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Doubts Circle Viacom, Vanguard of Yesteryear

Sumner Redstone, chairman of Viacom.Credit...Christopher Patey/Contour by Getty Images

It was a bleak day in early August at the Times Square headquarters of Viacom, the company that is the home of MTV, Nickelodeon, Comedy Central and Paramount’s film studios. Weak earnings led shares in the media conglomerate to plunge as much as 22 percent in trading before closing down 14 percent for the day, wiping out billions of dollars in market value.

Philippe P. Dauman, Viacom’s chief, called his 92-year-old boss, Sumner M. Redstone, to discuss the news. Mr. Redstone, the chairman of Viacom who controls about 80 percent of the company, told Mr. Dauman not to worry and that the company would be fine, according to executives briefed on the conversation.

The Mr. Redstone of 20 years ago — short-tempered and acerbic, known for monitoring quarter-point fluctuations in Viacom’s stock and screaming until spit flew from his mouth — likely would not have been so reassuring. And several current and former Viacom executives, as well as industry analysts, question whether everything is fine at Viacom.

So far this year, Viacom shares have plummeted about 37 percent, vastly underperforming the S&P 500, which is down about 4 percent. Plaguing the company are persistent declines in television ratings, weak ad sales and a lackluster film slate. Viacom also faces questions from Wall Street about more than $14 billion in stock buybacks, which analysts said could have been used to invest in or acquire fresh products or services.

That shift in perception is dramatic. This was the company that helped launch the careers of Jon Stewart and Stephen Colbert, brought to life iconic characters like SpongeBob SquarePants and Dora the Explorer, and had several generations demanding the music videos of MTV. Now, Viacom has lost its perch amid the explosion of competition from traditional and digital outlets, like Netflix, Snapchat, YouTube, Twitter, Vine and Facebook.

“There was a time when we defined what was cool for kids with MTV,” one senior Viacom executive said. “That isn’t the case anymore.”

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Miley Cyrus meets Phillippe Dauman, chief of Viacom, and his wife, Deborah.Credit...Mario Anzuoni/Reuters

Another concern is that the massive wave of consolidation sweeping across cable and satellite companies will greatly reduce the rates Viacom can charge for its programming and even creates the potential that cable or satellite companies like Dish could drop Viacom from their bundle of channels, since its programming is now available on a range of streaming services like Amazon and Hulu. Last year, more than 60 small cable operators, which account for about 2 million pay television subscribers in the United States, dropped Viacom’s channels.

Goldman Sachs downgraded its valuation of Viacom this week. The firm said that there was pressure on the stock for several reasons, including the fact that ratings at its television networks declined 14 percent year over year, the sixth consecutive quarter of ratings declines. (For comparison, Goldman Sachs said that Viacom’s quarterly ratings have declined 20 percent on average since the fourth quarter of 2014, compared with a 7 percent decline for its peer group.)

And Todd Juenger, an analyst with Bernstein Research, went so far as to compare Viacom to Eastman Kodak, the photography company made obsolete by the digital world.

“We realize this is a severe comparison,” he said in a July research note, “but we think it is an apt illustration of the downside scenario for the ultimate fate of Viacom.”

Thomas E. Dooley, chief operating officer of Viacom, called the criticism outdated, saying the company’s programming remained in high demand. Just this week, Viacom announced that it had struck distribution agreements with the streaming service Hulu and AT&T, which recently acquired the satellite provider DirecTV. Mr. Dooley said that ratings at some Viacom channels like Nickelodeon have shown signs of improvement and that the company has installed new leadership at other channels like MTV. He pointed to a 23 percent increase in Viacom’s stock price since its ebb at the end of August.

“There is certainly a major perception change in the fate and the future of Viacom since those early August days,” he said.

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Jon Stewart at the 2015 Emmys.Credit...Paul Buck/European Pressphoto Agency

He added that Viacom is not alone in the challenges it is faces on Wall Street. Broader fears about the future of the traditional television business have led to a sell-off of shares of media stocks in recent months.

