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CBS Corp – ‘10-K405’ for 12/31/01

On:  Friday, 3/29/02   ·   For:  12/31/01   ·   Accession #:  912057-2-12516   ·   File #:  1-09553

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/29/02  CBS Corp                          10-K405    12/31/01    9:1.7M                                   Merrill Corp/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Annual Report -- [x] Reg. S-K Item 405              HTML   1.29M 
 2: EX-3.(A)    Articles of Incorporation/Organization or By-Laws     19     71K 
 5: EX-10.(AA)  Material Contract                                     16     39K 
 6: EX-10.(BB)  Material Contract                                     68    284K 
 3: EX-10.D     Material Contract                                     18     68K 
 4: EX-10.Q     Material Contract                                     16     63K 
 7: EX-21       Subsidiaries of the Registrant                        23     96K 
 8: EX-23.A     Consent of Experts or Counsel                       HTML      8K 
 9: EX-24       Power of Attorney                                     16     34K 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

OR

Commission File Number 1-9553

VIACOM INC.

(Exact Name Of Registrant As Specified In Its Charter)

1515 Broadway
New York, NY 10036
(212) 258-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act:
None
(Title Of Class)

        Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/

        As of March 8, 2002, 137,387,192 shares of Viacom Inc. Class A Common Stock, $0.01 par value ("Class A Common Stock"), and 1,626,842,436 shares of Viacom Inc. Class B Common Stock, $0.01 par value ("Class B Common Stock"), were outstanding. The aggregate market value of the shares of Class A Common Stock (based upon the closing price of $50.13 per share as reported by the New York Stock Exchange on that date) held by non-affiliates was approximately $2,188,452,571 and the aggregate market value of the shares of the Class B Common Stock (based upon the closing price of $50.05 per share as reported by the New York Stock Exchange on that date) held by non-affiliates was approximately $75,403,690,512.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of Viacom Inc.'s Notice of the 2002 Annual Meeting and Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended (the Proxy Statement) (Part III).

Part I

Item 1.    Business.

Background

        Viacom Inc. (together with its subsidiaries unless the context otherwise requires, the "Company" or "Viacom") is a diversified worldwide entertainment company with operations, during 2001, in six segments:

•

CABLE NETWORKS: The Cable Networks segment operates MTV MUSIC TELEVISION®, SHOWTIME®, NICKELODEON®/NICK AT NITE®, VH1 MUSIC FIRST®, MTV2 MUSIC TELEVISION™, TV LAND®, THE NEW TNN: THE NATIONAL NETWORK™, CMT®: COUNTRY MUSIC TELEVISION™, the BET CABLE NETWORK™ and BET JAZZ: THE JAZZ CHANNEL™, among other program services.



•

TELEVISION: The Television segment consists of the CBS® and UPN® television networks, its owned broadcast television stations, and the Company's television production and syndication business, including KING WORLD® PRODUCTIONS and PARAMOUNT TELEVISION™.



•

INFINITY: The Infinity segment operates 186 radio stations through INFINITY RADIO™, and outdoor advertising properties through VIACOM OUTDOOR™.



•

ENTERTAINMENT: The Entertainment segment includes PARAMOUNT PICTURES®, which produces and distributes theatrical motion pictures; PARAMOUNT PARKS®, which owns and operates five theme parks and a themed attraction in the U.S. and Canada; and movie theater and music publishing operations.



•

VIDEO: The Video segment consists of an approximately 81% equity interest in Blockbuster Inc., which operates and franchises BLOCKBUSTER® video stores worldwide.



•

PUBLISHING: The Publishing segment publishes and distributes consumer books and multimedia products, under such imprints as SIMON & SCHUSTER®, POCKET BOOKS™, SCRIBNER® and THE FREE PRESS™. On January 31, 2002, the Company announced that its publishing operation would be integrated with the Viacom Entertainment Group. As a result, effective January 1, 2002, the Company will present its publishing business as part of the Entertainment segment.

        The Company maintains a coordinated sales force, VIACOM PLUS™, that represents the Company's various business segments across all of its multiple advertising platforms.

        The Company was organized in Delaware in 1986 for the purpose of acquiring the stock of a predecessor. In 1994, the Company acquired Paramount Communications Inc. and Blockbuster Entertainment Corporation. In August 1999, Blockbuster Inc. ("Blockbuster") (NYSE: BBI) sold to the public approximately 17.7% of its common stock. The Company, through its ownership of all of the outstanding shares of Blockbuster Class B common stock, as of March 8, 2002, holds approximately 81% of the total equity value in, and approximately 95% of the combined voting power of, Blockbuster.

        On May 4, 2000, the Company completed its merger with CBS Corporation ("CBS") for a total purchase price of approximately $39.8 billion, which represented the issuance of approximately 825.5 million shares of Viacom Class B Common Stock, 11,004 shares of Viacom Series C convertible preferred stock (which were subsequently converted into 11.0 million shares of Viacom Class B Common Stock), the estimated fair value of CBS stock options that were assumed by issuing Viacom options, and estimated transaction costs. In addition, Viacom assumed approximately $3.7 billion of CBS debt. As a result of its merger with CBS, the Company acquired an approximate 64.2% equity interest in Infinity Broadcasting Corporation ("Infinity").

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        On August 24, 2000, Infinity completed the acquisition of 18 radio stations from Clear Channel Communications, Inc. for approximately $1.4 billion in an asset transaction. During June 2000, Infinity completed the acquisition of Giraudy SA, one of France's largest outdoor advertising companies, for approximately $400 million.

        On January 23, 2001, the Company completed its acquisition of BET Holdings II, Inc., which operates the BET CABLE NETWORK and BET JAZZ: THE JAZZ CHANNEL, for a total purchase price of approximately $3 billion, which principally represents the net issuance of approximately 43.0 million shares of Viacom Class B Common Stock and the assumption by the Company of approximately $590 million in debt.

        On February 21, 2001, Infinity merged with and into a wholly owned subsidiary of the Company. In connection with the merger, the Company issued 0.592 of a share of Viacom Class B Common Stock for each issued and outstanding share of Infinity Class A common stock resulting in the issuance of approximately 232 million shares of Viacom Class B Common Stock.

        On February 13, 2002, the Company announced that it had agreed to acquire the assets of KCAL-TV from Young Broadcasting Inc. for approximately $650 million in cash. The acquisition is expected to close in mid-2002 and is subject to Federal Communications Commission ("FCC" or the "Commission") review.

        As of March 8, 2002, National Amusements, Inc. ("NAI"), a closely held corporation that owns and operates approximately 1,400 movie screens in the U.S., the U.K. and South America, beneficially owned approximately 68% of the Company's Class A Common Stock, and approximately 11% of the Company's Class A Common Stock and Class B Common Stock on a combined basis. NAI is not subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. Sumner M. Redstone, the controlling shareholder of NAI, is the Chairman of the Board and Chief Executive Officer of the Company.

        The Company's principal offices are located at 1515 Broadway, New York, New York 10036 (telephone 212/258-6000).

        For additional information about principal acquisitions, see Note 3 to the Consolidated Financial Statements.

Viacom Business Segments

Cable Networks

        The Company owns and operates advertiser-supported basic cable television program services through MTV Networks ("MTVN") and BET: Black Entertainment Television ("BET") and premium subscription television program services through Showtime Networks Inc. ("SNI") in the U.S. and internationally.

        Generally, the Company's cable networks are offered to customers of cable television operators, distributors of direct-to-home satellite services ("DTH") and other multichannel distributors. Cable television and DTH are currently the predominant means of distribution of the Company's program services in the U.S. Internationally, distribution technology varies territory by territory.

        MTV Networks.    In the U.S., MTVN's owned and operated program services include MTV: MUSIC TELEVISION ("MTV"), MTV's spin-off, MTV2: MUSIC TELEVISION ("MTV2"), NICKELODEON/NICK AT NITE, TV LAND, VH1 MUSIC FIRST ("VH1"), CMT: COUNTRY MUSIC TELEVISION ("CMT"), and THE NEW TNN: THE NATIONAL NETWORK ("TNN").

        MTV's programming consists of music-based programming, including music and general lifestyle information, comedy and dramatic series, animated programs, news specials, interviews, documentaries and other youth-oriented programming appealing primarily to an audience aged 18 to 24. At December 31, 2001 according to the Nielsen Media Research report, MTV reached approximately 83.4 million domestic

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subscriber households. MTV2, a 24-hour, seven-days-a-week spin-off of MTV, offers a "freeform" music format which features music videos from a broad range of musical genres and artists. At December 31, 2001 according to the Nielsen Media Research report, MTV2 had approximately 36.7 million domestic subscriber households. MTVN also operates "The Digital Suite from MTV Networks" ("The Suite"), a package of digital television program services, which currently consists of MTV2 and five other music related services, and NOGGIN® and two other program services from NICKELODEON. The Suite is offered through DTH distributors and cable operators offering digital technology.

        MTV FILMS™, in association with PARAMOUNT PICTURES, presented SAVE THE LAST DANCE, which was released by PARAMOUNT PICTURES in 2001, and co-presented CROSSROADS, released by PARAMOUNT PICTURES in February 2002. MTV FILMS also produced ORANGE COUNTY with PARAMOUNT PICTURES, released in January 2002. MTV has also launched lines of home videos, consumer products and books, featuring MTV programming and personalities.

        NICKELODEON combines acquired and originally produced programs in a pro-social, non-violent format comprising two distinct program units tailored to age-specific demographic audiences: NICKELODEON, targeted to audiences ages 2 to 11 (which includes NICK JR.®, a program block designed for 2 to 5 year olds, and such popular shows as RUGRATS, BLUE'S CLUES and SPONGEBOB SQUAREPANTS); and NICK AT NITE, which attracts primarily audiences ages 18 to 54 and offers mostly situation comedies from various eras, including CHEERS, FAMILY TIES, ALL IN THE FAMILY and THREE'S COMPANY. At December 31, 2001, according to the Nielsen Media Research report, NICKELODEON/NICK AT NITE reached approximately 85.3 million domestic subscriber households. NICKELODEON licenses its brands and characters for and in connection with merchandise, home video and publishing worldwide. NICKELODEON MOVIES® develops a mix of story- and character-driven projects based on original ideas and NICKELODEON programming, such as the feature film JIMMY NEUTRON: BOY GENIUS, released in fourth quarter 2001 by PARAMOUNT PICTURES. Additionally, the Company publishes monthly NICKELODEON MAGAZINE™. NICKELODEON GAS GAMES AND SPORTS FOR KIDS®, a cable program service packaged as part of The Suite, features children's game shows and sports programming for viewers ages 6 to 11, and includes a related online service. NICKELODEON owns and operates theme park attractions and touring shows under its NICKELODEON RECREATION™ unit and interactive public attractions and television production studios under its NICKELODEON STUDIOS® unit located at Universal Studios Florida. NICKELODEON also produces original animation at its NICKTOONS® Animation Studio in Burbank, California.

