No. 101 Who's The Boss? Viacom President Mel Karmazin is the company's main man. On that point, even CEO Sumner Redstone agrees. Or does he?
By Devin Leonard

(FORTUNE Magazine) – Last December, some of the biggest names in the television business gathered in a brownstone on Manhattan's Upper East Side for Viacom's annual Christmas party. It was the company's first holiday celebration since its purchase of CBS, a deal that transformed Viacom into the world's second-largest media conglomerate. And as in The Brady Bunch, the two sides were in the process of becoming one big, happy family. There was Tom Freston, CEO of Viacom's MTV Networks, bantering with CBS Television President Leslie Moonves and Mark Burnett, executive producer of Survivor, the hit CBS reality show. MTV Group President Judy McGrath and Nickelodeon President Herb Scannell schmoozed with billionaire mogul Robert Johnson, who had just agreed to sell his BET cable empire to Viacom. The top brass from other divisions like Showtime, Infinity Broadcasting, and Simon & Schuster were all there too, exchanging holiday greetings and trading verbal high-fives.

An hour into the event a hush fell over the crowd, and everyone's attention turned to the two men standing on the staircase. They were the evening's real stars: Sumner Redstone, Viacom's chairman and CEO, and Mel Karmazin, the former CBS boss who is now Viacom's president and chief operating officer. Redstone was first to speak. "We had a wonderful year at Viacom," he glowed. After he finished, Karmazin thanked everybody in the company, especially Redstone. "I love Sumner," he said. "I love him so much I kiss him every night before I go to sleep."

The room erupted with knowing laughter. As most of the crowd was fully aware, both men are better known for their ruthlessness than for their warmth, particularly when there is any question about who's in charge. Redstone had fired his previous second-in-command, former Viacom CEO Frank Biondi, in 1996, apparently because he couldn't bear to share the spotlight with him. As for Karmazin, the last time he sold his company and accepted a lesser position to make the deal work--when CBS's former parent, Westinghouse, purchased his Infinity radio group in 1996--he helped engineer the ouster of his boss, CEO Michael Jordan, and took the job himself. If ever there were two men genetically hard-wired not to share power, it's Mel and Sumner.

Nevertheless, the two have plenty to be happy about these days. It's been nearly a year since Viacom bought CBS, but already the merger is a huge success. The combination always made sense on paper. CBS owned one of the Big Three TV networks and an extremely profitable radio company. But its cable assets--the Nashville Network and Country Music Television--weren't exactly powerhouses. And unlike such rivals as News Corp., Disney, and Time Warner, CBS lacked a major television and film production studio to churn out content. Viacom, of course, had the MTV Networks and a handful of other powerful cable brands, as well as Paramount, one of Hollywood's leading dream factories. There was even a sentimental side to the deal: CBS owned Viacom until federal regulators forced the Big Three networks to divest themselves of their film studios in 1971. Now the companies were back together again.

As sensible as any acquisition may appear in theory, though, the proof is in the execution, and it is here that Viacom, as Redstone so often gushes, "is in a class by itself." There has been little of the turf warfare or boardroom infighting that accompanied other major media company mergers. On the contrary, the willingness of Viacom's divisions to link arms rather than elbow one another aside is often cited by Wall Street analysts, who remain generally bullish on the company's stock even though the economy is slowing. Viacom's revenues climbed by 56%, to $20 billion, in 2000, and its earnings before interest, taxes, depreciation, and amortization (often referred to simply as Ebitda) reached $3.5 billion, a 69%increase. But those stellar numbers were largely the result of the CBS acquisition. Now Karmazin is promising Wall Street that he will deliver 20% Ebitda growth in 2001. That won't be easy in this market. So Viacom needs all the team spirit it can muster.

