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The week in review: Viacom, CBS in titanic merger

Viacom and CBS agreed to join forces in a multimedia merger valued at $35 billion, creating a potential Internet dynamo and a TV powerhouse too big for the FCC's liking.

    Viacom and CBS agreed to join forces in a multimedia merger valued at $35 billion, creating a potential Internet dynamo and a TV powerhouse too big for the FCC's liking.

    In addition to owning the CBS Television Network, the new company will include several cable networks, premium cable channels, and cable programming operations worldwide, as well as Paramount Pictures. The firm also could establish a leading position in the online music business.

    Under terms of the agreement, CBS shareholders will receive 1.085 shares of Viacom Class B shares for each share of CBS. At Viacom's September 3, 1999, closing price of $45.06 per share, CBS shareholders will receive $48.89 per CBS share.

    But the deal faces regulatory hurdles, as FCC strictures prohibit a company from owning two networks. Viacom already owns struggling UPN. Additionally, no single company may own TV stations that cover more than 35 percent of the U.S. market, but with the merger the two companies' combined reach would be 41 percent, according to estimates.

    In the online world, to date the two companies have followed different strategies. Viacom has concentrated on building on its offline media brands, such as MTV or Blockbuster, though it has formed a Net music division dubbed MTV Interactive. A hub site for children (incorporating Nickelodeon and other properties) is also in the works, and both are intended as spin-offs to be taken public.

    CBS, on the other hand, has been busy taking minority stakes in a host of companies, including Big Entertainment,, SportsLine,, and MarketWatch, among others.

    Ironically, the deal is a bit of a reunion of the two companies. The FCC, after ruling that a network couldn't own a stake in shows it broadcast as well as syndicate reruns to local stations, made CBS sell Viacom as a program syndication company in 1970.

    In an ironic twist, the America Online-funded Mozilla organization appears likely to support an instant messaging technology in direct competition with AOL's own AIM and ICQ messaging software., the group shepherding the open-source development of AOL's Communicator Web browser, is hard at work on a messaging program for users of the Internet Relay Chat network (IRC). The program which could be included in Mozilla's first beta release of Communicator, expected in the next four weeks.

    Microsoft is turning to an outside auditor to test the security of its free email service, Hotmail, after a breach was discovered last week that threatened its users' privacy. The potential damage varied from allowing unauthorized parties to see a user's list of messages to allowing them to take complete control of an account.

    Free-speech advocates are trying to derail an international plan to attach movie-like ratings on Internet content, a scheme taken up by leading online companies at the Internet Content Summit in Munich. The U.S. government, the European Union, and other nations are rallying to curb minors' access to "harmful" Web sites, but a group of human rights organizations and policy think tanks is warning that a blanket Net rating system would threaten free expression.

    The Motion Picture Association of America is jockeying for a seat on the board of the Internet Corporation for Assigned Names and Numbers, charged to set policy that could affect online promotions as well as Hollywood's ability to crack down on unauthorized uses of its property in cyberspace. The MPAA wants to be in the running when ICANN elects nine new members this November.

    Dell Computer snatched the top spot in U.S. PC sales from Compaq, winning for the first time by 16.6 percent to 16.5 percent. Significantly, Dell accomplished this feat while selling computers that cost an average of $500 more than Compaq's.

    Sega launched its highly anticipated Dreamcast game console at events held around the United States, winning a strong response. Equipped with a high-powered 128-bit chip, modem, and computer-like features such as email and Internet capabilities, the Dreamcast can ostensibly duplicate or even improve upon many of the core functions of home PCs, but whether such game consoles will prove a substitute is an open question.

    Japan's response to Apple's forthcoming iBook portable could be an important barometer of both the notebook's appeal and Apple's continuing comeback abroad. Sales in the Asian country, one of the largest markets for Apple products outside of America, will be closely watched when they begin in October.

    Digital video recording firm TiVo set a price for its initial public offering and announced an alliance with consumer electronics giant Sony. The company's personal video systems allow TV viewers to pause and rewind live television by recording video streams to the device's hard drive; a complementary service enable users to customize television schedules and specialized content.

    The big guys
    Lucent unveiled new technology for the deployment of digital subscriber lines, wadding into a fast-growing market that's home to a variety of start-ups. In the short-term, demand should allow smaller firms to flourish in the shadow of giants, but like most technology niches, DSL equipment makers will no doubt consolidate as customers increasingly choose to purchase their equipment from established companies.

    Microsoft made two new forays into the global telecommunications market, forming an Asian joint venture with Global Crossing and Softbank, and partnering with Dutch cable company UPC and Liberty Media in Europe. The software giant hopes its investments will increase the transfer of data over networks, thereby cultivating new markets for its core desktop and software products and expanding the reach of its Internet business.

    Big telcos have been selling off small, rural networks--but local customers are excited by the prospect of smaller firms moving more quickly to install modern technology.

    Always on
    A long-term dream of offering worldwide 24-hour trading has brokerages rushing to plant their flags across Europe and Asia. Several hurdles loom--including cultural attitudes toward trading equities--but the prospect of clients trading at any given moment from any point around the globe seems to be too enticing to ignore.

    European companies are waking up to the benefits of using the Web as a business tool, according to a research study which shows that more than a third of European executives now consider the Web crucial for procurement of goods and services. A year ago, most companies used the Web almost exclusively for sales and marketing.

    A growing crop of e-tailers are offering to ship their goods for free, absorbing costs as a way to lure bargain-hungry consumers. The strategy could be risky, since free shipping not only sets high customer expectations for the future, but also eats into profit margins.

    Computer services giant EDS detailed a reorganization into four lines of business: consulting; e-business; business process management, and information technology. The move is part of chief executive Dick Brown's master plan, first announced this spring.

    Corner offices
    Netscape Communications cofounder Marc Andreessen, 28, stepped aside as chief technology officer of America Online in favor of former Sun Microsystems chief strategy officer William J. Raduchel, 53. Andreessen will stay on as a part-time "strategic adviser focusing on emerging technologies and investments.

    Red Hat Software, a driving force behind the commercial proliferation of the freely available Linux operating system, has made three of its investors paper billionaires in less than a month. Leading investor Frank Batten Jr has seen his 15 million shares rise in value well over the magic number, while founder and chief technical officer Marc Ewing and CEO Robert Young also topped the mark as the company's stock finished the week near $120.

    Walt Disney Company appointed former ESPN chief and ABC president Steven Bornstein as chairman of Buena Vista Internet Group, the company's Internet division. The appointment comes as Disney plans to spin off its Internet properties--which include,,, and a separate company called

    Web consulting company USWeb/CKS completed its acquisition of consulting firm Mitchell Madison Group and named Mitchell co-founder Tom Steiner as USWeb's new president and chief operations officer.

    Also of note
    Memory prices surged 50 percent and more in various markets in the last week amid a swirl of rumors that supply is beginning to shrink ? Compaq Computer took aim at low-cost PC rival Emachines in a major ad campaign ? A new study shows Hewlett-Packard has surpassed Cabletron as the No. 2 supplier in a key networking gear market ? Charles Schwab lowered its fees for trades that are made online by clients working with independent advisers ? Hundreds of ICQ users have found themselves temporarily duped out of their online identities, as a new Trojan horse is making its way around the Net.