        TV LAND is comprised of a broad range of well-known television programs from various genres, including comedies, dramas, westerns, variety and other formats from the 1950s through today, including I LOVE LUCY, THE ANDY GRIFFITH SHOW, THE LOVE BOAT, LEAVE IT TO BEAVER and THE MARY TYLER MOORE SHOW. At December 31, 2001, according to the Nielsen Media Research report, TV LAND reached approximately 68.0 million domestic subscriber households.

        VH1 presents music and related programming directed at an audience aged 25 to 49 with an emphasis on series which feature viewers' favorite music and artists such as VH1 BEHIND THE MUSIC, STORYTELLERS, POP UP VIDEO and DRIVEN. In addition, VH1 airs concerts, special events, musically themed movies and music videos. In April 2001, VH1 aired VH1 DIVAS LIVE: THE ONE AND ONLY ARETHA FRANKLIN, followed in July 2001 by BON JOVI: ONE LAST WILD NIGHT, and in December 2001, VH1 aired MY VH1 MUSIC AWARDS, where nominees and winners were determined by fans voting online. In October 2001, VH1 aired the CONCERT FOR NEW YORK CITY, a post-September 11 tribute concert and fundraising event featuring some of the biggest artists in music, which was the highest rated program in VH1's history. The VH1 SAVE THE MUSIC® Foundation, in connection with VH1's cable television and satellite affiliates, restored instrumental music programs to 254 schools in 43 cities while also winning the 2001 Golden Beacon Award and the 2001 Beacon Award, both

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presented by the Cable Television Public Affairs Association. At December 31, 2001, according to the Nielsen Media Research report, VH1 reached approximately 81.7 million domestic subscriber households.

        CMT presents country music videos, and related events, lifestyle and entertainment programming. Its programming in 2001 included CMT ALL ACCESS, a monthly series of concerts featuring country music artists, and special events such as the COUNTRY FREEDOM CONCERT, a post-September 11 tribute concert and fundraising event featuring some of country music's biggest artists, including Brooks & Dunn, George Strait and Trisha Yearwood. The Company offers CMT in the U.S. and, through a minority joint venture, in Canada. At December 31, 2001, according to the Nielsen Media Research report, CMT reached approximately 56.8 million domestic subscriber households.

        TNN is a general entertainment network with a focus on popular lifestyle and entertainment programming. The Company offers TNN in the U.S. and Canada. At December 31, 2001, according to the Nielsen Media Research report, TNN reached approximately 84.9 million domestic subscriber households and Mediastats reports TNN's Canadian distribution at November 2001, at approximately 6.7 million households. TNN's programming includes the highly rated series WWF RAW, as well as popular movies such as THE GODFATHER; favorite off-net television series such as STAR TREK: THE NEXT GENERATION, MAD-TV and BAYWATCH; original programming such as ROBOT WARS and FAME FOR 15; and sports, including professional bull-riding, motor sports, fishing and other outdoor sports.

        Internationally, MTVN owns and operates, participates in as a joint venturer, and licenses third parties to operate, MTVN program services, including MTV, VH1, NICKELODEON and TV LAND programming. The MTVN international program services are described in the chart that follows. Most of the MTVN international program services are regionally customized to suit the local tastes of the particular young adult viewers by the inclusion of local music, programming and on-air personalities, and use of the local language. MTV Networks Europe is Europe's most widely distributed cable and satellite network comprising 16 individual music channels, including MTV (9 regionalized services), VH1 (3 services), MTV2, MTV Extra™ and MTV Base. The network currently reaches more than 100 million households in Europe via a combination of satellite, cable, and terrestrial distribution.

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International MTVN Program Services

        The following table sets forth information regarding MTVN program services offered internationally:

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*

Denotes program services that are not 24 hours-a-day/seven-days-a-week.

(1)

All MTV and VH1 program services include English language music videos.

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        MTVN, in exchange for cash and advertising time or for promotional consideration only, licenses from record companies music videos for exhibition on MTV, MTV2, VH1, CMT and other MTVN program services. MTVN has entered into multi-year global music video licensing agreements with the major record companies. These agreements generally cover a three-to-five year period and contain provisions regarding video exhibition. MTVN also has entered into global or regional license agreements with certain independent record companies. MTVN expects to renew or initiate additional global or regional license agreements with the foregoing record companies and other record companies. However, there can be no assurance that such renewals or agreements can be concluded on favorable terms (see "Viacom Business Segments—Competition—Cable Networks").

        MTVN derives revenues principally from two sources: the sale of time on its own networks to advertisers and the license of its networks to cable television operators, DTH and other distributors. The sale of MTVN advertising time is affected by viewer demographics, viewer ratings and market conditions for advertising time. Adverse changes to any of these factors could have an adverse effect on revenues. In addition, continued consolidation among cable and/or DTH distributors could have an adverse effect on MTVN's license fee revenue (see "Viacom Business Segments—Competition—Cable Networks").

        The Company operates Internet sites which appeal to the current audiences of its various MTV, VH1, CMT and NICKELODEON television program services, as well as to new online audiences. In addition to providing entertainment and information on such Web sites, the Company also sells Company-licensed and third-party merchandise.

        MTVN has numerous music Web site destinations around the world, including MTV.com, VH1.com, CMT.com and SonicNet.com. In December 2001, MTVN's Web sites attracted over 4.2 million U.S. unique visitors, according to Media Metrix, a leading online audience research measurement service. MTV.com offers users the latest music news, information on artists and MTV programs, and interactive entertainment through programs such as Direct Effect, Total Request Live (TRL) and VJ for a Day. VH1.com offers users interactive entertainment, music news, fan club information, daily polls and community features. MTVN, on behalf of its Web sites, currently obtains much of its content from record labels, music publishers and artists. If these providers begin to charge significant fees for their content, or otherwise alter or discontinue their relationship with MTVN's Web sites, then the respective Web site's content offering and business could be adversely affected. MTVN also operates the TVLand.com and TNNonline.com Web sites providing information and special features relating to the programming on those cable networks.

        NICKELODEON operates Web sites that feature NICKELODEON properties, including Nick.com, NickJr.com, Nick-at-Nite.com, Gas.Nick.com and Teachers.Nick.com. Nick.com is a leading Web site for kids, offering convergent entertainment, online games, entertainment tools and services, information on NICKELODEON celebrities and programs and other content for kids. NickJr.com is a leading Web site for parents and their pre-school aged kids, offering parenting advice and information, as well as a preschool area featuring interactive games, art, stories and music. In December 2001, NICKELODEON's Web sites attracted over 4.4 million unique visitors, according to Nielsen/Net Ratings.

        BET: Black Entertainment Television.    BET's owned and operated cable program services include the BET CABLE NETWORK and BET JAZZ: THE JAZZ CHANNEL.

        The BET CABLE NETWORK targets the African-American viewing audience, appealing primarily to the 18 to 49 age group, by providing a broad mix of music, entertainment, sports, news and public affairs programming, consisting of both original and acquired programs. BET's original programming includes entertainment specials, hosted music video programs, talk shows, sports, news and public affairs offerings, and comedy shows. Acquired programs include movies and gospel music programs.

        Entertainment specials are the most popular form of original programming on the BET CABLE NETWORK. In 2001, BET produced and aired the 1st ANNUAL BET AWARDS, the 7th ANNUAL

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WALK OF FAME, SPRING BLING and the 1st ANNUAL CELEBRATION OF GOSPEL. The debut presentations of the BET AWARDS SHOW and the CELEBRATION OF GOSPEL and the telecast of the 7th ANNUAL WALK OF FAME delivered three of the BET CABLE NETWORK's highest individual show ratings in 2001.

        Hosted music video programs are also featured on the BET CABLE NETWORK. Record companies generally provide BET with music videos at no cost in exchange for exposure on the BET CABLE NETWORK. Some of the network's most widely-watched music video programs include 106 & PARK, HITS FROM THE STREET, and RAP CITY: THA BASSMENT. Original programming also includes entertainment, and sports related shows such as COMICVIEW, a stand-up comedy show; OH DRAMA, an entertainment and gossip talk program; and MAAD SPORTS, a sports magazine show that examines the unique lifestyle of today's professional athletes. To complement its originally produced programming, BET acquires the rights to and airs movies of the week such as ALI: AN AMERICAN HERO and PURPLE RAIN.

        Music and entertainment fare on the BET CABLE NETWORK is balanced with original news and public affairs programming such as BET NIGHTLY NEWS, featuring local and national news; BET TONIGHT, an issue-oriented talk show featuring artists, politicians, business owners and other prominent African-Americans; LEAD STORY, a news digest examining national issues of particular concern to black Americans; TEEN SUMMIT, a program that addresses issues affecting black youth; and JOURNEYS IN BLACK, a documentary series highlighting the lives and achievements of African-Americans.

        BET JAZZ: THE JAZZ CHANNEL ("BET JAZZ"), the only U.S. cable network devoted solely to jazz music, targets the 25 to 54 year old viewing audience. Programming on BET JAZZ consists of a mixture of in-studio performances, festivals, concerts, and celebrity interviews featuring original programming as well as documentary programs. JAZZ CENTRAL, a concert-styled show highlighting various instrumental and vocal jazz artists, enjoys particular popularity on BET JAZZ as do THE SINATRA COLLECTION, a licensed program showcasing the performances of Frank Sinatra, and LATIN BEAT, an original program which features Latin jazz, bossa nova, samba and merengue.

        Both the BET CABLE NETWORK and BET JAZZ derive their revenues from the sale of advertising time on the network and from subscription fees generated by license of the network to cable television operators, DTH and other distributors. As of December 31, 2001, according to the Nielsen Media Research report, the BET CABLE NETWORK reached approximately 70.8 million domestic subscriber households. BET JAZZ is marketed to a niche audience and is made available on both digital and analog distribution platforms.

        BET EVENT PRODUCTIONS produces special musical events and festivals featuring such music genres as jazz, Latin jazz and rhythm & blues. The services provided by BET EVENT PRODUCTIONS include event management; venue selection; talent recruitment and sound, light and stage production. BET EVENT PRODUCTIONS also supports the production needs of BET JAZZ. BET BOOKS® is BET's book publishing division and the country's leading publisher of romance books for the African-American market. BET BOOKS' revenues are generated by book sales through a subscriber book club, retail outlets, discount stores and on-line book merchants.