That leads to the biggest question about Viacom: How are Redstone and Karmazin really getting along? Their relationship is a bit unusual. They work out of separate buildings and rarely appear in public together, fueling speculation that their relationship isn't exactly warm. But the corporate line inside Viacom is that Redstone's strategic prowess and Karmazin's consummate management skills have made them the perfect leadership team. For now, at least, the two appear to be functioning fine as--dare we say--co-equals. Yet talking to Redstone, you get the feeling this hasn't been especially easy for him. If everything is going so smoothly, then why does Viacom's patriarch seem so uncomfortable? And if he eventually grows restless with his role, is a power struggle, with all that implies, inevitable for Viacom?

"In the early days," says Redstone, carving up a piece of chicken, "both of us used to get this question all the time: 'How are you doing together?' Now it's very rare that people even ask about that."

"I mean, Sumner and I joke about the speculation," Karmazin says, between bites of corned beef. " 'How is Mel getting along with Sumner?' 'Why is Mel's office not over here?' It's like someone's trying to read something into it."

It's a March afternoon, and Redstone and Karmazin are eating lunch in a small dining room on the 52nd floor of Viacom headquarters. Redstone is relaxed and jovial. His eyes twinkle as he talks about Viacom. The 77-year-old's ruddy cheeks and surf's-up wave of sandy blond hair give him the look of a Nickelodeon cartoon grandfather.

Karmazin is testier. The 57-year-old is every bit the FORTUNE 500 executive in his dark suit, white shirt, and Viacom cuff links. He can be funny in an irreverent way. (When Karmazin first walks into the dining room, he nods at Redstone and says, "Should I kiss him on the lips, or should I just shake hands with him?") But when a question displeases him his eyes darken, and he signals his displeasure.

This afternoon both men are going out of their way to send the same message: Things couldn't be better between them. "There isn't an important thing that we've disagreed on," Redstone says.

"I'd like to find a single unimportant one," interjects Karmazin. "Because if I found an unimportant one, I could sit here and say, 'This is an example of where we disagree.' "

Well, okay, there was that one time that Karmazin wasn't thrilled about attending a Viacom management retreat in October at the Boulders in Arizona--something Redstone thought he should do. "Once Mel talked to me and we talked it out," Redstone explains, "he decided to go, and he thought it was a great thing."

"It wasn't like he wanted it and I didn't," Karmazin adds. "I was not sure, and he talked me into it."

Karmazin attributes some of the speculation about Viacom's two top executives to the fact that they are very different. "A lot of it has to do with our personalities and styles," he says. "Sumner loves talking about Viacom. I don't like it."

"Not much," Redstone scoffs, rolling his eyes.

"I don't like talking," Karmazin insists. "I like working."

"Come on," Redstone mocks.

Karmazin concedes he has a handful of speeches on his immediate schedule. But he keeps protesting that he really doesn't like this sort of thing.

"He loves it," Redstone says. "He says that. But he loves it."

Considering their pasts, it's amazing that these two headstrong men have come this far together. After all, there's nothing that gets Redstone's juices flowing like a good fight. A Harvard-trained attorney who took over his family's movie theater business in Dedham, Mass., Redstone didn't become a bona fide media mogul until the late 1980s, when he won a bitter takeover bid for Viacom, whose primary assets then were MTV and Nickelodeon, the children's channel.

He was 63 and just getting started. In 1994 he joined the ranks of the entertainment business elite when he acquired Paramount after yet another brutal takeover battle, this time crossing swords with Barry Diller. He paid $10 billion, a price that was widely viewed as too high--and which caused Viacom to go heavily into debt. But Viacom's cable properties turned out to be cash cows. Paul Kagan Associates, a media tracking firm, estimates that Nickelodeon's net advertising revenues will climb to $736 million this year, the second highest in basic cable television. MTV is slated to come in next, with $711 million. Moreover, since Redstone acquired Paramount, its movie studio has consistently been one of the top five highest grossing in Hollywood, with hits like this year's What Women Want and Save the Last Dance. These successes have more than made up for the difficulties at Viacom's flailing UPN network, which lost an estimated $200 million in 2000.

