Viacom's Dauman

October
2007

By Anna
Carugati

Many of
Viacom’s brands are household names around the world. MTV is synonymous with
“cool” across countless countries and is widely recognized for having
revolutionized tele­vision. Nickelodeon redefined
children’s programming with the irreverent fun of SpongeBob SquarePants and the lovable lessons for
preschoolers provided by Dora the Explorer. One of Viacom’s top priorities has been keeping
up with the young generation, providing content they want on all the platforms
and devices they are using—the Internet, cell phones, iPods and more. The
other major objective has been delivering profits to shareholders. To that end,
in March of 2005, Sumner Redstone, the controlling shareholder of Viacom,
announced that he was splitting the company into two separate entities in order
to increase the value of its stock price. This announcement represented a
reversal to the established trend of mergers and acquisitions among media
companies to create “synergies.” And yet, here was Redstone dividing Viacom in
two. One part would keep the Viacom name and include the so-called “growth
companies”: MTV Networks and Paramount Pictures. What would be spun off was CBS
Corporation, which includes the “mature businesses”: the CBS Television
Network, 50 percent of The CW network, CBS Radio, CBS Outdoor, CBS Television
Stations, CBS Paramount Network Television, Simon & Schuster and Showtime.
Tom Freston was appointed president and CEO of Viacom; Leslie Moonves was given
the same title at CBS Corp.

While
media insiders were still overcoming their skepticism at the wisdom of this
move, in September 2006, Redstone shocked the industry when he asked Freston to
step down, after nearly two decades of building MTV Networks into a global
powerhouse. It has been widely reported that Freston was let go for not being
proactive enough in building Viacom’s online assets and for allowing News
Corporation to buy the social-networking site MySpace.

Redstone
appointed Philippe Dauman to replace Freston as president and CEO of Viacom. Dauman
was no stranger to the company. He had been a director of Viacom since 1987,
and from 1993 to 2000 had served as a member of Viacom’s executive committee,
in addition to stints as deputy chairman, executive VP, general counsel and
secretary.

Dauman quickly
set out to restructure the company and to ensure that its businesses were well
established in the digital world. The Media Networks division of Viacom
operates a strong stable of channels, websites and Internet services including
MTV, Nickelodeon, BET, VH1, CMT, Comedy Central, Spike TV, Noggin, Nick at
Nite, TV Land, AtomFilms, GameTrailers and Quizilla. The Filmed Entertainment
division is home to Paramount Pictures, which now includes DreamWorks Studios
and this year has released the box-office hit Transformers, among others.

Since
Dauman has been at the helm of Viacom, he has been able to deliver on the
company’s two main objectives: creating compelling content and improving the
relationship with Wall Street. Viacom’s revenues have consistently increased—totaling
$11.47 billion in 2006—a fact he is confident has gone a long way in
impressing investors. Dauman talks about his vision for Viacom in this
exclusive interview he granted World Screen from his offices in New
York.

WS: What were your priorities when you took over as president and CEO?

DAUMAN: I’ve been involved in the company for more than 20 years in one
capacity or another, so I have a pretty good sense of what this company is
about and where it needs to go. I started by focusing on what this company is
famous for: world-class content and world-class brands. We are now the largest
pure-play content company in the world, with many of the world’s greatest
brands. We own a lot of original content that is very relevant to the young
demographic. Our overall strategy is to build on that core strength. We’ve
directed a lot more investment into original programming, which I believe is
the key to reinforcing our brands and extending their distribution across all
platforms globally.

We
continue to execute our strategy of taking our brands and our content to every
platform around the world. We restructured our international group to extend
the reach of our brands, as well as improve our margins and profitability. We
have also made substantial improvements in the organization of our digital
groups throughout the company with new dedicated leadership. We have worked
very hard to build a platform that will improve the consumer experience in the
digital arena, as well as the delivery and monetization of advertising.

On the
studio side, Brad Grey has rebuilt the studio from a period that was rather
slow. He has capitalized on the DreamWorks acquisition, which is really paying
off, [to the point that] we are the number-one studio in market share so far
this year.

We’re
looking for new ways to create and distribute engaging content across every
screen in an environment that emphasizes great execution across the board and
rigorous financial discipline. We also will continue to generate substantial
free cash flow and get that money back to our shareholders, which we do in the
form of buy-backs. So I feel very optimistic about the future of our company.
Our brands will drive our business in many different arenas, from consumer
products to digital distribution and, of course, our core television and film
distribution.

WS: When Sumner Redstone split off CBS Corporation from the rest of
Viacom, one of the goals was to improve Viacom’s stock price. Has that
happened?