        BET has a minority interest in BET INTERACTIVE, LLC, a company that operates BET.com, which provides news, personal finance, health, entertainment, music and artist information, and articles tailored to the unique interests and issues of African-Americans. BET.com also provides program schedules for the BET CABLE NETWORK and BET JAZZ as well as information on promotional events. In December 2001, BET.com attracted approximately 700,000 unique visitors, according to Nielsen/NetRatings. BET.com was named "Best African-American Site" for two consecutive years by Yahoo! Internet Life Magazine.

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        Showtime Networks Inc.    SNI owns and operates three commercial-free, premium subscription television program services in the U.S.: SHOWTIME, offering recently released theatrical feature films, original motion pictures and series, family entertainment, and boxing and other special events; THE MOVIE CHANNEL™, offering recently released theatrical feature films and related programming; and FLIX®, offering theatrical feature films primarily from the 70s, 80s and 90s as well as selected other titles. At December 31, 2001, SHOWTIME, THE MOVIE CHANNEL and FLIX, in the aggregate, had approximately 31.3 million subscriptions in the 50 states and certain U.S. territories. SUNDANCE CHANNEL®, a venture (among SNI, an affiliate of Robert Redford and Universal Studios) managed by SNI, is a commercial-free premium subscription television program service in the U.S., dedicated to independent film, featuring top-quality American independent films, documentaries, foreign and classic art films, shorts and animation, with an emphasis on recently released titles.

        SNI also owns and operates several multiplexed versions of SHOWTIME and THE MOVIE CHANNEL in the U.S., including SHOWTIME BEYOND®, a genre-based channel featuring sci-fi, horror and fantasy programming; SHOWTIME EXTREME®, a genre-based channel featuring action/adventure programming; SHOWTIME TOO™, a multiplexed channel of SHOWTIME, offering additional viewing choices of original programming and top-end theatrical features; SHOWTIME SHOWCASE, featuring the best of SHOWTIME's original programming; SHOWTIME NEXT™, a channel targeting 18-24 year-olds; SHOWTIME WOMEN™, focusing on women in front of and behind the camera; SHOWTIME FAMILYZONE™, a channel featuring no R-rated programming; and TMC XTRA, a multiplexed channel of THE MOVIE CHANNEL, counter-programmed to offer more and varied movie viewing choices. SNI also transmits a high definition television version of SHOWTIME. In addition, SNI owns an advertiser-supported basic television program service in Spain named SHOWTIME EXTREME® with Media Park, S.A., a leader in thematic channel production based in Barcelona. SNI also owns with Zone Vision Enterprises, Limited, a UK company, an advertiser-supported basic television program service in Turkey named SHOWTIME™.

        SNI also provides special events, such as sports and musical events, to licensees on a pay-per-view basis. SHOWTIME EVENT TELEVISION™ is a pay-per-view distributor of these special events, including high-profile boxing events. In addition to boxing, SHOWTIME EVENT TELEVISION has been instrumental in bringing other events to the viewing public, such as DORITOS PRESENTS DREW CAREY'S IMPROV ALL STARS, as well as numerous music concerts, including THE LAST KISS, SPICE GIRLS IN CONCERT—WILD!, THE BACKSTREET BOYS, TINA TURNER and THE ROLLING STONES.

        The costs of acquiring premium television rights to programming and producing original motion pictures and series are the principal expenses of SNI. In order to exhibit theatrical motion pictures on premium subscription television, SNI enters into commitments to acquire rights, with an emphasis on acquiring exclusive rights for SHOWTIME and THE MOVIE CHANNEL, from major or independent motion picture producers and other distributors. SNI's exhibition rights cover the U.S. and may, on a contract-by-contract basis, cover additional territories. SNI has the exclusive U.S. premium subscription television rights to all PARAMOUNT PICTURES' feature films theatrically released beginning January 1, 1998, as well as non-exclusive rights to certain titles from PARAMOUNT PICTURES' film library (see "Viacom Business Segments—Entertainment"). SNI also has significant theatrical motion picture license agreements with other motion picture producers and distributors, including Metro-Goldwyn-Mayer Studios Inc. ("MGM"), Artisan Pictures Inc., and Buena Vista Television (a subsidiary of The Walt Disney Company) for Dimension Films theatrical pictures, covering motion pictures initially theatrically released through various dates up to December 31, 2008. Theatrical motion pictures that are licensed to SNI on an exclusive basis are generally exhibited first on SHOWTIME and THE MOVIE CHANNEL after an initial period or "window" for theatrical, home video and pay-per-view exhibition and before the period commences for standard broadcast television and basic cable television exhibition. Many of the motion

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pictures which appear on FLIX have been previously available for standard broadcast and other exhibitions (but are shown on FLIX unedited and commercial-free).

        SNI also arranges for the development, production, acquisition and, in many cases, distribution of original programs, series and motion pictures. SNI's original series include THE CHRIS ISAAK SHOW, a critically acclaimed series featuring rock musician Chris Isaak; QUEER AS FOLK, a dramatic series focusing on the relationships, careers, loves and ambitions of a group of gay men and lesbians; RESURRECTION BLVD., the first English-language U.S. dramatic television series that predominantly features Hispanics both in front of and behind the camera; and SOUL FOOD, a series (based on the theatrical motion picture of the same name) that follows the struggles, rivalries and triumphs of a multi-generational African-American family. SNI's original programming has received numerous industry awards over the years, including the Academy of Television Arts and Sciences' prestigious Governor's Award for diversity in programming for 2001. As part of its original programming strategy, SNI premiered 31 original motion pictures on SHOWTIME and 2 original motion pictures on THE MOVIE CHANNEL in 2001, and expects to premiere approximately 24 original motion pictures on SHOWTIME in 2002. The producers of some of SNI's original motion pictures are given an opportunity to seek a theatrical release prior to such pictures' exhibition on SHOWTIME or THE MOVIE CHANNEL. If the producers are not successful in obtaining such a theatrical release, these pictures then premiere in the U.S. on SHOWTIME or THE MOVIE CHANNEL. SNI has entered into and plans to continue to enter into co-financing, co-production and/or co-distribution arrangements with other parties to reduce the net cost to SNI for its original motion pictures. In 2001, Hallmark Entertainment Distribution LLC, PARAMOUNT TELEVISION, MGM and Columbia TriStar Domestic Television were the predominant co-producers, co-financiers and co-distributors of SNI's original motion pictures, programs and series for that year. BLOCKBUSTER and SNI have an agreement whereby BLOCKBUSTER will license from SNI the exclusive domestic home video rights to up to 140 SNI original motion pictures and other programs through March 31, 2005.

        SNI derives revenue principally from the license of its networks to cable television operators, DTH and other distributors. The failure to renew agreements with these distributors on favorable terms or continued consolidation among cable and DTH distributors could have an adverse effect on SNI's revenues.

        Cable Networks Joint Ventures.    COMEDY CENTRAL®, a joint venture of the Company and Home Box Office ("HBO"), a unit of AOL Time Warner Inc., is an advertiser-supported basic cable television program service which features comedy programming, including SOUTH PARK. The Company is a joint venturer in GULF DTH ENTERTAINMENT LDC, a satellite direct-to-home platform offering the following channels in the Middle East: MTV, VH1, NICKELODEON, TV LAND and THE PARAMOUNT COMEDY CHANNEL™. A joint venture between NICKELODEON and Sesame Workshop (formerly Children's Television Workshop) operates NOGGIN, a 24-hour, seven-days-a-week, non-commercial children's program service, distributed primarily by digital cable and satellite, which includes a related online service. NOGGIN seeks to educate and entertain 2 to 12 year olds and their families. NOGGIN's programming line-up includes a mix of live action, news, animated and puppet shows, including many acclaimed series such as Sesame Street, Electric Company and BLUE'S CLUES after their initial network runs.

Television

        The Television segment consists of the CBS and UPN television networks, its owned broadcast television stations, and the Company's television production and syndication business.

        Television Networks.    The CBS TELEVISION NETWORK™ through CBS NEWS™, CBS SPORTS™ and CBS ENTERTAINMENT™ distributes a comprehensive schedule of news and public affairs broadcasts, sports and entertainment programming, and feature films to more than 200 domestic affiliates,

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including 20 of the Company's owned and operated television stations, and to certain overseas affiliated stations. The affiliates serve, in the aggregate, all 50 states and the District of Columbia, reaching virtually every television home in the U.S. The CBS TELEVISION NETWORK is responsible for sales of advertising time for its network broadcasts.

        CBS NEWS operates a worldwide news organization, providing the CBS TELEVISION NETWORK and the CBS RADIO NETWORK® with regularly scheduled news and public affairs broadcasts, including 60 MINUTES, the pioneering news magazine now in its 34th year, and its offspring, 60 MINUTES II, the CBS EVENING NEWS WITH DAN RATHER, 48 HOURS, THE EARLY SHOW, FACE THE NATION, THE SATURDAY EARLY SHOW and CBS NEWS SUNDAY MORNING—as well as special reports. CBS NEWS maintains 18 news bureaus and offices around the world, in addition to its headquarters operations in New York City. CBS Radio News serves more than 2,000 radio stations with hourly newscasts, instant coverage of breaking stories, special reports, updates, features, customized reports and news feed material. Among its many features are "World News Roundup" and "The World Tonight." CBS News Productions, the off-network production company created by CBS NEWS, produces original nonfiction programming for domestic and international outlets, including the cable television, home video, CD-ROM, audio-book and in-flight markets, as well as schools and libraries.

        CBS SPORTS broadcasts comprehensive regular-season golf and college basketball lineups on network television, in addition to the NFL's American Football Conference schedule and championship games. Among the events CBS SPORTS airs are THE NFL TODAY; NCAA basketball, including the men's Final Four and the championship game; golf, including the Masters and PGA Championship; the U.S. Open Tennis Championships; college football; CBS SPORTS SPECTACULAR, including track and field and gymnastics, and NCAA championships, including the College World Series. Extending its franchises off the field, CBS SPORTS has launched a licensing program that will showcase its logo on apparel and sports equipment and has formed a marketing unit to develop licensing, merchandising, multimedia and other business opportunities for advertisers and event organizers.

