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Tom Freston has a headache, and it's slow building.

Viacom's plan to split into two divisions, Viacom Inc. and CBS Corp., was made official by its board last week, just as reports were everywhere about the anemic start to the cable upfront market.

And that's the source of Mr. Freston's pain. He's charged with leading what Viacom has promoted as the "fast-growth stock," essentially MTV Networks and the Paramount movie studio, but it's a bad time to be touting that to Wall Street.

Given their strong branding, dual revenue streams and aggressive moves into interactive plays, cable stocks have long been hot properties on the street, but they are stumbling on the ad front, having trouble writing business at price per thousand increases that top the broadcast networks' average 5%, and looking increasingly mature rather than fast-growing.


This will be Mr. Freston's first upfront with his own management team, including MTV CEO Judith McGrath and new ad sales president Larry Divney (for whom the pressure couldn't be higher).

"The billion dollar shift has not materialized," said Leland Westerfield, managing director and equity analyst for Harris Nesbitt, referring to this year's prediction that advertisers would shift money from broadcast networks to cable. "Mature cable networks' ratings have been largely flat. The audience growth for cable continues to be driven by expanding distribution of younger networks and fully distributed cable networks gained only minimal viewership."

While MTV and VH1 are suffering that fate, other MTV Network properties such as Spike, Comedy Central and new gay channel LOGO can still take advantage of growing audiences and subscribers. The problem is MTV Networks has to hit its internal targets and media buyers have balked at paying anything above a CPM increase of 5%. (Two said they believed there were deals at 3% increases above last year's pricing.)

"They are so specific with their targets," said one major buyer about MTV Networks, "If they're down they could get hit."

Some think painting the MTV entity-which will carry the Viacom name-as a "growth stock," could backfire, especially if MTV Networks fails to live up to expectations this year. It also has the unintended affect of portraying the CBS Corp. unit as the "non-growth" stock. CBS Corp. is being spun as a "value stock" instead.


"No one is saying [CBS Corp.] is a non-growth business. It throws off a tremendous amount of free cash flow," a Viacom spokesman said. "The [two] attract different investors. CBS will be a very attractive company."

Clearly, Chairman-CEO Sumner Redstone is positioning the new Viacom as a new-media darling. "With the increased importance of wireless, online and video gaming businesses, the ability of the new Viacom to be opportunistic will be a distinct and powerful opportunity," he said in a statement last week.

Viacom becomes two separate companies as of first quarter 2006. The split is part of a plan to unlock value from the entertainment giant since many analysts believe the two parts are more valuable than the whole. The change also allows Mr. Redstone to side-step the succession issue. Mr. Freston and Les Moonves were named co-COOs and co-presidents in June last year, following former Chief Operating Officer Mel Karmazin's exit. Each will now lead his own entity. For Mr. Moonves, the challenge will be to throw off the perception that CBS Corp. is more than simply a collection of traditional businesses with little growth potential. Behind the scenes, CBS has bolstered its broadband credentials and invested in its Web businesses, as well as explored wireless ventures more seriously. The radio division, under new CEO Joel Hollander, has had a busy six months of flipping formats in major markets and streaming the group's top news-talk stations online.

The upfront is just one of many indicators that help analysts predict stock performance. MTV Networks' growth prospects also rely on subscriber fee growth, international ad sales, new media opportunities and merchandising.

CBS Corp.


Viacom TV Stations Group

Infinity Broadcasting

Viacom Outdoor

CBS, Paramount and King World Production units


Simon & Schuster

Paramount Parks

Viacom Inc.

MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, CMT: Country Music Television, Spike TV, TV Land and others.


Paramount Pictures

Paramount Home Entertainment

Famous Music


For CBS Corp. the challenge will be to throw off the perception that it has little growth potential

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