Players Gather Under One Roof
The impact of the Viacom/Paramount merger on the public is not big now, but eventually it will mean more products to more people
LOS ANGELES — THE smoke is beginning to clear after a five-month, $10-billion shootout to acquire Paramount Communications Inc. Last week Viacom Inc., the entertainment/cable company, won out over QVC, the home shopping network. But now, Mr. and Mrs. Joe Consumer are left to sort out two remaining questions: So what? Who cares?
The deal has left Paramount stockholders sitting pretty as stock prices nearly doubled. But because Viacom has taken on billions in debt, its stock has plummeted nearly 53 percent. Beyond that, the answers are comparatively simple.
Because the new company will become the second largest media conglomerate on earth, it signals important competition for those already in existence (among them, the No. 1 Time Warner, which merged in 1989). But the deal's greater import involves another leap for a major trend in film, television, cable, and computers that has been developing for a decade and will continue to accelerate past 2000.
Bigger is better
``We are in the midst of a revolutionary restructuring of entertainment, communication, and electronics, in which individual players are trying to embrace an uncertain future by moving under one roof,'' says Harold Bierman, professor of finance at Cornell University in Ithaca, N.Y. ``These companies ... feel that when it comes to international competition, bigger is better.''
Because the new Viacom/Paramount merger does not create a monopoly threat, it should not concern the public or lawmakers, experts say. And beyond as-yet announced leadership changes which could affect the choice or quality of products coming from both companies, its immediate impact on consumers of video, movies, and cable television is relatively small. But the implications of such a merger will become greater.
``Right now, this deal means little to the average person,'' says Len Rosenthal, an international finance expert at Bentley College in Waltham, Mass. ``But when technology gets more sophisticated, it will affect television, video stores, book publishing, and all other communications. The idea is to offer more products to more individuals.''
More products and services include hundreds of cable channels offered via fiber optic cables; video tapes ordered from home menus and downloaded electronically from central banks; and on-line information services, including voice, video, fax, recordings, graphics, and three-dimensional animation.
For the moment, it might be easiest to remember one easy metaphor:
``We have here a bottlemaker (Viacom Inc.) who just bought himself a vinyard/winery (Paramount), and a fleet of delivery trucks (Blockbuster Video),'' says Brian Stonehill, a media analyst at Pomona College in Claremont, Calif.
If the information superhighway is coming, Mr. Stonehill says, then consider this an attempt to stretch a corporate tollbooth over as many lanes as possible.
The idea is not new. Since the mid-1970s, communication, computer, and electronic companies with common goals have been merging: IBM acquired Rolm Corporation; AT&T acquired NCR and McCaw; British Telecom invested in MCI; and US West invested in Time Warner. More recently, Bell Atlantic merged with Tele-Communications Inc. (TCI).
But in the past five years, the trend has accelerated with the takeover, acquisition, or mergers of all six major Hollywood studios. This follows a path begun in 1989, when Time Inc. (the publisher) merged with Warner (communications/movie/TV); Matsushita (electronics) acquired MCA Univesal (movie/TV) in 1990; and the Sony Corporation (electronics) bought Columbia Pictures the same year.
In addition, Australian financier Rupert Murdoch took over Twentieth Century Fox in 1986 and the Walt Disney Company was reorganized the same year.
``This is the capstone of a historic change in American entertainment,'' says Douglas Gomery, a specialist in the economics of cinema at the University of Maryland at College Park. ``The total restructuring of Hollywood within one decade is now complete.''
The Viacom/Paramount merger is different from several previous ones in that both companies are American. ``This is a good sign that the vitality of our industry is remaining within the country,'' Gomery says. Part of the merger calls for Viacom to acquire Blockbuster Entertainment in a separate $8.4 billion deal, the first time in history that a video-rental firm has been allied with a major studio.
Blockbuster is the nation's largest video store. It has more than 3,500 outlets in 10 countries. Because the company may now promote, display, and price Paramount-made videos in whatever way it chooses, ``I suspect the Blockbuster deal has other top studios very worried,'' Gomery says.
There is much to be done for the new conglomerate to make good on its investors' visions. Sumner Redstone, chairman of Viacom, must deal with billions in debt incurred in the takeover. He is expected to raise funds by selling off Paramount holdings in book publishers Simon & Schuster Inc.,the New York Knicks basketball team, and the New York Rangers hockey team. Paramount may also put several cable stations up for sale. Mr. Redstone's personal stake in Viacom - which owns MTV, VH-1, and Nickleodeon cable networks, as well as the Showtime pay-TV channel, five TV stations, and 14 radio stations - has reportedly dropped from $6.6 billion before the bidding war to $2.85 billion currently.
``Judging from the slow progress at Time Warner in five years, it could be a decade before these investors see a real good return on their investment,'' says Dr. Bierman from Cornell.
Much will hang on the regulatory climate of the next few years, he says. Many companies have been encouraged by assurances by President Clinton that his administration will adopt a laissez faire attitude. ``None of this will end,'' Bierman says. ``There will be more and more of these media giants to follow.''