That's Sumner Redstone's story--and you've probably heard it already, because he loves to talk about what an incredible businessman he is. "I coined the phrase 'Content is king,' " he likes to say. But while he is certainly a man of remarkable vision and an extraordinary dealmaker, his reputation as an iron-fisted operator can be a bit overstated. He has occasionally reached under the hood at Viacom--in 1997, for instance, he camped out at Blockbuster and helped turn around the ailing video-rental giant--but anybody who knows him well says he has a limited interest in Viacom's day-to-day operations. "I mean, when I hear about these stories of Redstone as this hands-on manager who burns through executives--I've never seen that," says MTV Networks head Tom Freston. "Operations to him is like a complete yawn."

Another Redstone associate is even blunter: "Sumner was never really that involved in the business,'' he says. "I think he likes the world to have a different perception."

Indeed he does. That may be because, in his mind, he and the company are one and the same. He has no real hobbies. (He does play tennis with a racket strapped to his right arm, which was injured in a fire at Boston's Copley Plaza Hotel in 1979.) And he has little interest in material things. Until recently he wore only off-the-rack suits. Instead he spends most of his time obsessing over Viacom's stock. Redstone controls 68% of the company's voting stock and 13% of the shares outstanding. He's famous for calling up money managers and chewing them out when they sell Viacom stock. It isn't business; it's personal.

So heaven help any employee who gets too much credit for Viacom's success. For the record, Redstone claims he doesn't care who gets publicity so long as Viacom's interests are furthered. But it's an open secret that Redstone's opinion of former CEO Frank Biondi changed for the worse after Biondi was credited with much of Viacom's operational success in a 1995 New Yorker profile. A year later Redstone fired Biondi and took the title of CEO. When asked about the incident, Redstone says it's "absurd'' that anyone accuse him of such pettiness. He says he fired Biondi because he wasn't hands-on enough. "He was a great friend, and I consider him a friend today," Redstone says. "I miss him." Many of Redstone's peers find his denial implausible.

Karmazin is similar to Redstone in some key respects. He has never sought the trappings that come with being a media mogul. Ask him about money, and Karmazin says he no longer cashes his paychecks. They go directly into a charitable foundation--overseen by his daughter, Dina--that makes anonymous gifts. And speaking of anonymity, Karmazin says he could do without the publicity that comes with being in the entertainment business. "That's the part that I like least," he sighs. "If this were a widget company and I were running it, you wouldn't hear about it."

Maybe. But his associates say there's a swagger in his step when he appears at industry functions, a smugness in the way he grins at the crowd. They get the feeling he's been waiting a long, long time for this.

Karmazin grew up poor in Long Island City, Queens, the son of a cab driver. He landed a job as a clerk at a Manhattan ad agency when he was 16 and made such an impression he was soon buying radio time for the firm's clients while attending night school. WCBS-AM radio hired him away to sell ads. The joke around Viacom is that agency executives used to buy airtime from Karmazin just to get him out of their offices. He did so well that his supervisor cut his commission rate to protect the delicate feelings of the rest of the sales force. Karmazin quit and went to work for John Kluge's Metromedia empire.

In 1981 he accepted a job as head of Infinity Broadcasting, a fledgling radio company founded by two former Metromedia executives. It was there that Karmazin earned his reputation as a fanatically hard-driving manager. He arrived at the office at 6:30 a.m. He questioned his managers so relentlessly that some were afraid to sit with him at company functions. He insisted on personally signing off on any expenses over $500. But Karmazin wasn't averse to spending money when he believed it made sense. He put up big bucks for radio stations in major cities--"oceanfront property," he called them. And he paid handsomely for the services of shock jocks Don Imus and Howard Stern. Infinity stockholders couldn't complain: The company went public in 1992 at $17.50 a share; four years later Karmazin sold Infinity to Westinghouse for $170 a share.