        CBS ENTERTAINMENT is responsible for acquiring or developing and scheduling the entertainment programming presented on the CBS TELEVISION NETWORK which includes primetime comedy and drama series, new television movies and mini-series, theatrical films, specials, children's programs, daytime dramas, game shows and late-night programs. CBS ENTERTAINMENT introduced five dramas and two comedies in the 2001-2002 season, including THE AGENCY, THE EDUCATION OF MAX BICKFORD and THE GUARDIAN as well as the new reality-based series THE AMAZING RACE. Shows on the CBS TELEVISION NETWORK include EVERYBODY LOVES RAYMOND, CSI: CRIME SCENE INVESTIGATION, BECKER, THE KING OF QUEENS, THE DISTRICT, JUDGING AMY, TOUCHED BY AN ANGEL, JAG and FAMILY LAW. The Company also continued its reality-based SURVIVOR series, with SURVIVOR: THE AUSTRALIAN OUTBACK, SURVIVOR: AFRICA and SURVIVOR: MARQUESAS. The division presents a lineup of made for television movies, specials that includes THE GRAMMY AWARDS, THE COUNTRY MUSIC ASSOCIATION AWARDS and THE KENNEDY CENTER HONORS, and THE LATE SHOW WITH DAVID LETTERMAN. The CBS daytime lineup and the drama THE YOUNG AND THE RESTLESS have been rated number one in the daypart by Nielsen Media Research for 13 consecutive years.

        At December 31, 2001, the UPN NETWORK provided 25 hours of programming a week, including two-hour primetime programming blocks five nights per week, Monday through Friday. UPN's programming is provided to its affiliates in 184 U.S. television markets, reaching approximately 97% of all U.S. television households, including secondary affiliates. Nineteen of the Company's owned television stations are affiliates of UPN. In January 2002, management of the UPN NETWORK was integrated into CBS TELEVISION operations. UPN's 2001-2002 season includes four dramas, including BUFFY THE VAMPIRE SLAYER and ENTERPRISE. ENTERPRISE is the latest series in the STAR TREK® franchise. In addition, UPN's primetime schedule includes the new comedy ONE ON ONE as well as the

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returning series WWF SMACKDOWN! UPN also broadcasts a two-hour children's animated programming block six days a week.

        Through CBS.com, the Company operates Web sites which draw visitors from CBS TELEVISION NETWORK programming in all dayparts (daytime, primetime and late night) and in all genres (comedy, drama, reality, movies and mini-series, newsmagazines, hard news and morning news), and include local, national and international news; weather; sports; and information about CBS TELEVISION NETWORK programming. CBS.com maintains an Internet presence for every program on the CBS TELEVISION NETWORK and is the comprehensive source of information about the shows (including such features as David Letterman's "Top Ten" list). In 2001, CBS.com delivered more than one billion pageviews to online fans of the CBS TELEVISION NETWORK's programming. In 2001, as a result of the debut of CBS's reality show, SURVIVOR: THE AUSTRALIAN OUTBACK, CBS.com reached its highest visitor levels ever. Also, CBS.com provides links to a number of Web sites, including CBS.MarketWatch.com and CBS.SportsLine.com, which are published by entities in which the Company owns an equity interest.

        The Company holds minority investments in three public Internet companies: SportsLine.com, Inc. (NASDAQ: SPLN), a provider of Internet sports content and e-commerce, including operation of the CBS.SportsLine.com Internet site; MarketWatch.com, Inc. (NASDAQ: MKTW), a provider of business news, financial programming and analytic tools, including operation of the CBS.MarketWatch.com Internet site; and Hollywood Media Corp. (NASDAQ: HOLL), a provider of entertainment related information, content and ticketing services, including operation of the Hollywood.com Internet site.

        Television Stations.    The Company owns 34 television stations and 4 satellite stations, all of which operate under licenses granted by the FCC pursuant to the Communications Act of 1934, as amended (the "Communications Act"). The licenses are renewable every eight years.

        The Company's television stations are located in the 7 largest, and 15 of the top 20, television markets in the U.S. The Company has duopolies in 7 major markets: Philadelphia (market #4), San Francisco (market #5), Boston (market #6), Dallas (market #7), Detroit (market #10), Miami (market #15) and Pittsburgh (market #21). In February 2002, the Company announced an agreement to acquire KCAL-TV in Los Angeles. This acquisition, which is expected to close in mid-2002, will give the Company its second owned and operated station in Los Angeles and will bring to eight the number of major markets in which the Company will own two television broadcast stations. The Company-owned television stations reach approximately 44% of all U.S. television households, 39% of U.S. television households as measured by the FCC's national ownership rule. The FCC's order approving the merger of Viacom and CBS required that the Company be in compliance with the FCC's national ownership limitation of 35% by May 4, 2001. The Company challenged the rule in federal court and was granted a stay of the requirement to come into compliance with the limit pending an order of the court. On February 19, 2002, the court found the FCC's 1998 decision not to repeal or to modify the national ownership cap to be arbitrary and capricious and remanded the rule to the FCC for further consideration whether to repeal or modify the rule. On March 28, 2002, the FCC ordered that the Company has until 12 months after the issuance of a final FCC decision on the remand to file any application that may be necessary to come into compliance with any limits that may exist at that time.

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        The stations produce news and broadcast public affairs and other programming to serve their local markets and offer CBS or UPN television network and syndicated programming. Many of the Company's television stations currently operate Web sites which promote the stations' programming, and provide news, information and entertainment, as well as other services.

        Currently, broadcast signals are, for the most part, transmitted in analog form. However, in April 1997, the FCC assigned each existing television station a six MHz channel to be used for the broadcast of digital television. The FCC adopted a time schedule under which stations are required (absent conditions beyond their control) to construct digital transmission facilities and begin digital operations. The schedule has staggered deadlines depending upon a station's market size and whether the station is affiliated with a major broadcast television network (CBS, ABC, FOX or NBC). Under the schedule, the Company was required to construct digital transmission facilities for its CBS network affiliated stations in the top 10 markets by May 1, 1999, and by November 1, 1999, for its CBS network affiliated stations in the 11th through 30th markets. The Company is currently transmitting digital broadcasts for these CBS network affiliated stations, as follows: New York, Los Angeles, Chicago (low power), Philadelphia, San Francisco, Boston, Dallas (low power), Detroit, Minneapolis, Miami, Denver (low power), Pittsburgh and Baltimore. Stations identified as broadcasting at low power are broadcasting in the digital format, temporarily with a signal strength below the station's authorized power level. The Company is required to construct digital facilities for the five CBS network affiliated stations in markets below the top 30, as well as for its UPN network affiliated stations in all markets, by May 1, 2002. The Company is currently transmitting digital broadcasts for CBS network affiliated stations in Salt Lake City and Green Bay (low power) and UPN network affiliated stations in San Francisco, Dallas and Detroit.

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Television Stations

        The table below sets forth the television stations owned by the Company as of March 1, 2002.

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(1)

Metropolitan Area Served is Nielsen Media Research's Designated Market Area.

(2)

Market Rank based on September 2001 Nielsen Media Research U.S. Television Household Estimates as provided by BIA Media Access.

(3)

KCCO-TV is operated as a satellite station of WCCO-TV.

(4)

KCCW-TV is operated as a satellite station of WCCO-TV.

(5)

WWHO-TV's primary affiliation is with the UPN NETWORK. The station has a secondary affiliation with the WB network.

(6)

KUSG-TV is operated as a satellite station of KUTV-TV.

(7)

WTVX-TV's primary affiliation is with the UPN NETWORK. The station has a secondary affiliation with the WB network.

(8)

WLWC-TV's primary affiliation is with the UPN NETWORK. The station has a secondary affiliation with the WB network.

(9)

WJMN-TV is operated as a satellite station of WFRV-TV.

(10)

The Company owns an attributable 17.5% interest in WHDF-TV.

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        Television Production and Syndication.    The Company, through CBS ENTERPRISES (including KING WORLD PRODUCTIONS and CBS BROADCAST INTERNATIONAL), PARAMOUNT TELEVISION, SPELLING TELEVISION® (including BIG TICKET TELEVISION®) and VIACOM PRODUCTIONS™ acquires or produces, and distributes programming worldwide including series, miniseries, specials and made-for-television movies primarily for broadcast on network television and exhibition on premium subscription services, and first-run and off-network syndicated programming.

        The Company's current network programming includes PHILLY (ABC); THE AGENCY (CBS); BABY BOB (CBS); BECKER (CBS); CSI: CRIME SCENE INVESTIGATION (CBS); THE DISTRICT (CBS); THE EDUCATION OF MAX BICKFORD (CBS); FAMILY LAW (CBS); FIRST MONDAY (CBS); THE GUARDIAN (CBS); JAG (CBS); ANDY RICHTER CONTROLS THE UNIVERSE (FOX); ED (NBC); FRASIER (NBC); ENTERPRISE (UPN); GIRLFRIENDS (UPN); ONE ON ONE (UPN); THE PARKERS (UPN); CHARMED (WB); THE JAMIE KENNEDY EXPERIMENT (WB); RAISING DAD (WB); SABRINA, THE TEENAGE WITCH (WB); and 7TH HEAVEN (WB). Generally, a network will license a specified number of episodes for exhibition on the network in the U.S. during a license period. The bulk of remaining distribution rights, including foreign and off-network syndication rights, are typically retained by the Company. The episodic network license fee is normally less than the costs of producing each series episode; however, the Company's objective is to recoup its costs and earn a profit through domestic syndication of episodes after their network runs and/or by obtaining international sales through its licensing operations. Foreign sales are generally made within one year of U.S. network runs. Generally, a series must have a network run of at least three or four years to be successfully sold in domestic syndication.

        In off-network syndication, the Company distributes such series as CAROLINE IN THE CITY; CLUELESS; DIAGNOSIS MURDER; EARLY EDITION; EVERYBODY LOVES RAYMOND; FRASIER; JAG; MOESHA; NASH BRIDGES; SABRINA, THE TEENAGE WITCH; 7TH HEAVEN; SISTER, SISTER; SPIN CITY; STAR TREK: VOYAGER and TOUCHED BY AN ANGEL. Outside the U.S., PARAMOUNT PICTURES INTERNATIONAL, WVI FILMS B.V. and CBS BROADCAST INTERNATIONAL distribute U.S. network series programming.

        The Company produces and/or distributes programming for first-run syndication which it sells directly to television stations in the U.S. on a market-by-market basis. The Company's first-run syndicated programming includes such shows as THE ANANDA LEWIS SHOW, BOB VILA'S HOME AGAIN, ENTERTAINMENT TONIGHT, HOLLYWOOD SQUARES, HOT TICKET, INSIDE EDITION, JEOPARDY!, JUDGE JOE BROWN, JUDGE JUDY, MARTHA STEWART LIVING, MAXIMUM EXPOSURE, THE MONTEL WILLIAMS SHOW, THE OPRAH WINFREY SHOW, RENDEZ-VIEW and WHEEL OF FORTUNE. The DR. PHIL SHOW and LIFE MOMENTS are scheduled to be launched commencing in September 2002. Outside of the U.S., CBS BROADCAST INTERNATIONAL, PARAMOUNT PICTURES INTERNATIONAL and WVI FILMS B.V. distribute first-run syndicated programming and license format rights to game shows.

