By Kenneth Li
NEWYORK (Reuters) – More than two months before CBS Corp <CBS.N> and Viacom Inc <VIAB.O> succeeded at a third attempt to recombine, controlling shareholder Shari Redstone had already decided the new company needed to get bigger.
“We would want to look at something after that to … develop more scale as we move forward,” Redstone said at The Information’s Women in Tech, Media and Finance conference in June.
To the audience of executives in the Times Square high rise overlooking the storied Paramount building, it was clear that her ambitions went well beyond the hard-won reunion of the two companies her father, Sumner Redstone, put together and then pulled apart 13 years ago during a very different era in media.
She has considered a variety of options that include a sale to a larger company or acquisitions that fall into two categories represented by Sony Entertainment and Discovery, people familiar with her thinking said.
Even with the combined portfolio of companies that include the CBS television network, CBS News, Showtime cable network and book publisher Simon & Schuster with MTV, Paramount studios and Nickelodeon, the new company will lack the firepower required to take on the likes of Walt Disney Co <DIS.N> and Netflix Inc <NFLX.O>, Redstone believed.
By next year, the battle waged by big tech and the last of the remaining media giants will get bloodier when Disney, AT&T Inc <T.N> and Comcast’s NBCUniversal join Netflix, Amazon.com Inc <AMZN.O> and Apple Inc <AAPL.O> in the streaming video war for consumer wallets.
Taken together CBS and Viacom’s market capitalisation of about $30 billion is dwarfed by Disney’s $247 billion and Netflix’s $137 billion.
Viacom, CBS, Redstone’s National Amusements, Sony and Discovery declined to comment.
A purchase of Discovery Inc <DISCA.O> would give it a vast network of popular cable networks and libraries of unscripted shows including the Discovery Channel, Animal Planet, the Food Network and HGTV. It would also give CBS-Viacom greater exposure in sports and international markets. But a deal would come at a time when consumers are abandoning cable and satellite TV subscriptions in favour of streaming services like Netflix.
A pursuit of Sony Corp’s <6758.T> entertainment divisions would send the message that it will play a bigger role in the streaming video wars in two ways.
Unlike Disney or AT&T’s WarnerMedia, CBS-Viacom plans to continue to play a hybrid role, both as a direct rival for subscribers and viewers to its free and paid streaming services as well as a producer of movies and shows for companies like Netflix and Amazon. Sony would provide additional content creation resources and a library of content that include “Spider-Man,” “Jumanji,” “Hotel Transylvania” and Quentin Tarantino’s “Once Upon a Time in Hollywood.”
Redstone has not held talks with either companies and neither have expressed interest in a sale or merger for now.
At the moment, Sony has shown little interest divesting assets despite flirting with the idea over the three decades it has owned the Hollywood studios.
Although activist shareholder Daniel Loeb urged Sony to spin off assets in the spring, Sony reaffirmed its commitment to its entertainment division. Its studio has flourished under chief Tony Vinciquerra, and Sony has said it is in the process of once again trying to get its PlayStation, music and movies divisions to work more closely together.
Discovery, whose Chief Executive David Zaslav was briefly mentioned as a potential candidate to run CBS, is also busy building a non-scripted entertainment, natural history and “factual programming” empire. It most recently restructuring a deal with the BBC that will see it launch a global subscription video-on-demand service.
The new company could also rekindle its talks to buy Lions Gate Entertainment Corp’s <LGFa.N> Starz cable network. CBS made an informal offer to buy the network for about $5 billion and Lions Gate wanted $5.5 billion.
It is not immediately clear what the appetite for Starz will be after the merger when current Viacom CEO Bob Bakish will take over, one source familiar with the talks said. Those talks were driven by CBS interim CEO Joe Ianniello, who is expected to report to Bakish, his new boss.
(Reporting by Kenneth Li; Editing by Lisa Shumaker)