His mating dance with CBS began in 1996, when he approached Michael Jordan, Westinghouse's CEO at the time, offering to buy the company. Jordan countered with an offer to buy Infinity. Karmazin came aboard as radio group chief and the company's largest shareholder. But instead of CBS swallowing Infinity, Infinity swallowed CBS. Five months after Karmazin arrived, Peter Lund, CBS president, abruptly resigned, and Karmazin added the CBS station group to his power base. Then, in 1998, the long-struggling Jordan quit after clashing with Karmazin. (Neither Lund nor Jordan returned FORTUNE's calls.) Karmazin was named CEO. No tears were shed for Jordan. The following year, the CBS network turned its first profit since 1994.

Karmazin's wooing of Redstone was similar to his seduction of Jordan. In August 1999 he approached Redstone about buying Viacom or perhaps swapping CBS's cable stations for Viacom's UPN TV stations. Redstone says he saw through Karmazin's "subterfuge" immediately and countered with an offer to buy CBS. The way Redstone tells it, he got a terrific deal. "Let's be very realistic about it," he says. "I got CBS for Viacom with no premium. I am a control freak, I admit it. And I maintain exactly the same control."

Not exactly. Though Redstone remains the company's CEO and controlling shareholder, Karmazin got a three-year contract that pretty much lets him operate Viacom as he chooses and forbids Redstone from interfering. The two must consult each other on strategic matters. But according to the merged company's bylaws, Viacom's CEO "shall not exercise any powers, rights, functions, or responsibilities of the president and chief operating officer unless Mel Karmazin is the chief executive officer." (Karmazin gets the job if Redstone decides to step down.) Moreover, while Redstone may hold a controlling interest in Viacom, he can't fire Karmazin unless he has the support of 14 of Viacom's 18 board members, eight of whom are CBS directors.

You'd think that a self-described control freak would have balked at such a deal. But Redstone went ahead and approved it. "That didn't bother me," he says, "because I always visualized that we would operate the company pretty much together."

Karmazin doesn't see things exactly the same way. "You have to have one person running the business," he says. "We decided when we did the merger that that person would be me."

Soon after the deal was announced on Sept. 7, 1999, Karmazin began exerting his influence within Viacom, and he wasn't exactly subtle about it. He made it clear he wanted 20% growth in every division, even the notoriously unpredictable movie business. He challenged Viacom's division heads relentlessly about how they ran their operations. "Why are we in [the movie] business?" he asked Viacom Entertainment Group Chairman Jonathan Dolgen. He told Blockbuster CEO John Antioco that a deal he was cooking up was "dumb." He jokingly referred to Viacom's creative types as "arts and crafts people." Rumors spread through Viacom's headquarters that he was going to rip out the free soda machines on each floor and cancel bonuses.

But once he had put the fear of God in his staff, Karmazin seemed to relax a little. Employees were surprised last October when he showed up at the management retreat at the Boulders and joked around with a group of them at the bar. "It gave us all an opportunity to get to know him," says Sherry Lansing, head of Paramount's movie division. "You get close to people through humor, and he has this charming personality, this wit, this boyish enthusiasm."

More important, as CBS and Viacom employees got to know one another, they began working together on a number of initiatives, which turned out to be successful. In September, CBS jettisoned its floundering Saturday morning children's block and replaced it with three hours of Nickelodeon's Nick Jr., featuring the wildly popular Blue's Clues. As a result, CBS's ratings among 2- to 11-year-olds, a key demographic for advertisers, have increased by 138%.

Viacom also used its new corporate might to resurrect CBS's moribund TNN cable station, which Karmazin admits his old company had been "milking" for cash before the merger. MTV executives came up with a plan to relaunch the old Nashville Network as a pop culture channel called the National Network. A centerpiece of this strategy was to lure the World Wrestling Federation's Raw Is War away from rival USA Networks. To do so, Karmazin offered WWF's Vince and Linda McMahon a package the competition could never match. It included a $500,000 fund for the development of WWF movies, a 13-episode commitment for a one-hour dramatic series starring a wrestling hero like "Stone Cold" Steve Austin on Viacom's UPN, and a joint publishing venture with Simon & Schuster. They even offered them a chance to create WWF attractions at Paramount theme parks.