        The Company produces and/or distributes original television programming for basic cable program services (such as the television series BEYOND CHANCE and THE DIVISION, on Lifetime), including for services in which the Company has an interest. It also produces and/or distributes for premium subscription services programming such as SOUL FOOD, RESURRECTION BLVD. and THE CHRIS ISAAK SHOW. The Company also co-produces and/or distributes original television programming for foreign television exhibition, including such shows as LARGO and MESSIAH.

        The recognition of revenues for license fees for completed television programming in syndication and on basic cable is similar to that of feature films exhibited on television with license fees recorded as revenue in the year that programming is available for exhibition which, among other reasons, may cause substantial fluctuation in the Television segment's operating results. At December 31, 2001, the unrecognized revenues attributable to television program license agreements were approximately $460.1 million, compared to approximately $622 million at December 31, 2000.

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Infinity

        Infinity's operations are focused on the out-of-home media business with operations in radio broadcasting through INFINITY RADIO, and outdoor advertising through VIACOM OUTDOOR. The Radio Stations and Outdoor Advertising Displays table below sets forth selected information with regard to Infinity's radio stations and outdoor advertising displays in the top 25 U.S. radio markets. Infinity benefits by offering both radio and outdoor advertising properties in the largest markets. Infinity characterizes its radio and outdoor advertising businesses as out-of-home because a majority of radio listening, and virtually all viewing of outdoor advertising, takes place in automobiles, transit systems, on the street and other locations outside the consumer's home. Infinity's strategy generally is to acquire out-of-home media properties in the largest markets.

        Infinity Radio.    INFINITY RADIO, consisting of 186 radio stations serving 41 markets, is one of the largest operators of radio stations in the U.S. Approximately 94% of the Company's radio stations are located in the 50 largest U.S. radio markets. INFINITY RADIO's focus on large markets makes it more appealing to advertisers, enables it to attract more highly skilled management, employees and on-air talent, and enables it to more efficiently manage its business and generate higher levels of cash flow than would be the case if it managed a larger number of smaller stations. Infinity owns the CBS RADIO NETWORK, which is managed by Westwood One, Inc.

        INFINITY RADIO seeks to maintain substantial diversity among its radio stations in many respects. The geographically wide-ranging stations serve diverse target demographics through a broad range of programming formats, such as rock, oldies, news/talk, adult contemporary, sports/talk and country, and INFINITY RADIO has established leading franchises in news, sports, and personality programming. The overall mix of each radio station's programming is designed to fit the station's specific format and serve its local community. This diversity provides advertisers with the convenience to select stations to reach a targeted demographic group or to select groups of stations to reach broad groups of consumers within and across markets. This diversity also reduces its dependence on any single station, local economy, format or advertiser. INFINITY RADIO's general programming strategy includes acquiring significant on-air talent and the rights to broadcast sports franchises and news content for its radio stations. This strategy, in addition to developing loyal audiences for its radio stations, creates the opportunity to obtain additional revenues from syndicating such programming franchises to other radio stations.

        Infinity owns approximately 15% of the common stock of Westwood One, Inc., which it manages pursuant to a management agreement. Westwood One is one of the leading producers and distributors of syndicated and network radio programming in the U.S. and distributes syndicated and network radio programming to the Company's radio stations as well as to competitors of Infinity.

        Outdoor Advertising.    VIACOM OUTDOOR sells advertising space on various media, including billboards, bulletins, buses, bus shelters and benches, trains, train platforms and terminals throughout commuter rail systems, mall posters and phone kiosks. It has outdoor advertising operations in more than 90 markets in North America, including all 50 of the largest metropolitan markets in the U.S., 14 of the 15 largest metropolitan markets in Canada and all of the 45 largest metropolitan markets in Mexico. Additionally, the Company has the exclusive rights to manage advertising space within the London Underground and on more than 90% of the buses in London and the United Kingdom, has the exclusive rights to transit advertising in the Republic of Ireland and parts of Northern Ireland, and has a variety of outdoor advertising displays in the Netherlands, France, Italy, Spain and Finland.

        The substantial majority of Infinity's radio and outdoor advertising revenues are generated from the sale of local, regional and national advertising. The major categories of out-of-home advertisers include: automotive, retail, healthcare, telecommunications, fast food, beverage, movies, entertainment and services. Seasonal revenue fluctuations are common in the out-of-home media industry and are primarily the result of fluctuations in advertising expenditures by retailers. Infinity's revenues are typically lowest in the first quarter and highest in the fourth quarter.

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Radio Stations and Outdoor Advertising Displays

        The following table sets forth certain selected information with regard to the Company's radio stations and outdoor advertising displays in the top 25 U.S. markets as of March 1, 2002:

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(1)

Market Rank based on Fall 2001 Market Survey Schedule and Population Ranking as provided by Arbitron Radio.

Entertainment

        The Entertainment segment's principal businesses are PARAMOUNT PICTURES, which produces and distributes motion pictures; PARAMOUNT PARKS, which operates five regional theme parks and a themed attraction in the U.S. and Canada; FAMOUS PLAYERS®, which operates movie theaters in Canada; and FAMOUS MUSIC®.

        Theatrical Motion Pictures.    Through PARAMOUNT PICTURES, the Company produces, finances and distributes feature motion pictures. Motion pictures are produced by PARAMOUNT PICTURES, produced by independent producers and financed in whole or in part by PARAMOUNT PICTURES, or produced by others and distributed by PARAMOUNT PICTURES. Each picture is a separate and distinct product with its financial success dependent upon many factors, among which cost and public response are of fundamental importance. In general, motion pictures produced or acquired for distribution by PARAMOUNT PICTURES are exhibited in U.S. and foreign theaters followed by videocassettes and DVDs, pay-per-view television, premium subscription television, network television, basic cable television and syndicated television exploitation. During 2001, PARAMOUNT PICTURES produced, co-produced or acquired, and theatrically released 14 feature motion pictures in the U.S., including DOWN TO EARTH, ALONG CAME A SPIDER, ENEMY AT THE GATES, LARA CROFT: TOMB RAIDER, THE SCORE, RAT RACE and VANILLA SKY, and SAVE THE LAST DANCE presented with MTV FILMS; ZOOLANDER produced by VH1 FILMS™; and JIMMY NEUTRON: BOY GENIUS produced by NICKELODEON MOVIES, each in association with PARAMOUNT PICTURES. PARAMOUNT PICTURES currently plans to release approximately 18 films in 2002 (which release plans may change due to a variety of factors), including WE WERE SOLDIERS, which was released in March 2002, THE SUM OF ALL FEARS and STAR TREK: NEMESIS; CLOCKSTOPPERS, HEY ARNOLD! THE MOVIE, and THE WILD THORNBERRYS MOVIE, produced by NICKELODEON MOVIES; ORANGE COUNTY, produced by MTV FILMS in association with PARAMOUNT PICTURES, which was released in January 2002; and CROSSROADS, presented in association with MTV FILMS, which was released in February 2002.

        PARAMOUNT CLASSICS™, a division of PARAMOUNT PICTURES, released seven films in 2001, including AN AMERICAN RHAPSODY, MY FIRST MISTER, FOCUS and SIDEWALKS OF NEW YORK. PARAMOUNT CLASSICS was established to handle the distribution of specialized film product that may require alternative release strategies from films generally distributed by PARAMOUNT PICTURES. PARAMOUNT CLASSICS currently plans to release approximately eight titles in 2002 (which release plans may change due to a variety of factors).

        In seeking to limit PARAMOUNT PICTURES' financial exposure, the Company has pursued a strategy with respect to a number of films of entering into agreements to distribute such films produced and/or financed, in whole or in part, with other parties. The parties to these arrangements include studio and non-studio entities, both domestic and foreign. In various of these arrangements, the other parties control certain distribution and other ownership rights.

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        PARAMOUNT PICTURES generally distributes its motion pictures for theatrical release outside the U.S. and Canada through United International Pictures ("UIP"), a company owned by the Company and an affiliate of Universal Studios, Inc. ("Universal"). Pursuant to an agreement, UIP will continue to distribute each studio's films through 2006. PARAMOUNT PICTURES distributes its motion pictures on videocassettes and DVDs in the U.S. and Canada through PARAMOUNT HOME ENTERTAINMENT™ and outside the U.S. and Canada, generally through PARAMOUNT HOME ENTERTAINMENT INTERNATIONAL. Commencing April 2000, PARAMOUNT HOME ENTERTAINMENT INTERNATIONAL started releasing pictures in DVD format in Europe and Japan. PARAMOUNT PICTURES' feature films initially theatrically released in the U.S. on or after January 1, 1998 are exhibited exclusively (to U.S. premium subscription television) on SHOWTIME and THE MOVIE CHANNEL. PARAMOUNT PICTURES also distributes its motion pictures for premium subscription, free and basic cable television release outside the U.S. and Canada and licenses its motion pictures to residential and hotel/motel pay-per-view, airlines, schools and universities.

        In addition to premium subscription television, most motion pictures are also licensed for exhibition on broadcast and/or basic cable television, with fees generally collected in installments. All of the above license fees for television exhibition (including international and U.S. premium television and basic cable television) are recorded as revenue in the year that licensed films are available for such exhibition, which, among other reasons, may cause substantial fluctuation in PARAMOUNT PICTURES' operating results. At both December 31, 2000 and December 31, 2001, the unrecognized revenues attributable to such licensing of completed films from PARAMOUNT PICTURES' license agreements were approximately $1.0 billion. At December 31, 2001, PARAMOUNT PICTURES had approximately 1,000 motion pictures in its library. The Company also has a library of additional motion picture titles, most of which comprise the SPELLING ENTERTAINMENT™ library.

        Through PARAMOUNT PICTURES and various of its affiliates, the Company is a joint venturer in a number of international program services, including THE PARAMOUNT COMEDY CHANNEL™ in the U.K., an afternoon and nighttime (including primetime) program service featuring comedies and films, which is a joint venture with BSkyB. The Company also offers THE PARAMOUNT COMEDY CHANNEL® in Spain, a wholly owned, 24-hour program service, including a NICKELODEON program segment.

