CBS/Viacom Merger Seen Facing Relatively Smooth Regulatory Sailing

Any CBS/Viacom reunion might not face particularly big regulatory hurdles to clear, experts tell us. For the companies and Wall Street, such a potential deal carries numerous upsides, said Jonathan Taplin, director emeritus, University of Southern California's Annenberg Innovation Lab. "The only potential derailing" is if CBS CEO "Les Moonves says, 'Viacom is so broken, I don't want to take it on,'" Taplin said. But, he added, Moonves "is an ambitious guy; he is smart enough to fix a broken thing."

Experts pointed out that one issue in CBS/Viacom's favor is that it would mark a return to the 2000 status quo when Viacom bought CBS for $35.6 billion and reverse Viacom's 2006 spinoff of CBS. National Amusements, the majority shareholder of both companies, is pushing the two to explore combining (see 1609290077). CBS and Viacom didn't comment Wednesday.

The approval of transfer of control of CBS and its licensee subsidiaries to Viacom in the FCC's May 3, 2000, order didn't set specific conditions but gave the companies 12 months from consummation to come into compliance with the dual network rule and the national TV ownership cap and six months to come into compliance with the radio-TV cross-ownership rule in applicable markets. That deal had faced petitions to deny by the American Cable Association, National Black Media Coalition, WEYS TV and a group of petitioners objecting to some Howard Stern radio broadcasts on CBS stations. Stern now is on SiriusXM satellite radio.

Numerous experts told us that since Viacom and CBS had once been a single company, any serious regulatory issues are unlikely. "Antitrust issues I see these days are not in the broadcast and cable field," Taplin said. "You think where media power has moved, it's moved to Google and Facebook, away from broadcasting and cable." A number of observers also said a new Viacom/CBS deal potentially could be structured in such a way that there is no transfer of control of broadcast properties, thus bypassing any need for FCC approval.

One lawyer with cable clients and transaction experience said that for FTC antitrust review, some sectors have concerns about too much media consolidation already, but a CBS/Viacom wouldn't involve two of the largest players in the video universe -- especially with Viacom seen as particularly weak. The lawyer noted Comcast bought DreamWorks without any conditions (see 1608230055).

Andy Schwartzman -- who as Media Access Project executive director testified in 1999 in a Senate Subcommittee on Antitrust, Business Rights and Competition hearing regarding the then-CBS/Viacom -- said this proposed CBS/Viacom doesn't carry any horizontal integration issues, such as if CBS were buying a company that owned TV stations or Viacom were buying a company with cable channels. Meanwhile, an argument in CBS/Viacom's favor might be that it would give CBS greater retransmission consent leverage, more along the lines of what Fox, ABC and NBCUniversal all enjoy since each is part of a conglomerate that also has large stables of cable channels. "This would restore them to what the rest of the industry is doing," Schwartzman said.

A CBS/Viacom could, however, run up against the FCC NPRM regarding independent and diverse programming (see 1609290036), since that proceeding has the agency seeking comment on how to define an independent programmer, said one lawyer with cable clients. One of the proposed definitions would classify programmers not affiliated with a broadcaster as independent -- a category Viacom is in now, but wouldn't be under a CBS deal, and thus could be subject to any rules the FCC might set up to promote more indie and diverse programming, the lawyer said.

For CBS, the upside would be having access to Viacom's library of programming for its subscription VOD service CBS All Access, Taplin said: "Now, all of a sudden, you have got hundreds of hours more programming you can put on it; it becomes a much more attractive offering to consumers.”

Wall Street -- particularly holders of both Viacom and CBS stock -- would likely be bullish on a joined CBS/Viacom, Taplin said. "One is well managed and one is very poorly managed," he said. "One would think an institutional shareholder would want better management." In a note to investors Wednesday, Credit Suisse analyst Omar Sheikh said that along with cost savings, a reunited CBS/Viacom also would be "the best catalyst" for better Paramount profitability and "a much-needed restructuring of Viacom's cable network portfolio." That restructuring should have the company focus on a smaller number of cable network brands, he said. Tuesday, BTIG Research analyst Richard Greenfield said CBS and Viacom "need each other" and that Moonves wants the deal to happen. "Neither Viacom nor CBS is properly positioned to compete over the coming decade," he said, while Viacom/CBS "would also be in a position to be a consolidator vs. swallowed-up as the broader industry consolidates (just imagine what a combined Viacom/CBS/Time Warner would look like)."