The McMahons, of course, said yes. USA Networks CEO Barry Diller wasn't pleased. Lacking the resources to match the Viacom offer, USA Networks sued to block the deal. A week after the Delaware Supreme Court ruled against Diller's company in September, Raw Is War debuted on TNN and climbed to the top of the cable ratings charts for regularly scheduled shows. USA's ratings, meanwhile, slipped by 11.6% last fall. "We got hit," Diller conceded at a recent media conference. He was quick to add that he doesn't miss the show's viewers--"12- to 19-year-old, pimply-faced, mean-spirited young males who came, watched wrestling, left, and went on to God knows what antisocial pursuits," he called them. But Viacom is glad to have them. "It's amazing what [wrestling] has done for us," Karmazin told the same audience. "It's enabled us to rebrand TNN, and in January we were the fastest-growing cable channel. Our audience was up 129%."

Perhaps the most high-profile team effort at Viacom was MTV's production of the Super Bowl halftime on CBS in January. Karmazin broached the idea to MTV's Tom Freston when they attended the previous Super Bowl broadcast by ABC. "It would be great if you guys did the halftime show next year when CBS has it," he told Freston as they watched the halftime extravaganza produced by Disney.

MTV executives came up with an idea: a live miniconcert featuring graying rockers Aerosmith and teen heartthrobs 'N Sync. They pitched it to CBS's Moonves, showing him storyboards depicting how 'N Sync would be chased onto the football field by screaming fans. They also played him a tape of Aerosmith and 'N Sync trading riffs. It was a bit of a gamble for Moonves, whose network attracts older viewers. But he was willing to trust MTV. He just wanted assurances that MTV would identify the performers. "Now remember guys," Moonves told them. "This is not just 18-year-olds watching. This is the Super Bowl. My father's going to be watching. He's not going to know when five young guys run out on the field that it's 'N Sync."

So where's Redstone been during all this? He has pretty much stayed out of Karmazin's way. "Sumner and Mel have worked out a terrific relationship," says Moonves. "Sumner clearly is involved with the stock, investments, overseeing things. Mel is the operations guy."

By all accounts, the two have indeed worked well together whenever they've had to. The best example is Viacom's $3 billion acquisition in January of BET Holdings from Robert Johnson and his partner, Liberty Media Chairman John Malone. Redstone was chasing BET's collection of cable stations before the merger. But once Karmazin came into the picture, it became a joint pursuit. Johnson says he was pleasantly surprised at the ease with which the two men collaborated. "I never worried that I had to make sure that I didn't tilt toward Mel and get Sumner pissed off at me," he says. "Nor did I feel I had to play up to Sumner to keep Mel in check and sort of make sure that Sumner got the hype for putting together the deal."

Even so, there's been something Seinfeld-like about the Sumner & Mel Show. One of these days, Karmazin says, he'll move in with Redstone at Viacom's headquarters. He says he's just waiting for Viacom to remodel an office there. But he's not in a rush to leave CBS headquarters, where he occupies William Paley's old quarters. "Why would I want to move out of here?" Karmazin says. "It's not a bad office. I've got my five televisions on. There's a bathroom in there if you want to see it. And there's a shower in there. There's a sitting room in there. So what's wrong? There's no reason to move."

A number of their peers were surprised when Redstone showed up without Karmazin in July at investment banker Herb Allen's annual Sun Valley media mogul confab. Karmazin had been to several of the conferences. Strangely enough, this time he didn't want to go. And in January when FORTUNE asked about Redstone's and Karmazin's schedules, a spokesman said they might not be together in public until the fall. Asked why they seldom make joint appearances, Redstone sounds surprised: "That's a good question. I never thought about it. I guess we're both so busy."