DAUMAN: Fortunately, since I’ve come in, our stock price has gone up
significantly, even after you look at the general market turmoil [we’ve
experienced recently]. And all the earnings that we delivered since I’ve been
here have been well received. Wall Street understands that we have been taking
a number of steps to improve our operations and take advantage of our unique
strategic position. We’ve done that in the face of a challenging advertising
environment. But our focus has been on building long-term value for the
shareholders. Long-term investors appreciate that and they now recognize that
we have done everything we said we would do. It’s very important to establish
credibility, not to over promise but to take the right actions for the future
health of the company. I am not going to make a short-term decision that will
not be good for the company long term. And I’m gratified with many of the
results we’ve delivered. The performance of this company will be strong no
matter what the market environment will be. We certainly can’t calculate what
the stock market will be like. All we can do is execute the best we can with
the assets we have to outperform our competition.

WS: Viacom’s international businesses, which
include MTV Networks, comprise a growing part of the company’s revenues.

DAUMAN: We just celebrated the 20th anniversary of
MTV Networks International, which has grown to a little over a quarter of our
revenues now and is a rapidly growing part of our business. If you look at our
media networks, we have MTV established around the world. Nickelodeon, the
world’s most widely distributed kids’ TV channel, has a strong global presence
and growing market share. We have established the Comedy Central brand in
several territories, most recently in Germany, and we are expanding into other
European countries. We’re even looking for international opportunities for BET.
And we have nearly doubled the number of branded properties [we have] online,
allowing us to bring our award-­winning content to our audiences in new ways.

We are unique in that we have these world-class brands that do
travel. It’s good for our tele­vision business, our digital business, our mobile business and our
consumer-products business.

WS: Is it an advantage to
have well-known brands like MTV and Nickelodeon?

DAUMAN: Absolutely. If you look at U.S. broadcast
networks, or even some of the networks in other countries, people generally do
not tune in to a particular network because it stands for something; they look
for a particular show. Yet we have the advantage that people will go to our
network because it is MTV or because it is Nickelodeon. We have shows on these
networks that are brands unto themselves, like SpongeBob SquarePants. So we have the dual
advantage of being able to leverage the brand of the network as well as the
show brands. This marketing power allows us to derive significant revenues from
other sources, including consumer products, digital outlets and even licensing
deals for amusement parks or hotels. For example, Nickelodeon has an
arrangement to develop Nickelodeon Resorts with Marriott hotels. These will be
upscale destination resorts that capitalize on the enormous equity of the Nick
brand and its many characters. Having these brands creates a lot of
opportunities across the board.

WS: Do you see the international segment of the
channels growing at a faster pace than your domestic channels?

DAUMAN: Yes, because they have a smaller base. The
recent reorganization of our international media networks was designed to
enhance our operational efficiencies as well as optimize our structure on a
market-by-market basis. We want to
focus our resources on the major territories where we can grow our presence and
have a significant impact.

For example, in Germany, we have reinforced our strong position.
We have MTV, Viva and Nickelodeon, which are experiencing the strongest ratings
in their history.

In other territories, we look at alternative models, such as
licensing our brands or joint ventures with a local partner. We have licensing
agreements in Thailand, Indonesia, Turkey and the Philippines, to name just a
few. Most recently, we sold our joint-venture interest in MTV Russia for a very
significant value. We will continue to be present in Russia by virtue of a
license agreement with the purchaser and we will look for opportunities to
extend some of our other brands there.

WS: Will you be launching a channel in India?

DAUMAN: We have created a
joint venture with [our Indian partner] TV18, which is called Viacom-18. TV18
already had experience with distributing foreign brands in India. They had a
strong film and television production operation, so they contributed those
assets to the joint venture. We contributed our existing India channels: MTV,
Nickelodeon and VH1, and together we will launch a Hindi-language, ad-supported
general entertainment channel, which will air original, locally produced and
acquired programs. We will also get involved in film activity that will be tied
to our general-entertainment channel. There is a substantial digital component
to the [joint venture] as well. As a separate matter, we are participating in
India Film Company, which is a theatrical motion-picture-production company.
This was all part of positioning ourselves to become, what we hope will be, the
largest, most significant entertainment company in India.

WS: Viacom has had businesses in China for a while although it remains a
tough market.

DAUMAN: We have a strong presence in different parts of China.
Nickelodeon is available in large parts of China through programming blocks or,
in some cases, a broader presence in parts of the marketplace. MTV is the only
global brand that has a 24-hour channel in the Guangdong province. We also have
a growing consumer-products business tied to key Nickelodeon properties, such
as Dora the Explorer and SpongeBob SquarePants. And we have entered into several mobile deals in China
and look forward to further developing our presence in that marketplace over
time.

