The CBS and Viacom merger, explained

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Viacom executive Shari Redstone onstage behind a podium.

Shari Redstone controls both Viacom and CBS, and has wanted to merge them for years. | Jesse Grant/Getty Images for Viacom

CBS and Viacom are merging. Then they’ll have to merge with something else.

Sometime very soon (Maybe Monday night! Maybe in the morning! Or the next day!) the media companies CBS and Viacom will finally announce that they are merging. It’s the move their owner Shari Redstone has been trying to make for years.

The deal will combine a big cable programmer, whose networks like MTV and Comedy Central used to be powerful financial and cultural engines, and which also owns the Paramount movie studio, with the dominant broadcast TV network, which also owns Showtime.

But that’s not enough in 2019. The next step for Redstone, according to people who work for her: trying to find other companies to merge with her newly merged company.

The idea: CBS and Viacom, which used to be the same company but got split apart years ago, need to combine to compete with the likes of Apple, AT&T, and Disney, who are all trying to compete with Netflix in the TV streaming wars.

But while a combined CBS and Viacom will be bigger, it won’t be nearly big enough to compete with the really big video companies.

If it seems like you’ve heard this before, you have: Industry pundits have been making arguments along these lines for years, and Recode laid it out a year ago, back when CBS and Viacom were making one of their many merger attempts.

The difference then was that the conventional wisdom — and one Redstone seemed to believe, though she never said this out loud — was that after CBS and Viacom were combined, they would get sold to a much bigger company.

The new conventional wisdom is that the combined CBS/Viacom will try to buy or combine with smaller companies. You can find logical candidates by looking at our handy chart, but if you don’t like charts, here are some names: Discovery/Scripps (which merged last year), AMC Networks, Sony’s entertainment business, and Starz/Lionsgate.

There is a logic to positioning CBS/Viacom as a consolidator, and I can get to that in a second. But first it’s important to point out that the reason the merged company makes sense as a buyer, and not a seller, is that there doesn’t seem to be anyone for CBS/Viacom to sell to.

The really big media companies that might have combined with CBS/Viacom a few years ago — Disney, Fox, Comcast/NBCU* and Time Warner — are all tied up working through their mega-mergers. (Disney bought much of Fox’s assets; Comcast bought Sky, the UK satellite TV company; and Time Warner sold to AT&T.) They won’t have the ability to take on another big deal for a long time. Verizon, which looked at CBS in the past, has new management that has made it clear it does not want to buy big media companies anymore.

While big tech companies like Amazon and Apple have taken a look at media companies in the past, for now they all seem more interested in buying media talent, not media employers. (Both Netflix and Disney now have deals to work with David Benioff and D.B. Weiss, the writers who made Game of Thrones for HBO.)

It’s also very hard to imagine how today’s antitrust climate — and today’s politics, period — would allow an Amazon or Apple to buy a significant media asset. “Mr. Cook, can you promise Americans that if Apple buys CBS, that it will remain committed to keeping three different versions of NCIS on the air?” It’s even harder to imagine a buyer from outside the US buying one of America’s best-known media companies.

Some of these conditions can change, and it’s possible that a merged CBS/Viacom will get bought by … someone, eventually. But for now Redstone will try to argue that a combined CBS and Viacom will be more powerful than they are on their own (and that they will also carve out $500 million a year in synergies, which means lots of layoffs for people who work at both places).

She will also argue that it has assets that already allow it to compete with streaming video competitors, like the online subscriptions it already sells for Showtime and CBS All Access. And then she will argue that adding in another big cable programmer, or another studio that sells TV shows to other programmers, will be even more powerful.

That is all technically plausible. But it will be difficult.

For starters, the deal would need to be approved by US regulators, which once would have been a given but isn’t any longer, given the Trump administration’s on-and-off approach to big merger deals. Recall that Trump congratulated Rupert Murdoch when he sold much of his company to Disney, and got his press secretary to announce that the merger would be a “great thing for jobs.” Trump’s Department of Justice spent more than a year trying to derail AT&T’s acquisition of Time Warner, though his chief antitrust enforcer says it has nothing to do with Trump’s enmity for Time Warner’s CNN. (Note that Trump doesn’t seem to spend much time complaining about Two Broke Girls or Trevor Noah.)

Then CBS and Viacom, whose employees have been eyeing each other with varying amounts of trepidation and disdain for the past three years, will need to actually combine, which will take at least a year, during which time both companies will lose talent that doesn’t want to stick around for the standard-issue messiness and turf battles (see: the stream of people leaving what used to be called Time Warner).

All that will be happening as CBS/Viacom’s competitors start ramping up their efforts to build or grow their own streaming businesses. Netflix has 150 million subscribers and is under constant pressure to keep adding millions of new ones each quarter; Disney, which launches its own service in the fall, has said it wants to add 90 million subscribers by the end of 2024. AT&T’s HBO Max is aiming for 50 million in the same time frame. Apple will have very large ambitions for its streaming … thing … launching this fall. Amazon, which has been rebooting its video service, has made it clear it wants to be in the “very big hits for very big audiences” business, not the “cool shows you probably don’t watch” business.

I can keep going. But if you are arguing that you can compete with those companies by getting bigger, you have to acknowledge that while you are working out how to get bigger, they are going to be getting bigger, while you work on that theory.

*Comcast has invested in Vox Media, which owns this site.

Recode and Vox have joined forces to uncover and explain how our digital world is changing — and changing us. Subscribe to Recode podcasts to hear Kara Swisher and Peter Kafka lead the tough conversations the technology industry needs today.

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