Viacom President Resigns
Karmazin Says Move Sparked By Tension With CEO Redstone
By Christopher Stern
Washington Post Staff Writer
Wednesday, June 2, 2004; Page E01
Viacom Inc. President Mel Karmazin unexpectedly resigned yesterday, saying he could no longer tolerate the tension between himself and Sumner M. Redstone, the media conglomerate's chief executive and controlling shareholder.
Karmazin's resignation brings an end to a rocky four-year relationship that began when Viacom merged with CBS in 2000. Once viewed as the 81-year-old Redstone's heir apparent, Karmazin stepped down one year after signing a three-year contract that analysts believed was a signal that the two executives had put their well-known differences to rest.
"If there needs to be a reason, it is that I thought, maybe naively, that this issue of Mel-Sumner would go away. Clearly the issue is not going away," Karmazin said in a telephone interview yesterday. He said there was no single incident or point of disagreement that prompted his departure.
In contrast, Redstone said yesterday that reports of troubles between the two executives were overblown and that Karmazin was stepping down because of frustration over the company's falling share price. "My relationship with Mel has never been as high as it is right now. He just felt he was better off going another way," Redstone said in a conference call with reporters.
In the past year, Viacom's share price has fallen 20 percent. They were down 46 cents yesterday to close at $36.81.
Both Karmazin and Redstone have reputations as headstrong leaders who built smaller companies into media giants. Karmazin's roots are in operating radio and TV stations. A legendary salesman, he built Infinity Broadcasting from a group of three radio stations into a national powerhouse that merged with CBS in 1997.
Karmazin also played a key role in turning Howard Stern and Don Imus into household names by syndicating their radio shows across the nation. Karmazin has staunchly defended Stern, who still works for Infinity, against congressional critics who say his show regularly features sexual banter that is unfit for the airwaves.
Redstone is viewed more as a financier who built his family's movie theater operation into a global media firm through a series of mergers and acquisitions. Redstone focused on content-oriented businesses such as movie studios and cable channels, while Karmazin focused on operating TV and radio stations.
Despite their personal differences, the merger of Viacom and CBS has been broadly viewed as a success, with the broadcast outlets fitting in neatly with the media giant's portfolio, which includes the Paramount movie studio, cable channels such as MTV and a billboard advertising division.
Redstone announced yesterday that Karmazin would be replaced by two executives: MTV Networks chief executive Tom Freston and Leslie Moonves, chief executive of CBS. Both men were named co-president and co-chief operating officer. Unlike Karmazin, Moonves and Freston have built their careers by climbing the corporate ladder.
"It should be obvious that Tom and Les are the leading candidates for my job," Redstone told reporters.
Among the many issues that separated Redstone and Karmazin was the future of Viacom's Infinity radio division, analysts said yesterday.
Redstone told reporters that there were no plans to sell Infinity, which he said has high margins and an "enormous part of our free cash flow."
But in tapping CBS's Moonves and MTV's Freston, Redstone highlighted his long-held conviction that owning content, including broadcast and television programming, is key to Viacom's future.
Under a division of power outlined by Viacom yesterday, Moonves will continue to oversee CBS and gain responsibility for the Paramount television production division, Infinity and outdoor advertising. Freston will oversee the Viacom cable networks, including Showtime and BET as well as MTV. He will also pick up responsibility for the Paramount movie studio and Simon & Schuster, the book publishing unit.
A Viacom spokeswoman said the company's board approved the executive changes and the outlines of the succession plan yesterday morning. Under the plan, Redstone will step down in three years if there is an agreement on his successor.
Redstone said Karmazin had been a candidate in the succession plan until he took himself out of the running with his resignation.
But Karmazin said Viacom was not even considering a succession plan until he informed board members on May 19 that he planned to resign. Furthermore, Karmazin said it had become increasingly obvious to him that Redstone, who controls 71 percent of Viacom's voting stock, would never fully relinquish control of the company.
"When you have a controlling shareholder, there is never a succession issue. Let's say he gave me the title of CEO. Three years from now he would still be there. He would still be in control," Karmazin said.
"The Redstone family still controls the stock," Karmazin said.
Karmazin's May 19 decision came about one week after published reports stated that Redstone's daughter, Shari Redstone, would be expanding her role at the company and would probably inherit her father's control of the voting stock. Karmazin said Shari Redstone's higher profile was not a factor in his decision to step down.
Viacom revealed in regulatory filings yesterday that Karmazin will get a severance package that includes $31 million in cash, covering two years' salary and bonuses called for in his contract. In addition, Karmazin is slated to receive options on 8.8 million Viacom shares, with two years to exercise the options.
Karmazin said he is free to look for another job under the deal he negotiated over the past two weeks. There was already speculation among some industry insiders that Karmazin would be a logical replacement for Walt Disney Co. chief executive Michael D. Eisner, who is under pressure to make room for new leadership.
"There shouldn't be that speculation," Karmazin said. "Anyone who knows me knows I don't like roller coasters."
© 2004 The Washington Post Company
Media Giant Viacom is one of the world's largest entertainment companies.
| || |
_____ Viacom Executives _____
OUT: Mel Karmazin Karmazin came from a humble background in the New York City borough of Queens. He worked his way through the radio business, including a stint as manager of New York's rock station WNEW-FM, to become CEO of Infinity Broadcasting in 1981. Known as a master salesman and deal-maker, Karmazin joined CBS in 1997 when it acquired his company, and he took over as CEO of CBS the following year. One year after that, in 1999, he helped engineer a merger between CBS and Viacom, becoming the company's No. 2 executive behind Sumner Redstone. Despite persistent rumors of strife between the two men, Karmazin became known as one of the most effective operating executives in the media industry. A barrel-chested man with a full head of white hair, Karmazin had an unvarnished style of talking and elicited fierce loyalty from his charges. IN: Tom Freston Freston began a career in advertising before moving to New Delhi, India, where he founded a clothing and textiles company which he then ran for eight years. He then moved back to the United States and joined Warner Amex Satellite Entertainment Company in 1980, where he became one of the founders of MTV the following year. As head of marketing he oversaw the "I want my MTV" campaign, and later held a number of positions at the company, eventually becoming CEO in 1987. As head of MTV Networks, Freston oversees 96 cable networks, including MTV, VH1, Comedy Central, Nickelodeon, Spike TV, and the upcoming network for gays and lesbians, Logo. IN: Leslie Moonves Moonves came to CBS in 1995 as head of entertainment. Under his watch, CBS has gone from being the No. 3 network to being the most-watched TV network for the past two seasons. He is also in charge the UPN network and King World Productions, a major syndicator of TV shows including "Wheel of Fortune" and "The Oprah Winfrey Show." Moonves came to CBS from Warner Bros. Television, a major studio whose shows included "ER" and "Friends." After graduating from college, Moonves pursued a career in acting, appearing in television and stage productions. He also produced plays on Broadway and Los Angeles.
Source: The Associated Press
It's Congressional Chew-Out-the-Networks Time, Episode 2 (The Washington Post, Feb 26, 2004)
Get Tough on TV Indecency, Lawmakers Urge (The Washington Post, Feb 12, 2004)
Critics Blame Big Media for Sleaze Factor (The Washington Post, Feb 11, 2004)
FCC Is Investigating Super Bowl Show (The Washington Post, Feb 3, 2004)