Yet even when he insists that he and Karmazin are getting on just fab, Redstone seems a little uncomfortable. He makes a big point about how plugged in he still is. "While Mel legitimately has charge of day-to-day operations, I'm in touch with all of our executives on a daily basis," he says. "Mel has encouraged everybody to stay in continual contact with me. I don't feel divorced from the operations." But does it pain Redstone to have given up so much power? "Well," he admits, shaking his head, "I'm not used to it."

The real test will come over the next several months. Redstone and Karmazin boast that Viacom, with its array of radio, television, cable, and billboard assets, is the world's No. 1 advertising platform. Last year, when the economy was booming and overall ad spending grew by 9.8%, that was something to crow about. But as the economy cools, some analysts predict ad spending will grow only 2.5%.

That's bad news for Viacom. It depends on advertising for 45% of its revenues--nearly twice as much as estimates for either AOL Time Warner (24%) or Disney (26%). Worse, Viacom counts on advertising for 70% of its Ebitda. That's why some analysts are a little nervous about Viacom's stock, which has fallen from a high of over $75 a share in August to $45 in mid-March. Richard Bilotti, Morgan Stanley Dean Witter's media and entertainment analyst, recently trimmed his target price for Viacom to $60 from $68.

So how is Karmazin responding to this gloomy scenario? Basically he's pretending it doesn't exist. Sure, there are fewer dot-coms, and domestic car companies have curtailed their budgets. But he insists the media has blown these problems out of proportion. He says Viacom hasn't had to cut prices to sell TV spots. "We have a slogan around here: 'Viacom will not participate in any recession,' " Karmazin told analysts in a February conference call.

Naturally, Karmazin's competitors feel he isn't being entirely forthright about how the slowdown is affecting Viacom. "That's b.s.," say News Corp.'s Rupert Murdoch. "I know what they're charging."

Nor does Karmazin stop there. He says Viacom may decide to sell only 55% to 60% of its fall inventory if the prices aren't right when the company presents the next TV season's lineup to advertisers in May. Traditionally, the big networks sell about 80% of their inventory in the so-called up-front market. Karmazin argues that if he holds back ads he'll get more for them later in the year. But if the ad market stays flat, Viacom may be in for trouble.

Karmazin is aiming his words at three constituencies. He needs to keep his own sales force motivated. He also wants advertisers to know that they shouldn't expect CBS to be selling its inventory at fire-sale prices. And it probably makes sense in this market to lower expectations a bit on Wall Street too. That way, if CBS sells even 70% of its fall advertising (as some networks executives actually expect), Karmazin can claim victory. He'd better be right. "That's high-risk poker, sitting there saying the economy won't touch us," says Tom Wolzein, media analyst for Sanford C. Bernstein & Co. "If it does the Street will punish him." Then again, Karmazin can always pull out his spreadsheets and slash costs to make his numbers.

Some of the company's biggest shareholders are more worried about his relationship with Redstone. A lot of them were overjoyed when Karmazin took over the company. But now they fret that the more Karmazin is identified with Viacom's success, the more Redstone is likely to turn on him. Already investors seem more eager to hear Karmazin talk about Viacom than Redstone. "That's the problem," says someone who knows both men. "Investors don't want to talk to [Redstone]. They want to talk to Mel. Mel gives them the facts about the business. That manifests itself in some of this tension between the two of them."

Redstone and Karmazin say they care only about Viacom's stock price. And so they should. After all, Redstone has $8.3 billion tied up in Viacom stock; Karmazin owns more than $500 million. As long as they keep that in mind, everything will be fine. Or so the thinking goes inside Viacom.

But Redstone seems to have a more on his mind than just his stock. He says part of the reason he agreed to the deal in the first place is that Karmazin's contract is for only three years. When it expires, in December 2003, he can reconfigure everything. "I could, I could," Redstone says. "I'm not saying it's going to happen. Mel is doing a terrific job. But yeah, it's my call."

Well, he's the boss, right? Or is it that other guy?