Why Wall St. Hates Viacom

It does not seem to matter who Viacom (VIA-B) fires or who they sue. The stock goes nowhere. Over the last year, it is up by about 1%. Other media companies including Time Warner (TWX) and Disney (DIS) are beating the Dow. Operating results can’t be blamed In 2006, Viacom’s revenue was up to $11.467 billion. Operating income rose to $2.772 billion and net income increased to $1.57 billion. Each of the Viacom’s four major units showed some gain highlighted by the feature film unit. So, it is not operating results. Those are good.

But, Wall St. does not like change, especially ongoing dramatic change. It sampedes the cattle and adds to an uneasy environment around a company. That is Viacom’s problem.

Viacom has become a kind of "surprise of the month club" company. It sacked its CEO, Tom Feston. A lot of the senior management at MTV were let go. Tom Cruise got fired from Paramount. He was a bit of a nut, but also happened to be one of the biggest box office stars of all time. Gail Berman, the head of Paramount Pictures was fired as well.

Then, Viacom sued YouTube. Hard to say what that will get them.

The list may be longer, but this is a good start.

And, there is the trouble with Sumner Redstone. A recent profile in Vanity Fair described him this way: "he looks frail and has a senior moment or three, losing his train of thought, repeating stories, and asking that a question or two be repeated". Not exactly the picture investors want painted of a big public company CEO.

Investors read these kinds of things. Vanity Fair has a big reputation.

Viacom calls a fellow named Philippe Dauman its CEO. But, no one buys that. Redstone runs everything.

Viacom’s board has a tough problem. Redstone controls the company through two classes of shares. The board has a fiduciary responsibility to make sure the person in control of the company has the tools to do the job. The question of whether age has caught up to him is certainly a reasonable one.

Redstone can fire all the people he wants to. He can restructure. He can even sue YouTube. But, convincing investors that he is still the right man for the job has become very, very hard.

The emperor has no clothes.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.