conference call.
Viacom and CBS had remained united until 2006, when Sumner Redstone, who controlled both, decided to split them up in the hope of boosting the sagging stock price. The strategy would work - eventually. After opening at around $25, CBS's price dropped to below $4 after the 2008 financial crisis, before climbing to nearly $70 per share in 2017. The price recently had sunk to below $50.
Viacom's share price followed a similar trajectory, peaking at $85 in 2014, before sliding downward for the past five years.
More important, the media landscape has shifted in the past two years, as Netflix continued to grow subscribers, Disney bought 21st Century Fox and the media business became a game of volume and dollars in a way it had never been before: AT&T bought Time Warner, and Apple, with a market cap of more than $900 billion, is readying its foray into entertainment.
With CBS continuing to be the most watched - if also an older-skewing - broadcast network, and Paramount on the comeback trail under studio chief Jim Gianopulos, both CBS and Viacom are seen as standing on solid operational footing. But even combined, the company is still smaller than many of its competitors. And it still lags behind some of them in the all-important business of attracting digital subscribers.
Investors on Tuesday were mildly optimistic about the move, sending each stock up. Viacom closed at $29.21, up a little more than 2 percent, while CBS finished the day at $48.70, up just over 1 percent.
Bakish described a multi-pronged strategy for the company that included both a robust streaming service and a licensing business - the latter, he said, would have the company acting as a factory of sorts that would "feed escalating demand for third-party content." (ViacomCBS currently makes shows for competitors ranging from WarnerMedia to Netflix.) The firm would look to become "one of if not the most significant third-party suppliers in the world," he said.
But that goal can run at cross-purposes with streaming - licensing out content means eroding the power of one's own platforms - and ViacomCBS may eventually be forced to choose between them.
Meanwhile, on the streaming front, it remains unclear whether the mass of CBS and Viacom content will be the right size - or mix - to take on its competitors. Disney traffics in high-end brands like Marvel movies and remakes of its iconic animation hits, while Netflix has built a volume content business topped by buzzy series like "Stranger Things."
The new CBS-Viacom hopes franchises like "Star Trek" and a wide range of unscripted cable shows, network dramas and other properties can help level the field.
In a statement, the company touted more than 750 shows and 43,000 hours of programming produced globally each year. Netflix says it has some 1,500 TV shows and 4,000 movies on its service, though comparisons are difficult because each company counts such items differently.
Also on the competitive horizon for the new company are services from WarnerMedia, which hopes to leverage its film and TV studios as well as the reach of AT&T to become a dominant streaming player, and Comcast, a traditional cable provider with deep assets in film and television thanks to its NBC Universal subsidiary.
Still, as much as scale has become a Wall Street byword in 2019, some analysts feel how a company is run is far more crucial to its success than how big it is.
"It's not just that they have all this intellectual property," said Doug Creutz, an analyst at Cowen. "It's that they know what to do with it."
Executives at ViacomCBS expressed optimism they could meet all of these challenges.
"It's clear the distinct strength of our combined company providers an excellent base from which to build," Bakish said.
While Wall Street has been much cooler to CBS and Viacom than to competitors like Netflix, Bakish said after the merger he expected that to change.
"I think that as the market steps back and reflects on it, they will see the true value in the company we're creating," he said.