Redstone Tightens His Grip

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In ousting Tom Freston as CEO of Viacom and replacing him with a hand-picked confidante on Tuesday, Chairman Sumner Redstone has sent a message to Wall Street and Hollywood, for the second time in less than a month, that he's running the show at the entertainment conglomerate he controls. But that news didn't seem to hearten many folks in either quarter about Viacom's outlook.

After words of pro forma praise for Freston, who ascended to CEO after building the MTV unit into a lucrative global brand, Redstone made it clear that he and the company's other directors felt that the man who at one time was regarded as his heir apparent hadn't been bold enough as leader of the parent. "We love Tom, but the board felt that not enough was being done," Redstone said during a Tuesday morning conference call with investment analysts and journalists. "We were not moving as entrepreneurially and aggressively as we should. Our communication with Wall Street was deficient and the stock price reflected it, suggesting that maybe Wall Street lacked confidence in management." He called Freston's replacement, Viacom director and former senior company executive Philippe Dauman, the right person to fulfill the vision he had when he announced the split of CBS and Viacom nine months ago. "We are on the right track but we need to move to the fast track," said Redstone. "Philippe will enable us to refine and aggressively implement a digital strategy with energy, focus and speed. He will let no opportunity pass and let no competitor ever beat us to the trophy."

That last comment was interpreted by several analysts as a reference to News Corp.'s purchase of MySpace.com, a deal that Viacom was seen as having missed. Though Redstone was equally impatient with Viacom's lagging stock price, which is down 10% this year — compared to sister company CBS, which is up more than 10% — his muscle-flexing didn't immediately cheer investors. Just after the announcement, Merrill Lynch's Jessica Reif Cohen, an influential entertainment industry research analyst , issued a critical report downgrading her rating on Viacom to "neutral" from "buy" because she said "significant uncertainty" remains about the implications of the Freston firing for Viacom. "We think this move is likely to be regarded as an attempt by Mr. Redstone to reassert himself in an operating role, a development that is not likely to be warmly received in the investment community," she wrote. Viacom's widely held Class B shares fell $2.08, or 5.6%, to close at $34.89 yesterday.

The reaction calls into question the wisdom of Redstone's recent moves to exert more control over the company and especially its movie studio, Paramount Pictures. The unexpected decision to fire Freston, a longtime Redstone friend and lieutenant, comes just two weeks after the chairman surprised the entertainment industry and Main Street by kicking Tom Cruise's production company off the Paramount lot after 14 years, ostensibly for conduct unbecoming high-priced talent whose box-office receipts weren't as boffo as before. Reif Cohen, citing Freston's stellar record at the helm of MTV, predicted that moviemakers won't like news of his dismissal any more than investors did, and she could be right. “Tom Freston is a friend and business associate of 20 years and is one of the most admired and respected executives in the entertainment business, and I for one will miss him greatly,” Dreamworks SKG co-founder David Geffen said in a statement. (Geffen refused to comment on a CNBC story, which a cable channel reporter attributed to Redstone, that Geffen called the Viacom chairman following the news about Freston and suggested that he buy Dreamworks Animation and hire its chief, Jeffrey Katzenberg, to run Viacom as well.)

Hollywood's historic resentment of corporate influence on creative decisions has rarely been higher than it is now, with many industry veterans blaming a bean-counter mentality for a number of box-office disappointments in recent years. "Brilliant ideas come from brilliant people who don't really care about stock price," said film and TV producer Bernie Brillstein.

Even before Tuesday's news, trading stories about disorder at Paramount and handicapping the fate of the current management, notably studio chief (and Freston hire) Brad Grey, was already a favorite parlor game in Hollywood. A few days after Cruise was cut loose, the head of a leading agency — one that does not represent the actor or his company — told TIME.com that his agents repeatedly have been frustrated by the inability of lower-level Paramount executives to make even minor decisions, such as okaying story pitches and entering low-dollar scriptwriting agreements, without first getting approval from their bosses. So far, however, insiders say there's no evidence that agents and producers are shying away from doing business there because of the uncertainty and indecision.

However, Freston's firing, coming as the studio is still working to recover from the shockwaves Redstone created with his handling of the Cruise affair, will add grist to the mill. "It's sad," said one veteran Hollywood player, who requested anonymity because of his business relationships with several people close to the situation. "How could this do anything but add more uncertainty to the situation at Paramount?"