        Theatrical Exhibition.    The Company's movie theater operations consist primarily of FAMOUS PLAYERS in Canada and United Cinemas International ("UCI") in Europe, Latin America and Asia. At December 31, 2001, FAMOUS PLAYERS, a wholly owned subsidiary of the Company, operated approximately 853 screens in 94 theaters across Canada. UCI, a 50%-owned joint venture of entities affiliated with the Company and Universal, operated as of December 31, 2001, approximately 1,091 screens in 120 theaters in the U.K., Ireland, Germany, Austria, Spain, Japan, Italy, Poland, Argentina, Brazil, Panama and Taiwan.

        Music Publishing.    The FAMOUS MUSIC publishing companies own, control and/or administer all or a portion of the copyright rights to more than 125,000 musical works (songs, scores, cues). These rights include the right to license and exploit such works, as well as the right to collect income generated by such licensing and exploitation.

        The majority of rights acquired by FAMOUS MUSIC are derived from (i) music acquisition agreements entered into by PARAMOUNT PICTURES, PARAMOUNT TELEVISION, SPELLING TELEVISION, MTVN and various other divisions of the Company respecting certain motion pictures, television programs and other properties produced by such units and (ii) music acquisition agreements entered into directly by FAMOUS MUSIC with songwriters and music publishers, including exclusive songwriting agreements, catalog purchases and music administration agreements.

        Parks.    PARAMOUNT PARKS owns and operates five regional theme parks and a themed attraction in the U.S. and Canada: PARAMOUNT'S CAROWINDS®, in Charlotte, North Carolina; PARAMOUNT'S GREAT AMERICA™, in Santa Clara, California; PARAMOUNT'S KINGS

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DOMINION™, located near Richmond, Virginia; PARAMOUNT'S KINGS ISLAND™, located near Cincinnati, Ohio; PARAMOUNT CANADA'S WONDERLAND®, located near Toronto, Ontario; and STAR TREK: THE EXPERIENCE®, at the Las Vegas Hilton, a futuristic, interactive environment based on the popular television and movie series. Each of the theme parks features attractions, products and live shows based on various intellectual properties of the Company. In Fall 2001, PARAMOUNT PARKS entered into a long-term agreement to manage and operate Terra Mítica, a theme park located in the province of Valencia in Benidorm, Spain.

        A substantial amount of the theme parks' income is generated during its seasonal operating period. Factors such as local economic conditions, competitors and their actions, and extreme weather conditions during the operating season may impact the business' performance.

Video

        The Company operates in the home video retail business, which includes both rental and sale of videocassette ("VHS") and DVD product as well as the rental and sale of video games, through its approximately 81% equity interest in Blockbuster Inc. As of December 31, 2001, BLOCKBUSTER operated approximately 6,400 stores and its franchisees and a joint venture in which BLOCKBUSTER owns a minority interest operated approximately 1,600 stores in the U.S., its territories and 26 other countries. BLOCKBUSTER also operates a Web site, Blockbuster.com, primarily for the purpose of supporting its brand and its stores through promotional devices.

        In its stores, which operate primarily under the highly recognized BLOCKBUSTER brand name, BLOCKBUSTER offers movies primarily for rental and also offers certain titles for purchase. Some previously viewed product is also offered for purchase. During 2001, BLOCKBUSTER re-merchandised its stores to capitalize on the higher margin, fast growing DVD format and the next generation of video games by expanding its DVD copy depth and title selection, reconfiguring its stores to highlight DVD titles, and dedicating more of its store space to new game formats and other new initiatives. Approximately 81% and 71% of 2000 and 2001 total rental revenues, respectively, were derived from VHS product and approximately 7% and 19%, respectively, from DVD product. In the fourth quarter of 2001, approximately 65% of total rental revenues was derived from VHS product and approximately 23% from DVD product. BLOCKBUSTER also markets DIRECTV System equipment and DIRECTV® programming packages in over 4,200 of its U.S. stores and introduced a co-branded pay-per-view service with DIRECTV during 2001.

        A competitive advantage that home video retailers, including BLOCKBUSTER, currently enjoy over most other movie distribution channels, except theatrical release, is the early timing of their "distribution window." Motion picture studios make their movies available to home video retailers for specified periods of time after their initial theatrical release. This distribution window is typically exclusive against most other forms of non-theatrical movie distribution, such as pay-per-view, premium television, basic cable and network and syndicated television. The length of this distribution window for home video retailers varies, but has typically ranged from about 45-60 days for domestic video retailers. Thereafter, movies are made sequentially available to television distribution channels.

        Studios have traditionally released VHS titles that they want to promote primarily for rental at relatively high wholesale prices. The period during which the titles are released at higher prices is commonly referred to as the "rental window," because the prices are too high to generate consumer demand for purchasing them. In contrast, the studios are releasing movies on DVD at relatively low initial prices, called "sell-through" pricing, and are promoting DVDs for both purchase and rental from the beginning of the distribution window. Studios have traditionally reserved sell-through pricing on VHS product to titles that have mass ownership appeal, such as children's movies or movies that generate high box office returns. Mass merchant retailers are generally much more competitive with regard to sell-through titles than videocassettes priced for rental.

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        Major studios, including PARAMOUNT PICTURES, have entered into VHS revenue-sharing and copy depth arrangements with wholesalers and directly with several video retailers, including BLOCKBUSTER, in order to facilitate a sufficient number of copies of VHS to better satisfy consumer demand, particularly during the early part of the video distribution window. Under these arrangements, generally, BLOCKBUSTER may be required to purchase certain minimum amounts of a studio's output for a specified period of time, and BLOCKBUSTER is permitted to acquire VHS titles for minimal up-front payments, with a percentage of the rental revenues shared with the studios over an agreed upon period of time. These VHS revenue-sharing arrangements are not as significant to BLOCKBUSTER's business as they have been historically due to the increasing importance of DVD product. BLOCKBUSTER has begun purchasing some DVD product through revenue-sharing arrangements, which could result in a rental window or other changes in the DVD business model. The current sell-through pricing for DVDs has enabled video retailers such as BLOCKBUSTER to purchase substantial quantities of DVDs with or without sharing revenue with the studios. The availability of DVDs for both sale and rental has served to accelerate consumer interest in the format. However, it has also served to increase competition from mass merchant retailers.

        BLOCKBUSTER rents video game consoles and DVD players in most of its U.S. stores. In addition, in December 2001, BLOCKBUSTER began selling DVD players in order to promote the format. In 2002, BLOCKBUSTER has also begun selling video game consoles in a limited number of stores.

        BLOCKBUSTER receives substantially all of its videocassettes, DVDs and games at its 850,000 square foot distribution center located near Dallas, Texas and distributes them directly to its stores. BLOCKBUSTER's franchisees are generally responsible for obtaining their own supplies and coordinating their own distribution system unless they participate under BLOCKBUSTER's revenue- sharing arrangements.

        There is a distinct seasonal pattern to the home video and video games business, with particularly weaker business in April and May, due in part to improved weather and Daylight Saving Time, and in September and October, due in part to the start of school and the introduction of new television programs.

Publishing

        SIMON & SCHUSTER publishes and distributes consumer hardcover books, trade paperbacks, mass-market paperbacks, children's books, audiobooks, calendars, electronic books and CD-ROM products in the U.S. and internationally. SIMON & SCHUSTER's flagship imprints include SIMON & SCHUSTER, POCKET BOOKS, SCRIBNER and THE FREE PRESS. SIMON & SCHUSTER also develops special imprints and publishes titles based on MTV, VH1, NICKELODEON and PARAMOUNT PICTURES products and distributes products for other publishers. SIMON & SCHUSTER distributes its products directly and through third parties. SIMON & SCHUSTER also delivers content and promotes its products on Internet sites operated by various imprints or linked to individual titles.

        In 2001, SIMON & SCHUSTER published 98 titles which were New York Times bestsellers, including 14 New York Times number one bestsellers. Best-selling titles released by its Adult Publishing Group in 2001 include "DREAMCATCHER" by Stephen King; "JOHN ADAMS" by David McCullough; "ON THE STREET WHERE YOU LIVE" by Mary Higgins Clark; the National Book Award-winner "THE NOONDAY DEMON" by Andrew Solomon; "SELF MATTERS" by Phillip C. McGraw, Ph.D; "AN HOUR BEFORE DAYLIGHT" by Jimmy Carter; "MERCY" by Julie Garwood; "SEPARATION OF POWER" by Vince Flynn; "THE SUMMER HOUSE" by Jude Deveraux; "THE WILD BLUE" and "BAND OF BROTHERS" by Stephen Ambrose; and "GERMS" by Judith Miller, Stephen Engelberg and William Broad. Best-selling titles published by the Children's Publishing Division include "OLIVIA SAVES THE CIRCUS" by Ian Falconer and National Book Award-winner "TRUE BELIEVER" by Virginia Euwer Wolff, as well as a number of BOB THE BUILDER and JIMMY NEUTRON books, featuring the popular NICKELODEON characters.

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        SIMON & SCHUSTER AUDIO® publishes audio editions of prominent works published by SIMON & SCHUSTER and by other publishers, as well as the PIMSLEUR® line of language instruction. Major titles released as audiobooks in 2001 include "JOHN ADAMS" by David McCullough, "LT'S THEORY OF PETS" by Stephen King, and "ENVY" by Sandra Brown. CD-ROM titles published by SIMON & SCHUSTER INTERACTIVE® in 2001 include "REAL WAR," "STAR TREK: DEEP SPACE 9: DOMINION WARS" and "PEARL HARBOR: ZERO HOUR."

        SIMON & SCHUSTER ONLINE™, through SimonSays.com, publishes original content, builds reader communities, and promotes and sells SIMON & SCHUSTER's books and products over the Internet. In 2001, SIMON & SCHUSTER ONLINE opened an eBookstore at its site, SimonSaysShop.com, to sell electronic versions of SIMON & SCHUSTER titles directly to consumers.

        International publishing includes the international distribution of English-language titles through SIMON & SCHUSTER UK™ and SIMON & SCHUSTER AUSTRALIA™ and other distributors, as well as the publication of local titles by SIMON & SCHUSTER UK and SIMON & SCHUSTER AUSTRALIA.

        The consumer publishing marketplace is subject to increased periods of demand in the summer months and during the end-of-year holiday season. Major new title releases drive a significant portion of SIMON & SCHUSTER's sales throughout the year. Consumer books are generally sold on a fully returnable basis, resulting in significant product returns. In the international markets, the Company is subject to global trends and local economic conditions. On January 31, 2002, the Company announced that its publishing operation would be integrated with the Viacom Entertainment Group. As a result, effective January 1, 2002, the Company will present its publishing business as part of the Entertainment segment.