But it is
a tough market; we’ve been at it a long time. Our chairman, Sum­ner Redstone, has been there several times over the years,
cultivating a productive relationship with the media authorities there. It is a
challenging marketplace across the board. There are intellectual-property
issues in our motion-picture business. Our government has had a number of
discussions with the Chinese government on behalf of our industries to try to
deal with those issues. At the present time, however, India is somewhat more
hospitable to foreign investment and to truly enforcing intellectual-property
rights, which is why we have made a significant commitment in India. We would
be prepared to make a more substantial commitment to China if we could see
progress in these important areas. That being said, to the extent that it’s
feasible today, we are maintaining a significant presence across all platforms
in China.

WS: MTV Networks targets a demographic that makes very high use of cell
phones. That’s a big part of your business going forward, isn’t it?

DAUMAN: Yes, it is. We believe we are the market leader in the area of video
content on mobile platforms. We not only adapt the content we already produce,
but we also produce content specifically geared toward mobile devices. We had a
show that was developed and produced exclusively for mobile called Lil’ Bush. It was extremely successful
there, so we made it into a TV show that premiered [this summer] on Comedy
Central to great ratings. So we had a reverse migration of content. Our
distribution model is about being everywhere our audiences are and establishing
the right economic relationship for every platform.

For us,
these platforms are not just great from the standpoint of monetizing what we
do, but they are a great creative force. They give all the creators we have on
our payroll—we have a lot of creative executives in this
company—the opportunity to play on many different canvases, to take the
best of one platform and carry it across others, and to look at the next
generation of platforms.

We have
been experimenting with virtual worlds online to great success. We have a site
on Nickelodeon called Nicktropolis, which we launched earlier this year and we
have already signed up about 4.5 million registered users. This is a site where
kids cannot register on their own—they must have their parents register
them. So that is quite a significant number.

We also
have Virtual The Hills and Virtual Laguna Beach from the hit MTV shows. We see virtual worlds as an
opportunity for us and our creators [to come up with] extensions of our brands
and interesting new sources of revenue. In virtual worlds, we can sell virtual
goods for real money. It’s an amazing thing.

WS: The film business is a risky one. How is Paramount doing?

DAUMAN: You are right; the motion-picture business is a very risky business.
If you look at an individual picture, you never know how it’s going to perform
until it hits the theaters. So you need to have a good variety in your lineup.
Clearly you must have strong creative leadership at any studio, and you have to
be very disciplined in how you invest in your movie business. You can’t bet the
farm on any individual movie.

You also
need to diversify your revenues, and we are going about that in many ways. As a
result of the split [with CBS Corp.], we no longer have a television operation,
which does add a little stability to your revenues over time. So we are looking
to build up a television operation at the studio again. The digital arena
presents another substantial opportunity to diversify revenues, as does
made-for-DVD production and so forth.

We can
have a hot streak—as we have now—and it may continue for many
years. But inevitably, as it happens at every studio, you’re going to have a
cold streak creatively. In order to mitigate that, we are building a
competitive advantage by extending our television brands. We have MTV,
Nickelodeon, BET and Comedy Central, and we are institutionalizing film labels
around those brands: MTV Films, Nickelodeon Films, which allow us to produce
movies that have a built-in constituency, and those films usually can be made
at a [lower] price. There are a lot of cross-­promotional activities across our networks. That doesn’t guarantee
success. It just improves your probability of success, and over time that pays
off.

WS: How are film and television distribution divided between Viacom and
CBS?

DAUMAN: When Viacom was a combined company, the entire
distribution of the CBS television product was done through Paramount
distribution. Under our agreement with CBS, we still distribute a lot of their
television product for them in international markets. But it is their product
and they are distributing their product domestically. We allow them to continue
to use the Paramount name while they make a transition to CBS distribution, so
it is just a transitional arrangement.

WS: What led to the suit against Google’s YouTube?

DAUMAN: When Google acquired YouTube, which occurred not long after I came in
as CEO, we started to engage in discussions with them about an economic
arrangement that would allow the company to continue to use our content on YouTube.
And you have to understand that because of the nature of our brands, our
content constituted by far the most significant part of the professionally
produced content that was being shown on YouTube, and a very substantial part
of the overall content that was being viewed.

We didn’t
have a fundamental objection to having certain lengths of our content appear on
YouTube, pursuant to a licensing agreement. In our history, we have entered
into hundreds, if not thousands, of deals with many kinds of distributors. That
is our business. That is how we pay for our content. We license it very
successfully. It has been good for our partners and good for us.

