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The Viacom CBS Merger Could Dim Netflix’s Rising Star

Can two old fogies of the media landscape reunite and grow, as the market rapidly consolidates and moves online? That's the plan of the soon-to-be chair of a combined CBS and Viacom, Shari Redstone and her CEO Bob Bakish, who currently heads Viacom.

CBS, which first created and spun off Viacom in 1971, agreed on Tuesday to reunite with with its former production unit in a planned $12 billion deal. The combined entity will control everything from the CBS broadcast network to cable channels like MTV and Showtime, plus the Paramount film and TV studio and book publisher Simon & Schuster.

The move is likely bad news for video streamers like Netflix, as the combined ViacomCBS, as the new company will call itself, will have less incentive than ever to continue licensing its popular older shows like NCIS and Madam Secretary to its Internet rival. For example, recently-completed hit comedy The Big Bang Theory is already an exclusive on CBS's All Access streaming service.

But the incipient entertainment giant probably still won't have the scale to catch up to its usual Hollywood rivals, or the direct connections to a big audience to rival its new, tech industry competitors. Redstone will probably have to pull off a few more deals, like its traditional rivals have in years past, or face selling out to an even bigger buyer.

Since CBS and Viacom last reunited in 2000 and broke up again in 2006 under Redstone's father Sumner, most of its competitors have bulked up. Comcast bought NBCUniversal a decade ago and added Dreamworks in 2016. AT&T bought Time Warner in 2016. And Disney, which had already bought Marvel Studios and Lucasfilm, added most of 21st Century Fox last year.

While cord cutting is squeezing the revenue of distributors like cable and satellite TV services, bigger entertainment suppliers have more leverage to extract better deals, driving the trend towards consolidation.

Combined, CBS and Viacom collect an average of $16.34 per month per cable subscriber for their programming and channels, which would rank second in the industry behind only Disney, at $21.82 per month, the Wall Street Journal reports. Greater bargaining power could improve that average, a key issue as Viacom's fees for its channels such as Nickelodeon and Comedy Central have been particularly under pressure. Viacom's revenue for the past nine months fell 1% to $9.4 billion.

The companies note that while they together account for 22% total TV viewership, they collect only 11% of all affiliates and retransmission fees, leaving plenty of room for improvement.

Still, Comcast and AT&T each now combine distribution and production in a single company, giving them the ability to better resist demand for higher fees from programming suppliers like CBS and Viacom.

The merger could also help the combined company compete better in the new video streaming wars. Since the rise of Netflix, which still licenses content from both CBS and Viacom, Hollywood has been under siege from new digital players. Netflix alone will spend $15 billion this year developing original content, while smaller streaming services including Amazon Prime Video, Hulu, and Apple will each spend billions more. And Comcast, AT&T, and Disney are also all developing their own streaming services. CBS and Viacom say their combined budget for generating originals will top $13 billion.

CBS has had limited success trying to sell its own streaming service, CBS All Access, for $6 a month. Though it's headlined by the Star Trek franchise, All Access doesn't seem to have enough attractive shows to lure a major audience. The service has about 8 million subscribers, versus over 150 million for Netflix. And CBS, unlike rivals Apple and AT&T, doesn't have a direct connection to a big audience on its own. Viacom's free, ad-based Pluto TV reported 18 million monthly active users in July.

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