Viacom Plus

        VIACOM PLUS is the Company's integrated advertising sales and marketing unit which represents all of the Company's business segments. VIACOM PLUS works to create long-term marketing relationships that use Viacom's multiple advertising platforms to build brands. Its programs are executed in cooperation with the sales and marketing organizations of the various Viacom businesses. Since its inception, VIACOM PLUS has generated programs with such companies as Procter & Gamble, Merrill Lynch, DaimlerChrysler, Taylor Made, Fidelity Investments, GlaxoSmithKline, Johnson & Johnson, Snapple and Home Depot.

Competition

        Corporate mergers consummated in recent years have resulted in greater consolidation in the entertainment industries, which may also present significant competitive challenges to several of the Company's businesses.

Cable Networks

        MTV Networks.    MTVN services compete with other program services for channel space and compensation for carriage from cable television operators, DTH and other multichannel distributors. MTVN also competes for advertising revenue with other basic cable and broadcast television networks, radio, online and print media. For basic cable television networks such as the MTVN services, advertising revenues derived by each program service depend on the number of households subscribing to the service through local cable operators and other distributors in addition to household and demographic viewership as determined by research companies such as Nielsen Media Research. MTVN services also compete with other cable services and broadcast television for the acquisition of popular programming.

        Certain major record companies have launched music-based program services outside the U.S., including, but not limited to: Channel V, which is jointly owned and operated in Asia and Australia by Star TV and four major record labels; and Viva and Viva 2, German-language music channels distributed in

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Germany and owned in large part by four major record labels. These music-based program services, as well as general entertainment and other program services, compete with MTVN's program services for distribution by cable, satellite and other systems, and for distribution license fees and advertising revenues.

        Children-oriented programming blocks are currently exhibited on a number of U.S. broadcast television networks, including, among others, "Fox Kids," "Kids' WB" and a Saturday morning block on ABC, all of which compete with NICKELODEON for advertising revenue. There are also a number of other U.S. cable television program services featuring children-oriented programming, including the Cartoon Network, the Disney Channel and the ABC Family Channel. In addition to the competition referred to above, NICKELODEON competes internationally with other television program services and blocks targeted at children for distribution by cable, satellite and other systems, and for distribution license fees and advertising revenue.

        With respect to MTVN's Web sites, the major record companies, which control the vast majority of recorded music, have started to engage in strategic arrangements, including business combinations, with Internet and Internet-related businesses for the online distribution and other commercialization of their music libraries and artist relationships.

        BET: Black Entertainment Television.    BET properties generally face competition for advertising revenue from other African-American-targeted media, including other cable networks that target BET's African-American audience; African-American-oriented radio stations; magazines such as Ebony, Black Enterprise, Jet and Essence; and black-oriented television. More specifically, the BET CABLE NETWORK and BET JAZZ compete with other cable programming services for available channel space and for subscriber fees from cable, DTH and other distributors. Consolidation among distributors has increased the intensity of this competition. The BET CABLE NETWORK and BET JAZZ also compete for advertising revenues with other national cable programming services, broadcast networks, local over-the-air television stations, broadcast radio and print media. In addition, BET EVENT PRODUCTIONS competes with other event production companies for events, venues, musical artists and sponsorship and advertising revenues. BET BOOKS competes with other publishers generally, and particularly with those publishers that target its specific audience.

        Showtime Networks Inc.    Competition among premium subscription television program services in the U.S. is primarily dependent on: (i) the acquisition and packaging of an adequate number of recently released quality motion pictures and the production, acquisition and packaging of original motion pictures, original series and other original programs; and (ii) the offering of prices, marketing and advertising support and other incentives to cable, DTH and other distributors for carriage so as to favorably position and package SNI's premium subscription television program services to subscribers. HBO is the dominant company in the U.S. premium subscription television category, offering two premium subscription television program services, the HBO service and Cinemax. SNI is second to HBO with a significantly smaller share of the premium subscription television category. Starz Encore Group L.L.C. owns the third principal premium subscription television program service in the U.S., Starz!, which features recently released motion pictures and competes with SNI's and HBO's premium program services.

Television

        The television broadcast environment is highly competitive. The principal methods of competition in broadcast television are the acquisition of popular programming and the development of audience interest through programming and promotions in order to sell advertising at profitable rates. Broadcast networks like CBS and UPN compete for audience, advertising revenues and programming with other broadcast networks, independent television stations, basic cable program services as well as other media, including satellite television services, videocassettes, DVDs, print and the Internet. Television stations compete for programming and for advertising revenues with other stations in their respective coverage areas and, in some cases, with other station groups for programming, and in the case of advertising revenues, with other local and national media. In addition, the CBS and UPN television networks compete with other television

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networks to secure affiliations with independently owned television stations in markets across the country, which are necessary to ensure the effective distribution of network programming to a nationwide audience.

        Because an extended conversion to digital television broadcasting has begun, current and future technological developments may affect competition within the television marketplace. Technological developments that compress digital signals will increasingly permit the same broadcast, cable, or satellite channel to carry multiple video and data services which could result in an expanded field of competing services. Television broadcasters will continue to operate their current analog stations while gradually building and operating digital facilities concurrently on separate channels. In the U.S., the transition period from analog to digital transmission is expected to end in the year 2006, at which time the FCC expects that broadcasters will return one of their two channels, allowing that spectrum to be recovered for other uses (see "Viacom Business Segments—Regulation—Broadcasting").

        As a producer and distributor of programming, the Company competes with studios, television production groups, and independent producers and syndicators to sell programming both domestically and overseas.

Infinity

        The Company's radio stations and outdoor advertising properties compete for audience, advertising revenues and programming directly with other radio stations and outdoor advertising companies, as well as with other media, such as broadcast television, newspapers, magazines, cable television, the Internet and direct mail, within their respective markets. The growth of Internet radio could bring increased competition, in part depending on the royalty rates for music used on Internet radio set by Copyright Arbitration Royalty Panels and/or through negotiations with rightsholders.

        The radio and outdoor advertising industry is also subject to competition from new media technologies that are being developed or introduced, such as the delivery of audio programming by cable television systems, by satellite and by terrestrial delivery of digital audio broadcasting. Recently, two satellite-delivered audio programming services launched, each providing up to 100 channels of pay audio services nationwide. While primarily pay services, advertising time will be sold on some of their channels. The FCC also has a pending proceeding which contemplates the use of digital technology by existing AM and FM radio broadcast stations to both improve sound quality and provide spectrum for enhanced data services to complement the existing programming service and provide new business opportunities for radio broadcasters. This digital technology is currently being tested on radio stations throughout the country, including certain stations owned by the Company. The FCC recently authorized a new low power FM service (LPFM) with the intent of creating opportunities for low cost neighborhood service on frequencies which would not interfere with existing stations. LPFM stations are not permitted to sell advertising time.

Entertainment

        Theatrical Motion Pictures.    The Company competes with other major studios and independent film producers in the production and distribution of motion pictures, videocassettes and DVDs. PARAMOUNT PICTURES' competitive position primarily depends on the quality of the product produced, its distribution and marketing success, and public response. The Company also competes to obtain creative talent and story properties which are essential to the success of all of the Company's entertainment businesses.

        Parks.    During the last three years, the regional theme park industry has experienced increased consolidation. The Company must now compete in a business environment that is dominated by highly-capitalized, multi-park entertainment corporations. In order to compete effectively, the Company must differentiate its products through its access to entertainment intellectual property and brands and by investing capital to attract repeat customers. The Company believes that its intellectual properties enhance

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existing attractions and facilitate the development of new attractions, which encourage visitors to the PARAMOUNT PARKS theme parks and STAR TREK: THE EXPERIENCE at the Las Vegas Hilton. The Company's theme parks also compete with other forms of leisure entertainment.

Video

        BLOCKBUSTER operates in a highly competitive environment. The Company believes that BLOCKBUSTER's most significant competition comes from (i) video stores and other retailers that rent or sell movies and (ii) providers of direct delivery home viewing entertainment.

        Video stores and other retailers that rent or sell movies include, among others, (i) local, regional and national video stores; (ii) mass merchant retailers; (iii) toy and entertainment retailers; (iv) supermarkets, pharmacies and convenience stores; and (v) online retailers and mail order services. The Company believes that the principal factors that BLOCKBUSTER faces in competing with video stores and other retailers are (a) convenience and visibility of store locations; (b) quality, quantity and variety of titles in the desired format; (c) pricing; and (d) customer service.

        With the development of new technologies, a competitive risk to BLOCKBUSTER's video store business comes from direct broadcast satellite and digital cable television. In response to this competition, in 2000 BLOCKBUSTER entered the direct broadcast satellite market through its alliance with DIRECTV (see "Viacom Business Segments—Video"). Direct broadcast satellite, digital cable and "traditional" cable providers not only offer numerous channels of conventional television, but they also offer pay-per-view movies which permit a subscriber to pay a fee to see a selected movie. Because of the increased availability of channels, direct broadcast satellite and digital cable providers have been able to enhance their pay-per-view business by (i) substantially increasing the number and variety of movies they can offer their subscribers on a pay-per-view basis; and (ii) providing more frequent and convenient start times for the most popular movies. Pay-per-view allows the consumer to avoid trips to the video store for rentals and returns of movies, which also eliminates the chance they will incur additional costs for keeping a movie beyond its initial rental term. However, pay-per-view also does not allow the consumer to start, stop and rewind the movie or fully control start times. As a result, some digital cable providers and a limited number of Internet content providers have begun implementing technology referred to as "video-on-demand," which technology transmits movies on demand with interactive capabilities such as start, stop and rewind. In addition, some cable providers are introducing subscription video-on-demand, which allows consumers to pay a flat fee per month for access to a selection of content with fast forward, stop and rewind capabilities.

        A competitive advantage that the home video retail industry currently enjoys over most other movie distribution channels, including pay-per-view, is the early timing of the video retail "distribution window" (see "Viacom Business Segments—Video"). In addition, there is currently a "rental window" for most VHS titles before they go into the sell-through market, which window prevents consumers from inexpensively buying a title aimed at the rental market for a period of time after a rental outlet receives it. This window does not currently exist for DVDs which has accelerated consumer interest in the format but has also served to increase competition from mass merchant retailers (see "Viacom Business Segments—Video"). BLOCKBUSTER's business could be negatively affected if the studios adversely change their distribution windows; the absence of a DVD rental window results in consumer preference for buying, rather than renting, movies; and/or new technologies become widely accepted by consumers.