We
assumed that with a significant company like Google owning YouTube, we would
enter into a consensual licensing agreement at some time, as we had with
others. During our discussions, we received some assurances that YouTube would
put in a filtering mechanism to enforce copyright. It became clear after a
while that we were not going to reach an agreement in the near term, despite
our devoting enormous resources to try to reach one. We were also devoting
enormous resources to providing notices about our copyrighted content on the
site. We started to see full-length movies on YouTube. Or we would see an entire
show shown in 10-minute segments. It came to the point that we were negotiating
deals with other online companies, such as Joost, who said to us, why should we
be negotiating with you if it’s available for free on YouTube? Why can’t we
just put it up for free? Venture capitalists were talking to other companies
about creating companies based on taking professional content. So we felt we
had to take a stand, particularly when a self-imposed deadline that Google had
assured us would be met to filter content passed without their doing something.
So we asked them to please take down our content. We sent take-down
notices—more than 200,000 of them to date—and that was not
effective.

Finally,
the week before we filed our litigation complaint, the most-viewed item of
content on YouTube was a clip from Comedy Central. So we filed our complaint,
which we believe has already had a very salutary effect. It changed the nature
of the discourse. Every other significant distributor has recognized the
enforceability of copyright and has worked with us and other members of the
industry to put in place filtering mechanisms.

Interestingly,
at a recent hearing that we had for scheduling and procedural purposes in
connection with our lawsuit, the Google attorneys indicated for the first time
that on a prospective basis, they were looking at putting in a filtering
mechanism.

At long
last! A year later!

So we are
correct on the substance. The validity of our position has been reinforced by
the fact that no other online distribution company has taken the position that
Google and YouTube have. They stand alone. That speaks for itself.

WS: Given the young demographics your brands reach, would a site like
Facebook be of interest to Viacom?

DAUMAN: We are very focused on creating consumer experiences on our own. MTV
Networks and BET Networks have added a lot of functionality and capability in
their digital properties. Over the coming weeks and months, we are going to
unveil great improvements in the social-networking area and other aspects of
our sites. We believe that there will be increased fragmentation of social
communities and activities online.

We
invented fragmentation in the cable world. We challenged the broadcast networks
when we created MTV, Nickelodeon and our other networks, and our brethren
created their networks. We believe the same will occur online where you start
with the MySpaces and the Facebooks, and then you go in depth to smaller, more
focused communities. So we are creating many communities online. This is our strength.
We will appeal to fragmented audiences who are very interested in our shows or
in discussing specific topics, such as a particular music genre or comedy or
even kids’ issues. And we are also creating a network effect across all these
different sites for the purpose of reaching broad groups of demographics.

We will
also work with companies like Facebook. They have opened up their network to
third parties. That’s an interesting opportunity—it’s a great company.
But we don’t see them or other companies like that as acquisition targets for
us. They can thrive on their own and we can have relationships with them.

We are
focusing primarily on internal development and very targeted acquisitions that
fit into our core activities. For example, we acquired a small company called
Quizilla that fits right into our Nickelodeon brand.

WS: Viacom in general and MTV Networks in particular are known for having
a unique culture.

DAUMAN: You make an important point. It is a unique place. It is a culture of
creativity. It is a culture that is attuned with change out there. It just
needs to be empowered. I have great confidence in the creative people and
executives in our company. We have several great leaders, including Brad Grey
at Paramount, Judy McGrath at MTV Networks, Debra Lee at BET Networks, and the
many people who work with them that bring tremendous expertise to the table.

When I
came back to Viacom as CEO, I knew almost everybody because they were here the
last time I was in management, and many of them had been promoted. It’s a great
culture and one can accomplish amazing things here. In today’s era, the ability
to develop your people, to create a great place to work and to attract the
current generation of creative people is an important advantage for a company.

WS: Tom Freston was very well loved by the people at Viacom. Are they
equally devoted to the company now and to the brands they work for?

DAUMAN: You have to love the product. You have to love the brands. This
company has done very well through many different management teams and will
continue to do well.

WS: What do you enjoy about your job?

DAUMAN: I love this company. I enjoy the challenge. I enjoy competition. I
enjoy accomplishment. That’s what I’m here for. This company has been an
important part of my life. Sumner Redstone brought me into this company many
years ago, and I thought it was important for me to come in and take it to the
next level in this new era. It’s a very exciting time, one of creative ferment,
technological ferment, which I view as an opportunity. I believe that if you
are not afraid of change, if you are not afraid of technology, it is a great
opportunity. And I’m very excited to be part of it.