Redstone Shakes Up Viacom -- Shares Respond Downward

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Ouster of Viacom Chief Reflects Redstone's Impatience for Results

• Summary: In a move reminiscent of his 1996 shakeup at Viacom (VIA), Chairman Sumner Redstone ousted CEO and President Tom Freston, a veteran of 26 years with the company. In January, Redstone and the Board authorized the corporate split that separated Viacom's cable networks and film studio from the broadcasting businesses that were carved off into CBS (CBS). In the wake of the split, Viacom's stock price fell, while CBS's rose. Redstone's move yesterday came as a shock to investors since he had previously indicated that he was willing to give Viacom "a year" to show that the split was a success. As a result, shares of Viacom sold off to the tune of 6% yesterday. The firing came amid concerns that Viacom's flagship cable channels, MTV and Nickelodeon, were losing popularity to Web start-ups such as MySpace.com and YouTube.com. Falling ratings at the MTV Video Music Awards have only exacerbated such concerns and MTV's inability to jump start its own YouTube-like site ultimately led to Freston's dismissal.
• Comment on related stocks/ETFs: While Viacom has faced a range of troubles since the corporate split with CBS, evidenced again recently by Sumner Redstone's recent refusal to resign Tom Cruise with Viacom's Paramount Pictures, CBS has seen much success of late in raising shareholder value under CEO Les Moonves.