How the Moonves exit could impact CBS’ video strategy

Moonves
Les Moonves will stay on with CBS for a year in an advisory role. (Sarah Ackerman/Flickr, David Shankbone, Flickr)

Over the weekend, CBS and National Amusements settled their legal dispute and agreed to dump long-time CBS CEO Les Moonves. He departs CBS as the company’s video strategy continues to evolve.

The ouster of Moonves comes as more allegations of sexual assault and harassment by the executive surface. In response, CBS has pledged to donate $20 million from any severance owed Moonves to one or more organizations that support the #MeToo movement. Meanwhile, the CBS board’s independent investigation into allegations against Moonves continue. Moonves won’t receive any severance benefits now—except for certain fully accrued and vested compensation and benefits—and any payments in the future will depend upon the results of the investigation and subsequent board evaluation.

For now, CBS is putting $120 million into a trust and, should the company terminate Moonves’ employee for cause, that money will be redistributed back into the company. If the company does not find cause for termination, that money goes to Moonves. He has also agreed to stay on with CBS for a year in an advisory role, and CBS will provide Moonves with an office and security for two years, according to an SEC filing.

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Moonves issued a statement confirming his departure but called the sexual assault and harassment allegations against him “untrue.”

“I am deeply saddened to be leaving the company. I wish nothing but the best for the organization, the newly comprised board of directors and all of its employees,” Moonves said.

With Moonves out, Chief Operating Officer Joseph Ianniello will serve as president and acting CEO. The role of chairman will remain open for now. In addition, five current independent directors and one NAI-affiliated director have stepped down from the CBS board, and six new independent directors have been elected.

RELATED: CBS revises target, says All Access and Showtime OTT will hit 8M subscribers by 2019

The settlement puts to rest a legal dispute between CBS and NAI. The companies were due in court in early October, but NAI has dropped its lawsuit. CBS in turn has canceled a planned Class A dividend intended to dilute the majority voting shares owned by NAI.

As another condition of the settlement, NAI has agreed to not propose another CBS and Viacom remerger for two years, while also giving “good faith consideration” to any other potential transaction or strategic alternative proposed by CBS’ board.

The good news for CBS is that the company is out from under any prolonged legal battle with its controlling shareholder, NAI. And after all that transpired, despite NAI’s promise not to propose a Viacom remerger, CBS could still end up back arm-in-arm with Viacom.

BTIG analyst Rich Greenfield said that the new independent directors on CBS’ board were mostly appointed by NAI today and that they could motion toward a remerger.

“While National Amusements cannot propose a transaction between CBS and Viacom, we believe they would support such a transaction if the independent Boards of both companies agreed to terms. We continue to believe a merger between Viacom and CBS offers substantial value creation in terms of revenue synergies, cost-savings and balance sheet strength; we believe the independent directors will agree,” Greenfield wrote in a research note.

BTIG expects Ianniello will be replaced by the end of the year and that CBS and Viacom will recombine in 2019.

It’s unclear if a recombined CBS and Viacom would better allow CBS to retain its license for NFL content, which expires in 2022. But Greenfield said the NFL is essential to CBS’ long-term retrans/reverse retrans growth strategy. CBS already lost out on its half of NFL Thursday Night Football earlier this year when Fox outbid it and NBC for the rights.

Greenfield said that part of keeping the NFL rights rests on CBS gaining more scale. And if CBS’ strategy for scale still rests on growing its direct-to-consumer product, All Access, than being able to incorporate Viacom’s content in that offering could do the trick.

As it stands, CBS last month revised its growth projection for both All Access and Showtime OTT, saying the services will now reach 8 million combined subscribers a year ahead of time in 2019, and that the services will have 16 million combined by 2022. Those figures still put All Access and Showtime OTT way behind giants like Netflix and Hulu. With Viacom in tow, CBS might be able to accelerate that growth.

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