Further complicating the picture for Viacom are questions about Mr. Redstone’s health and involvement at the company, as well as uncertainty over what will happen after he is no longer chairman. In May, Mr. Redstone issued a statement saying that the decision over succession at the company would be made by the board, not an individual, and that such a decision had not yet been made. (Mr. Redstone also is the chairman and controlling shareholder at CBS, which faces similar questions about succession.)

Some Viacom executives said that Mr. Redstone continued to monitor the company’s stock price, swam every day and remained his usual feisty self. They said he communicated by taking a breath, swallowing twice, then speaking five or six words.

Yet others close to the company have raised questions about that depiction. Mr. Redstone has not been spotted publicly since a 92nd birthday party in Los Angeles in May. He did not attend the company’s annual stockholders meeting in March. A regular participant on company conference calls, Mr. Redstone has not spoken on one since November 2014.

The board, which includes several executives known to be close to Mr. Redstone, has effectively endorsed Viacom’s leadership by signing off on paydays that rank at the top of executive compensation packages. Mr. Redstone’s total compensation for the fiscal year that ended Sept. 30, 2014, was $13.2 million, while Mr. Dauman’s was $44.3 million, up 19 percent from the previous year. During that same period, Viacom’s net earnings were essentially flat and the stock price declined about 9 percent.

In August, Viacom disclosed in a regulatory filing that Robert K. Kraft, the owner of the New England Patriots, was stepping down from the board because “his obligations elsewhere had increased.” In private conversations, however, Mr. Kraft is said to have expressed dissatisfaction with the company’s direction, according to two people who spoke to him but requested anonymity because the conversations were not meant to be public. Meanwhile, Mr. Redstone’s daughter, Shari Redstone, who is nonexecutive vice chairwoman of the board, is worried about the direction of Viacom, according to two people who spoke with her but requested anonymity because the conversations were private.

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SpongeBob SquarePants is one of the iconic characters Viacom brought to life on its children’s channel, Nickelodeon.Credit...Paramount Pictures and Nickelodeon Movies, via Associated Press

Mr. Dauman, a reserved lawyer and Mr. Redstone’s longtime confidant, was named chief executive of Viacom in 2006. On his watch, a number of executives and creative talent have left the company. Among the prominent departures was Van Toffler, a well-liked 28-year veteran who left his job as president of MTV Networks Music and Logo Group in April despite entreaties from Mr. Dauman that he stay.

Coinciding with his departure was a major reorganization at Viacom that led to significant job cuts. On the screen, Comedy Central has said goodbye to three of its biggest stars: Jon Stewart, who ended his run as host of “The Daily Show,” and Stephen Colbert, who left to host “The Late Show” on CBS. John Oliver left to host a program on HBO.

Mr. Dooley said that executives who have left were in charge when their networks experienced ratings declines. He added that the company frequently acts as a launching pad for stars. One example, he said, is Amy Schumer, who has a show on Comedy Central but recently made a movie and has a standup special on HBO.

Viacom executives said spending on content totals more than $4 billion a year, of which original programming is “a substantial part.” The company also is investing in new audience measurements that count the digital viewership of its brands. MTV’s Video Music Awards, for instance, drew an audience of 9.8 million this year, roughly half a million less than last year, according to Nielsen. But Viacom calculated more than 76 million views across TV and digital.

At the same time, Viacom — which also owns networks like BET, Spike and VH1 — highlights the growth of its international business, efforts to make money on new forms of distribution, such as selling programing to mobile, and development of a stronger film slate.

Viacom has struggled in Hollywood. To save money, the company’s movie studio, Paramount Pictures, has dramatically slowed production — it released no films in the quarter ended in June. Among the six biggest studios, Paramount ranked last in North American market share for the last three years running, according to Rentrak, which compiles box office data.

The studio, run by Brad Grey, is now trying to increase production to 15 films annually (up from about a dozen) and start a television production business. But analysts are not particularly optimistic. On a conference call with clients in August, the media analyst Michael Nathanson noted that Paramount has operating margins of “less than 3 percent.”

He added, “I don’t understand how that’s possible, and I don’t understand why Viacom continues to own that company and the management of Paramount has a job.”

A version of this article appears in print on  , Section B, Page 1 of the New York edition with the headline: Doubts Circle Viacom, Vanguard of Yesteryear. Order Reprints | Today’s Paper | Subscribe

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