There were obvious financial and ego benefits behind the move, to be sure, issues specific to Viacom (Leslie Moonves and Tom Freston could each run his own company; Mr. Redstone could run two!).
Yet the split-up of Viacom forces rival empire-builders to confront the unsettling question of whether they, too, can unlock value by ripping apart what they spent years cobbling together, whether waves of relentless consolidation have fallen miserably short on delivering promised benefits-to Madison Avenue, Wall Street and Main Street.
Short translation: Could Viacom's move spark a wave of deconsolidation, at other media companies, at advertising holding companies and even among the mega-marketers that roam the Wal-Mart landscape?
The answer is neither a simple yes nor no. It is clear that those companies in each segment that bulked up for the sake of growing fat, rather than out of a strategic vision that delivers value are, today, in danger of being unwound. Their CEOs, boards and shareholders could be forced to admit their businesses are worth more in pieces than as a whole.
While the driving forces behind consolidation were often similar, the factors leading some to slim down are not as commonly shared. Although their businesses are interdependent, the pressures felt by Big Media are not the same as those felt by Big Advertising or Big Marketer. Media stocks remain broadly challenged, for example, and for these companies the efficiencies realized by some conglomerates have proved elusive.
Below, Ad Age explores leading media sellers, marketing holding companies and marketers to analyze whether bigger is truly better.
There's one small problem with the thinking that drove over a decade of serious media conglomeration, said one executive: It was all wrong.
"It was synergy" that was supposed to make these grand multi-platform companies work for investors and the companies, said Mark Edmiston, a managing partner at AdMedia Partners. But, "It doesn't work. ... You practically have to change the whole way to do business to make something like that work-compensation schemes, training. No one did that, and no one is perhaps capable of doing that."
That explains how years of stock sluggishness could lead up to a week in which, on the heels of the Viacom news, Liberty Media also announces it will spin off its 50% stake in Discovery Communications.
"The market has figured out there is no synergy in these companies being under one roof," said Mike Gallant, who tracks the likes of Viacom, News Corp. and Walt Disney Co. for CIBC World Markets. "Synergy is a Wall Street word. I don't even know what it means."
Similarly elusive is the promise of the cross-platform ad deal (see story, below), which has hardly delivered anything approaching what proponents once promised. "A great concept but it's too hard to execute," said Mr. Gallant. "It's not worth the time."
In addition, the ways in which advertising and marketing conglomerates tightly integrated their acquired assets was rarely attempted among their media-conglomerate peers. And, of course, the one conceivable exception to this-AOL Time Warner-was the most high-profile failure of all such companies, although for reasons more related to the specific circumstances of that company.
"De-conglomerating is certainly occurring, but not because the idea of marrying content with distribution was wrong. Just badly executed," wrote Porter Bibb, managing director of Mediatech Capital Partners, in an e-mail. "Each company's breakup is company-specific-Time Warner's is different from Viacom's." Mr. Bibb pointed out that not every company will slim down, citing News Corp. and Disney. (Mr. Gallant disagreed, suggesting broadcast divestiture might make sense for Disney.)
Time Warner continues to pursue high-profile cable acquisitions-Adelphia Communications is the one currently in play-with an eye toward a potential spinoff. A company insider said, "We have been in the process of shedding assets once considered core." Since the beginning of 2004, Time Warner has sold its music group and direct-marketing unit.
Marketing-services holding companies
The consolidation trend in ad agencies and related services is winding down because there are not many attractive targets left. But a spate of deconsolidation is unlikely-for now.
The reason has to do with stock price: The market still believes in ad-agency holding companies-or at least in three of the Big Four. Omnicom Group, WPP Group and Publicis Groupe all have outperformed the stock market over the past year and since the economic expansion began in November 2001.
There seems to be good reason for these holding companies to stay together. More so than media conglomerates, they have succeeded in cross-selling services. Omnicom's largest client, for example, bought services from more than 90 Omnicom agencies last year. WPP Group acts as superagency to clients such as Ford Motor Co. and Samsung, packaging services from across the organization.
There probably is a next act to be written for WPP, built on acquisitions over the past two decades ( JWT, Ogilvy & Mather, Young & Rubicam and, this year, Grey Global Group), and Omnicom, a 1986 rollup. That act might include more deals beyond marketing communications, giving them more services to sell corporate clients. Conceivably, they could connect with some bigger company looking to diversify.
The final member of the Big Four, beaten-down Interpublic Group of Cos., has done a dose of deconsolidation as part of its turnaround play since running into operating and accounting troubles in 2002. It sold NFO WorldGroup for $458 million, spinning off an asset that it didn't view as central to its focus on marketing communications. It also unloaded a car-racing venture, unwinding a disastrous acquisition.
Interpublic could be an intriguing takeover candidate for a rival or a consortium of private-equity firms: depressed stock, but an improving balance sheet with shrinking debt; relationships with blue-chip clients from General Motors to Microsoft. Such a deal could be financed in part by unloading businesses.
Asked about the possibility of a takeover and deconsolidation, Interpublic Chairman-CEO Michael Roth responded, "We continue to believe the optimal strategy for enhancing shareholder value is to deploy our talent and resources to improve the operating performance of our units and, in turn, of the group."
Sara Lee Corp. used to be known as Consolidated Foods Corp. Soon it may be called Deconsolidated Foods.
Deconsolidation is a topic of the moment following Sara Lee's February decision to undo its hodgepodge of a conglomerate by unloading apparel, coffee and some other lines.
If the question is will more marketers deconsolidate, the answer is check the stock price. If big marriages haven't created a winning play, marketers may well seek to divorce.
Altria Group signaled its intentions in November when it said it may split into two or three companies, unwinding the `80s combination of cigarettes (Philip Morris) and food (Kraft). Altria hopes such a restructuring would free Kraft of the overhang from tobacco litigation and create a higher valuation.
Still, merger-and-acquisition activity is booming, with market leaders using strong stocks to make deals that consolidate their positions.
Procter & Gamble Co. did this year's biggest deal, agreeing to buy Gillette Co. That will give P&G more brands-and more weight with Wal-Mart Stores. The merchant already accounted for 17% of P&G sales and 13% of Gillette sales.
The consolidation play is under way in industries fast growing and fading. Sprint and Nextel are combining as the rapidly growing wireless field consolidates. Federated Department Stores is buying May Department Stores, bulking up in a declining category.
Against that backdrop, deconsolidation will go on-as it always has. CBS spun off Viacom in 1970. Viacom bought CBS in 2000. Viacom now looks to spin away CBS. In the M&A game, there is no final deal.
But there are always winners. The investment bankers, lawyers and dealmakers who made millions convincing companies to aggregate assets will now make millions more convincing them to spin some off.