Viacom And CBS Break Final Ties--But Was It All Necessary?


Ever since media mogul Sumner Redstone split Viacom and CBS into two separate companies (he's chairman of both), they've become increasingly competitive. And just this Sunday, Viacom's Paramount Pictures studio said it's no longer going to distribute movies to CBS' Showtime.

The deal started in 2002, and UBS analyst Michael Morris tells me brought Paramount an estimated $100 million in annual revenue. Now Paramount is teaming up with MGM and Lionsgate , who currently also supply movies to Showtime, to create a new premium cable channel and video-on-demand service beginning in fall 2009.

This speaks to how incredibly important these deals selling movie rights to pay TV are to studio produts. It also says a lot about how much the studios, in this more challenging environment, want to cut out the middle man--in this case Showtime--whenever possible. Viacom CEO Philipe Dauman said that the new channel will give more flexiblity.

One key issue here is digital distribution. Iff Paramount remains in control, not Showtime, Paramount may choose to offer movies on iTunes at the same time as it airs it on TV and perhaps timing digital distribution sooner than Showtime would have allowed in its previous relationship.

And cable channels are doing quite well for the media giants. Just look at the huge growth of Disney'sESPN and Disney Channel. WIth viewership shifting away from the networks and towards cable, this could be a wise investment. Plus, Viacom already has infrastructure in place, having plenty experience with cable networks with MTV and its other properties.

So what does this mean for Showtime? Losing Paramount, MGM and Lionsgate can't be good, especially because all the other major studios (Disney, Warner Bros.,and Universal) are committed to other pay-TV distribution deals through HBO and Starz. Showtime's CEO said they're not concerned, and that those very suppliers who are leaving them have given them enough movies to last until 2011.

So Viacom is now creating its own version of CBS' Showtime, CBS has created its own movie studio, a mini Paramount of sorts. And CEO of Paramount, Brad Grey, is rebuilding Paramount's TV production business to better compete with CBS' TV productions and others.

It certainly seems to me like both companies are trying to recreate what they lost when they split off from the other half of the company. Which raises the question: why bother splitting up the old Viacom into two companies, if it's only going to result in two companies that are just as broad and varied as the original one? Redstone has said he wants CBS and Viacom to function truely independently, and they certainly are.

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