Viacom CEO Tom Freston Resigns Eight Months After CBS Split

Chairman Sumner Redstone Critical of Company's Digital Growth

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NEW YORK ( -- Viacom hasn't acted fast enough on the digital front, Chairman Sumner Redstone told investors this morning, shortly after announcing the departure of one of his longtime lieutenants, Viacom CEO Tom Freston.
Viacom CEO Tom Freston has resigned.
Viacom CEO Tom Freston has resigned. Credit: AP

Nine months after his twin babies -- a separately traded CBS Corp. and Viacom -- were born, Mr. Redstone has moved Mr. Freston out at Viacom, replacing him with a board member and former Viacom vet Philippe Dauman, a new regime he describes as "aggressive" and "entrepreneurial."

"Viacom is extremely strong, and unique entertainment brands resonate with the audience that is defining the digital revolution," he said. "With the split we created a more focused, a more nimble company, poised to take advantage of all of these opportunities but now we need to do it. ... Now we need to be more aggressive in doing it."

'No circumstance'
The changes, of course, comes just over two months after Mr. Redstone told the Wall Street Journal in July that "he could imagine 'no circumstance' under which he would dismiss Mr. Freston." And the news wasn't well received by investors.

The Street's reaction was mixed: Spencer Wang, an analyst with Bear Stearns, wrote in a morning note to investors that they were "surprised by this announcement and somewhat disappointed as we view Tom Freston as a very strong operator with a very solid track record." Merrill Lynch analyst Jessica Reif Cohen also wrote in an investor note that the news is "not likely to be well received by the Street or the creative community. ... Mr. Dauman and Mr. Dooley, both of whom currently serve on Viacom's board of directors, are confidants of Viacom Chairman Sumner Redstone, but do not have significant experience in running a major entertainment company."

On the other hand, a few analysts, most vocally Richard Greenfield of Pali Research, have called for Mr. Freston to be replaced amid the lagging stock performance.

Viacom's stock was trading at $35.41, down about 4%.

No 'major' acquisitions planned
A person familiar with the decision said that despite Mr. Redstone's criticism of Viacom's growth in the digital space, the management shuffle wasn't fueled by a need to make major acquisitions. Mr. Dauman echoed that, telling investors he doesn't see "any major acquisitions that I want to do right now."

"Our primary focus will continue to be on fostering organic growth," he said. "But we will also be alert and quick to seize smart, financially prudent outside investment opportunities, especially in young, cutting-edge businesses that can flourish as part of Viacom."

Viacom's MTV Networks has made a series of small to mid-sized acquisitions over the past year. It also struck a $300 million upfront deal with OMD, which gave the agency and its clients first look at digital opportunities throughout the year -- a move some criticized as unwise because it sent other agencies reeling.

Aaron Cohen, director of broadcast at Horizon Media, said he doubted agencies and advertisers would see any immediate effect from the management changes. "I don't think changes reverberate that quickly through an organization," he said.

'Ridiculous' profit expectations
It could be viewed as a move mostly made for Wall Street, because Viacom's stock is down about 20% from post-split highs. And according to a person who was close to the company at the time of the split, the profit expectations were "ridiculous" for a company whose primary business -- cable TV -- is now considered a mature medium.

Mr. Dauman, 52, is a Viacom veteran who in the 1990s led several divisions, including a few that are now part of CBS, including Showtime and Simon & Schuster. He left Viacom in 2000 after it merged with CBS. Most recently, he was co-chairman and CEO of DND Capital Partners, a private equity firm he founded in May 2000 with Thomas Dooley, who will also be joining the Viacom staff. Mr. Dooley, 59, is another member of the board and a Viacom veteran from 1980 to 2000 and was appointed to a newly created position: senior exec VP-chief administrative officer.

Mr. Redstone addressed the stock price issue this morning and said it certainly played a role in the changes: "I think the board, in the normal human sense, was also taking a look at our stock and comparing it with CBS. Whereas CBS was making new highs, we were $7 or $8 down from where our high was. ... In the time when Philippe and Tom Dooley and I were a team our stock actually tripled. So the comparison with then, and with what was taking place now, certainly must have influenced the board."

Lack of clear communication
Viacom has also been criticized for a lack of clear communication regarding its strategy. There was much talk that Mr. Freston was unhappy as CEO and preferred the more tactile job he had as CEO of MTV Networks. But Bill Carter, in his book "Desperate Networks," reported that Mr. Freston was Mr. Redstone's first choice to run Viacom Corp. when it included both Viacom and CBS. The book also indicated that Mr. Freston was Hamlet-like in whether he wanted to take the job at all, and finally agreed after Mr. Redstone told him if he didn't take the Viacom CEO job, it would go to Leslie Moonves, now CEO of CBS Corp., and to prevent Mr. Moonves from leaving, Mr. Freston agreed to share the job with him.

Mr. Dauman's and Mr. Dooley's salaries include significantly lower cash compensation than what Viacom has traditionally awarded, a practice the company was criticized for once it became a public entity. Instead, their salaries are tied to stock performance. Both men announced they were also purchasing $5 million and $4 million worth of Viacom shares out of their own pocket to prove the confidence they had in the company.
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