CAMPAIGN INTERNATIONAL: ISSUE - VIACOM-CBS MERGER. Viacom-CBS gains bargaining power. Will the US media giant exploit its growing strength in the market to raise ad rates, Alasdair Reid asks

By ALASDAIR REID, campaignlive.co.uk, Friday, 22 October 1999 12:00AM

During the past few weeks, there has been time for some sober reflection on the implications of the biggest media merger in history - not least among the US advertising community. News of the dollars 37 billion deal joining Viacom and CBS last month was warmly received on Wall Street for obvious reasons.

During the past few weeks, there has been time for some sober

reflection on the implications of the biggest media merger in history -

not least among the US advertising community. News of the dollars 37

billion deal joining Viacom and CBS last month was warmly received on

Wall Street for obvious reasons.



It was a nice fit, a case of two companies whose strengths and

weaknesses complement each other. With its Paramount studio base in

Hollywood, Viacom is big in production and is also a strong player in

cable, while CBS is in the old-fashioned terrestrial television network

business.



Viacom-CBS is already being referred to as a ’cradle to grave’ media

operator: Viacom catches them young with its teen and pre-teen cable

offerings such as Nickelodeon and MTV, while CBS, with its median viewer

age of 50-plus, is the channel that will be showing in God’s waiting

room.



The new company can be expected to leverage the vastly increased ’share

of mind’ it will enjoy. In short, cross-promotional activity is bound to

grow. Older MTV viewers will be encouraged to tune in to CBS and the

network will start running documentaries on the making of forthcoming

Paramount blockbusters.



From an advertising point of view, though, the implications are less

clear. All we know for sure is that Viacom-CBS is likely to be the

world’s largest vendor of advertising media. Some buyers have welcomed

the increased possibility of negotiating cross-media deals with the new

company - but there could be a down-side too.



Broader doubts have begun to surface on Wall Street. In particular,

analysts have been mulling over analogies with Disney’s dollars 19

billion acquisition of Capital Cities/ABC in 1995. Since then, the ABC

network has slipped from the top spot in the ratings and the Disney

studio has had more flops than hits. Notably, the merged corporation has

found it hard to ’work the synergies’ between the film and TV sides of

the business, and it has failed to give any added momentum to its sports

cable channel, ESPN, through the use of cross-promotion.



Arguably, Viacom-CBS has the mirror image of that problem in that it’s

the CBS network which needs new momentum - but this topic is a niggling

worry for some agencies and advertisers. One agency source forecasts a

’blizzard’ of incongruous promos on MTV touting CBS coverage of NFL

football.



The biggest and inevitable worry, though, is the potential impact on ad

rates. One prominent Wall Street observer, Chris Dixon, an analyst at

PaineWebber, has indicated that he expects Viacom-CBS to leverage

’pricing power’ from its role as a ’one-stop shop’ for advertisers.



Viacom-CBS ad sales teams will surely seek to position the company as

the one you have to deal with before you fill in round the edges by

talking to the rest. It raises the possibility that there will be

’conditional selling’ - putting pressure on agencies to support weaker

parts of the empire if they want top network slots.



This topic was top of the agenda at a meeting of the Media Policy

Committee of the American Association of Advertising Agencies on 21

September. Lisa Seward, the media director of Fallon McElligott, says:

’My understanding of the meeting is that there was no unanimous point of

view on the effects of this deal. My view is that those voicing the

loudest concerns are exaggerating the case.’



Rich Hamilton, chief executive of Zenith Media in the US, agrees:

’Everybody in the business is concerned about continued media owner

consolidation and the potential for the creation in the future of near

monopoly situations.



But we will not have a monopoly situation when the Viacom-CBS deal goes

through. As consolidation continues, we are aware that media vendors may

make efforts to raise rates. To counter that, we must be as aggressive

as possible on behalf of our clients. Our ability to do that is

connected with our ability to go to other media vendors. We still have

that ability.’



The CBS chairman, Mel Karmazin, implied that more consolidation was on

the way when he declared the merger had created ’the first 21st century

media company’. But some commentators believe it’s the last

manifestation of 20th century thinking.



It all depends on your view of the future of the networks. New-media

enthusiasts maintain that the big networks - CBS, ABC, NBC and Fox - can

do no more than attempt to manage long-term decline; but despite the

inexorable rise of cable, they still command about two-thirds of total

US viewing and will remain the cornerstone of media schedules for the

foreseeable future.



Further concentration of ownership is seen by many as inevitable - and

there are some good candidates. NBC is the only network without a

Hollywood studio partner and Columbia Pictures is looking for a TV

network. The only problem here is that Columbia is owned by the Japanese

Sony Corporation and non-US companies are not allowed to own broadcast

media. But legislation can change.



Seward agrees that further change is likely. She says: ’The Columbia-NBC

thing has been in the air for a long time and I think Sony would

definitely do it if they could.



My feeling is that we’ll see Disney making another acquisition in the

near future. We’ve also yet to see a significant print and television

consolidation outside of Time Warner. That would be interesting.



’We’d have to look at these things on an individual basis and we would

be concerned if we felt we didn’t have enough options. But I think we’ll

see consolidation on the buying side too. We’re already seeing the

success of the bigger (buying operations) here. The Starcom-TeleVest

thing didn’t happen in the end but I believe something of that order may

well happen in the US.’



This article was first published on campaignlive.co.uk

X

You must log in to use Clip & Save

Before commenting please read our rules for commenting on articles.

If you see a comment you find offensive, you can flag it as inappropriate. In the top right-hand corner of an individual comment, you will see 'flag as inappropriate'. Clicking this prompts us to review the comment. For further information see our rules for commenting on articles.

comments powered by Disqus

Additional Information

Campaign Jobs