Viacom employees become casualties of corporate chaos

The boardroom battle raging at media company Viacom Inc. has roiled one oft-forgotten contingent: Viacom’s workforce.

Over the last six months, Viacom employees at MTV, Comedy Central, Nickelodeon, VH1, BET and Paramount Pictures have been distracted, first by a salacious court case pitting 93-year-old Sumner Redstone against a former girlfriend, then by a war for control of the company between the Redstone family and Viacom Chief Executive Philippe Dauman.

This week, Sumner Redstone and his daughter, Shari Redstone, swiftly moved to dismiss Dauman and four other members of Viacom’s board — escalating the conflict that is expected to play out in coming weeks in Massachusetts and Delaware courts.

The denouement and the prospect of new leadership can’t come too soon for Viacom and its 9,000 employees who’ve grown increasingly weary of the fight for control of the Redstone family’s $40-billion media empire that includes CBS Corp.

“The level of distraction has gotten incredibly high,” said one senior executive who was not authorized to publicly comment. “This has entered into the realm of something that none of us have ever seen before.”

Morale was low before Redstone’s legal fight erupted with former companion Manuela Herzer nearly six months ago. The beleaguered company has struggled from falling TV ratings at key networks and corporate restructuring, which led to the layoffs of hundreds of workers in recent years.

Viacom’s stock price has fallen more than 40% since mid-2014, and key TV personalities, including Comedy Central’s Jon Stewart, Stephen Colbert and Samantha Bee, have decamped for rival companies. High-level executives have joined the exodus, including top programmers at MTV and Nickelodeon in recent weeks.

“Weathering it up to this point has been devastating for morale and demoralizing for the retention of key creative employees that have great exit alternatives,” said Jeffrey Sonnenfeld, senior associate dean for leadership studies at Yale School of Management.

Earlier this week, when beloved former Viacom CEO Tom Freston appeared on business news channel CNBC, employees within MTV’s New York offices clustered around TVs to watch Freston excoriate current management. “They had a viewing party,” said one person familiar with the matter.

“All of these lawsuits, I think, has really been a sideshow compared to the real story, which has been the fall of Viacom from grace,” Freston said on CNBC. “You can’t run an entertainment company through lawsuits.”

Just when it seemed the soap opera couldn’t get even more bizarre, last week in Los Angeles, a large black SUV showed up — unannounced — at the gates of Paramount Pictures on Melrose Avenue last week with a VIP inside: Sumner Redstone.

The ailing mogul had not been seen on the studio lot for more than a year. Guards escorted the hulking van down the lush Paseo, where vehicles normally are forbidden. Paramount Chairman Brad Grey hustled out of his office and hopped inside the vehicle for a brief conversation with Redstone — who struggles to speak intelligibly — and Shari Redstone.

“This really has become ‘Weekend at Bernie’s’,” said another Viacom insider, who did not want to be identified comparing the company’s controlling shareholder, Redstone, to the namesake character in a 1989 movie in which two middling employees cover up the untimely death of their boss by carting around his remains and pretending that he’s still alive.

Redstone is alive, but now some of Viacom’s employees now wonder how long it will be before the boss, Dauman, 62, is forced out of the executive suite that he has inhabited for nearly a decade.

“We don’t think Dauman has been a particularly good CEO,” said Cowen & Co. media analyst Doug Creutz said in a report on Friday. “However, there is no guarantee a replacement CEO will be any better.”

Dauman is not going without a fight. On Friday, he and fellow Viacom board member George Abrams asked a judge in Massachusetts for an expedited hearing on their lawsuit to block changes made May 20 by the Redstone family to the board of their investment vehicle, National Amusements Inc.

National Amusements on Friday blasted Viacom’s decision to use corporate dollars to finance the legal battle on behalf of Dauman and four other board members whom the Redstones want replaced on the board.

“Viacom is diverting valuable corporate resources to mount a legal and PR campaign against Sumner Redstone, despite the fact that Redstone is Viacom’s founder, chairman emeritus and controlling shareholder,” a National Amusements representative said.

Caught in the crossfire have been Dauman’s plans to sell a 49% stake in Paramount Pictures to raise money to pay down corporate debt. But Sumner Redstone is vehemently opposed to selling any piece of the historic movie studio, which he won in a hard-fought battle 22 years ago. His resistance sparked the current struggle with Dauman, who until this spring was Redstone’s closest advisor and favorite lieutenant.

Paramount was already down on its luck with a string of box-office misfires. It’s been five years since the studio ranked No. 1 at the box office, and now Paramount employees aren’t sure what’s going to happen next.

Some film industry executives said Paramount’s business continues to function as usual, and the company is still actively shopping for scripts and doing deals amid Viacom’s broader difficulties.

But multiple agents, who declined to be named in order to protect business relationships, said Paramount’s focus on the bottom line can make it difficult to complete big deals for major projects.

“You don’t even send them your best material because you know you can get a better deal elsewhere,” said one Hollywood executive.

There was more bad news Friday. Viacom told Wall Street that its business fundamentals were weaker than originally forecast. Viacom said earnings for the current fiscal quarter would be lower than expected because of the disappointing performance of one of Paramount’s big movie bets for the summer, “Teenage Mutant Ninja Turtles: Out of the Shadows.” The company also attributed the shortfall to a decline in advertising dollars at its U.S. networks.

Traditional companies all have been challenged to adapt their businesses to huge shifts in consumer behavior, and Viacom has been hit harder than other TV companies because its Nickelodeon, MTV and Comedy Central networks target younger viewers who have been the fastest to embrace digital entertainment.

TV doesn’t command the attention of people under age 35 in the same way that it did a generation ago, and Viacom has stumbled trying to keep up with the changes.

“Viacom used to be a place where we had pride to go to work every day. We used to be in the forefront of innovation,” said one former employee. “It’s very difficult and sad.”

Times staff writers Ryan Faughnder and Yvonne Villarreal contributed to this story.

meg.james@latimes.com

@MegJamesLAT

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