CBS and Viacom agree billion-dollar merger to challenge Disney and Netflix

Shari Redstone

Shari Redstone will become the new board chair of the combined ViacomCBS Inc. Reuters

Now, this is far from a done deal as regulatory approval is still needed before the merger can be completed.

One of the key motivations for combining, they said in a joint release, was streaming video. The companies collectively operate CBS All Access and Showtime's streaming option, along with Pluto TV (a free streaming TV service in the US) and newcomers such as CBSN, ET Live and niche players like Noggin. The combined company is expected to accelerate and expand its direct-to-consumer strategy through subscription and ad-supported offerings, including CBS All Access and Showtime; Pluto TV, the leading free streaming TV service in the US; and niche products such as CBSN, ET Live and Noggin.

A CBS-Viacom reunion is the latest in a wave of takeovers and mergers of traditional media companies, as they try to come to grips with the scale of their emerging competitors in the tech world.

The merger creates a company with roughly $30-billion market value, which is still small compared to rivals including Netflix Inc (NFLX.O), at $136 billion, ABC network owner Walt Disney Co (DIS.N), at about $245 billion, and NBC owner Comcast Corp (CMCSA.O) at $193 billion.

"Today marks an important day for CBS and Viacom, as we unite our complementary assets and capabilities and become one of only a few companies with the breadth and depth of content and reach to shape the future of our industry", said Bob Bakish, president and CEO of Viacom, who will hold both titles in the combined company. That's far less than the 60 million USA subscribers that Netflix has, though it's comparable with the estimated number of subscribers to HBO Now, that network's stand-alone streaming service. "Frankly, they may not be big enough still to compete with Disney and Netflix", he said, noting that "Netflix spends something like $15 billion on new product". Notably, in addition to content licensing, CBS and Viacom are developing must-watch programming for a broad range of third-party networks and platforms to feed significant demand for original, premium content.

The new company will be called ViacomCBS and Redstone's daughter, Shari Redstone, will be named chair.

Both CBS Corp. and Viacom have always been controlled by Sumner Redstone, 96, and more recently his daughter, Shari, 65, through their family's privately owned company, National Amusements, which operates movie theaters in the USA, United Kingdom and Latin America.

The split was a way to separate Viacom's networks like MTV, Nickelodeon and BET, which were very successful at the time, from the slower growth of the CBS network.

The troubled merger has been in talks for more than three years, with former CBS CEO Leslie Moonves taking the lead on opposing the reunification. Bringing the two companies back together has always been a goal of Shari Redstone, who controls the company with Sumner, the aging family patriarch who has faced numerous health issues.

This time around, the negotiations dragged on several days as the two sides worked out the details. In response, legacy media companies are consolidating to bulk up. But Moonves was derailed by a sexual assault and harassment scandal, which led to his firing.

Under the deal's terms, Viacom shareholders would receive about a 0.6 share of CBS stock in exchange for 1 share of Viacom stock.

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