Publishing

        The consumer publishing business is highly competitive and has been affected by consolidation trends. Recent years have brought a number of significant mergers among the leading consumer publishers. The book superstore remains a significant factor in the industry contributing to the general trend toward consolidation in the retail channel. There have also been a number of mergers completed in the distribution channel.

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        The Company must compete with other publishers for the rights to works by well-known authors and public personalities.

Regulation

        The Company's businesses are either subject to or affected by regulations of federal, state and local governmental authorities. The rules, regulations, policies and procedures affecting these businesses are constantly subject to change. The descriptions which follow are summaries and should be read in conjunction with the texts of the statutes, rules and regulations described herein. The descriptions do not purport to describe all present and proposed statutes, rules and regulations affecting the Company's businesses.

Intellectual Property

        Domestic and international laws affecting intellectual property are of significant importance to the Company.

        Copyright Treaties.    Delegates to the World Intellectual Property Organization adopted a proposed Copyright Treaty which has been ratified by 30 nations, including the U.S., and became effective on March 6, 2002. The Copyright Treaty updates the Berne Convention, last revised in 1971, and addresses copyright protection for new technologies that have emerged since that time. Because the Treaty includes important copyright protections for the digital transmission of content, the Treaty is likely to have a positive impact on the Company. The U.S. implementing legislation for the Copyright Treaty, known as the Digital Millennium Copyright Act ("DMCA") also affords important copyright protections, including civil and criminal penalties for the manufacture of, or trafficking in, devices that circumvent copyright protection technologies such as encryption and scrambling, and for the act of circumventing such technologies to gain unauthorized access to a copyrighted work. The DMCA also amends the U.S. Copyright Act (the "Copyright Act") by creating a new statutory license concerning certain rights related to digital transmissions of sound recordings. The statute provides that new statutory rates for each license will be set either through voluntary negotiations between the interested parties or through Copyright Arbitration Royalty Panels.

        Copyright Term Extension.    In October 1998, Congress passed legislation extending the copyright term an additional twenty years. The extended term is life of the author plus 70 years for authored works and 95 years for works-made-for-hire. This extension puts the U.S. copyright term on par with the European Community. Term extension should have a beneficial effect for the Company over time, including with respect to important publishing properties which otherwise would have passed into the public domain in the next several years. In February 2002, the U.S. Supreme Court agreed to review the constitutionality of Congress' action in extending the term.

Compulsory Copyright License.

        Multichannel Distributors Other Than DTH.    The Copyright Act provides a compulsory license for the retransmission of broadcast signals by multichannel video distributors such as cable television, MMDS (Multipoint Multichannel Distribution Systems) and SMATV (Satellite Master Antenna Television) operators. The compulsory license rate paid to programmers for the retransmission of distant broadcast signals by cable, MMDS and SMATV operators is established by statute. There is no licensing fee for the retransmission of local broadcast signals.

        DTH.    In November 1999, Congress enacted legislation to extend and reform the Satellite Home Viewer Act (SHVA). The original SHVA legislation created a temporary compulsory license that allowed satellite carriers to import distant broadcast signals to those homes that were unable to receive their local broadcast signals. This distant signal compulsory license was set to expire at the end of 1999. Through the SHVA legislation, Congress extended the distant signal compulsory license until

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December 31, 2004, and set a statutory compulsory license fee for these distant signals. Up to this point, the DTH compulsory license fee was set through negotiations and binding arbitration. In addition, Congress created a new and permanent compulsory license for the retransmission of local broadcast signals back into the local market, the so-called "local-into-local" provision. Unlike the distant signal compulsory license, the local signal compulsory license is royalty-free.

        First Sale Doctrine.    The copyright "First Sale" doctrine provides that in the U.S. the owner of a legitimate copy of a copyrighted work may use or dispose of it in such manner as the owner sees fit, including by renting it. The First Sale doctrine does not apply to sound recordings or computer software (other than software made for a limited purpose computer, such as a video game platform) for which the Copyright Act vests a rental right (i.e., the right to control the rental of the copy) in the copyright holder. The repeal or limitation of the First Sale doctrine (or conversely, the creation of a rental right vested in the copyright holder) for audiovisual works or for computer software made for limited purpose computers would have an adverse impact in the U.S. on the Company's home video and game rental business. In August 2001, the U.S. Copyright Office released its study on the First Sale Doctrine in the digital age and determined that no changes were warranted. Outside of the U.S., the right to rent home video works is obtained through a blanket licensing arrangement.

        Domain Name Protections.    In 1999, Congress enacted legislation to address the practice of domain name piracy. The legislation is designed to limit the practice of registering an Internet address of an established trademark with the hopes of selling the Internet address to the affected company. This legislation, together with the Uniform Domain Name Dispute Resolution Policy, an online arbitration procedure which provides additional safeguards against such registrations, is particularly important since the recent introduction of additional top level domains may increase the number of domain name registrations.

Cable Networks

        Cable Rate Regulation.    The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") directed the FCC to limit by regulation cable system rates for the "basic service tier" ("BST") (including retransmission consent and must carry broadcast signals and public, educational and governmental channels) and the "cable programming service tier" ("CPST") to a level not to exceed the rates that would be charged in the presence of effective competition. Programming offered on a per-channel or per-program basis is exempt from rate regulation.

        Although all rate regulation of the CPST expired on March 31, 1999, local franchising authorities continue to be responsible for regulating the BST. The Company believes that cable rate regulation adversely affects its non-premium cable program services which rely on cable operator license fee support, along with advertising revenues, to maintain the quantity and quality of programming. Rate regulation in this area tends to erode cable operator incentives to invest in programming and particularly in start-up program services.

        Program Access.    The "program access" provisions of the 1992 Cable Act impose certain pricing and other restrictions on vertically integrated program providers (those program services that are owned in whole or in part by cable operators or telephone companies) with respect to the provision of their program services to multichannel programming distributors, such as cable systems, SMATV systems, MMDS operators and DTH distributors. The program access provisions were intended to spur competition to cable providers by facilitating the access of cable competitors to programming owned by cable operators or their affiliates. The Company's wholly owned program services are not currently subject to the program access rules. Legislation that would extend the program access provisions to non-vertically integrated program services, if enacted, could adversely impact the Company's program services by reducing the Company's flexibility to negotiate the most favorable terms available for the distribution of its content. No such legislation is pending in Congress at this time.

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        Online Music Royalties.    MTVN, on behalf of its Web sites, currently obtains much of its content from record labels, music publishers and artists. MTVN obtains certain rights to some of its content, such as performance rights of song composers and non-interactive rights to digital transmission of recordings, pursuant to statutory compulsory licenses. The royalties payable for such licenses are established periodically by Copyright Arbitration Royalty Panels.

        Programming.    Under FCC rules, cable operators must eventually close caption most of their programming on a phased-in basis, which began in January 1998. As a practical matter, however, cable networks assume responsibility for these closed captioning requirements. FCC rules also directed that all television receiver models with screens 13 inches or larger be equipped with "V-chip" technology as of January 1, 2000. This technology, which works in tandem with television ratings (age and content markers), permits parents to block out certain programming from their children. Most cable networks, including those of MTVN and SNI, voluntarily encode their programming with television ratings.

Broadcasting

        General.    Television and radio broadcasting are subject to the jurisdiction of the FCC under the Communications Act. The Communications Act prohibits the operation of broadcasting stations except under a license issued by the FCC and empowers the FCC, among other actions, to: issue, renew, revoke and modify broadcasting licenses; assign frequency bands; determine stations' frequencies, locations and operating power; regulate some of the equipment used by stations; adopt other regulations to carry out the provisions of the Communications Act; impose penalties for violation of such regulations; and impose annual fees as well as fees for processing applications and other administrative functions.

        Under the Communications Act, the FCC also regulates certain aspects of the operation of cable television systems and other electronic media that compete with broadcast stations.

        License Assignments and Renewals.    The Communications Act requires prior approval for the assignment of a license or transfer of control of a licensee. When passing on an assignment or transfer application, the FCC is prohibited from considering whether the public interest might be served by an assignment or transfer to any party other than the assignee or transferee specified in the application. The FCC is authorized to renew broadcast licenses for terms of up to eight years. The Communications Act requires renewal of a broadcast license if the FCC finds that the station has served the public interest, convenience and necessity; there have been no serious violations of either the Communications Act or the FCC's rules and regulations by the licensee; and there have been no other serious violations that taken together constitute a pattern of abuse.

        Ownership Regulation.    The Communications Act and FCC rules and regulations also regulate broadcast ownership. The FCC has promulgated rules that, among other matters, limit the ability of individuals and entities to own or have an official position or ownership interest, known as an attributable interest, above a specific level in broadcast stations as well as other specified mass media entities. The FCC's various broadcast ownership rules applicable to the Company are summarized below.

        Local Radio Ownership.    With respect to radio licenses, the maximum allowable number of stations that can be commonly owned in a market varies depending on the number of radio stations within that market, as determined using a method prescribed by the FCC. The FCC released a Notice of Proposed Rulemaking ("NPRM") in November 2001, which seeks comment on a wide range of issues relating to its rules and policies governing multiple ownership of radio stations in local markets. While the NPRM does not propose any specific rules, it asks questions about new regulatory approaches, focusing in particular on placing limits on consolidation based upon market advertising revenue share, which appear to be designed to address what the FCC perceives to be excessive consolidation of radio station ownership in mid-size and smaller markets, not the top 50 markets where INFINITY RADIO concentrates its radio holdings.

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        Local Television Ownership.    The FCC's television duopoly rule permits parties to own television stations without regard to signal contour overlap provided they are located in separate markets, referred to as designated market areas. The rules also permit parties to own up to two television stations in the same designated market so long as at least eight independently owned and operating full-power television stations remain in the market at the time of acquisition and that at least one of the two stations is not among the top four-ranked stations in the market based on audience share. Further, without regard to numbers of remaining or independently owned TV stations, the FCC will permit television duopolies within the same designated market area so long as certain signal contours of the stations involved do not overlap.

        The Company has duopolies in the following seven television markets: Philadelphia, San Francisco, Boston, Dallas, Miami, Detroit, and Pittsburgh, and the announced agreement to acquire KCAL-TV in Los Angeles, expected to close mid-2002, will bring this number to eight.

        National Television Ownership Cap.    On the national level, the FCC imposes a 35% national audience reach cap for television ownership, under which one party may not have an attributable interest in television stations which reach more than 35 percent of all U.S. television households.

        After divestitures and station swaps following the merger with CBS, the television stations currently held by the Company have an aggregate national audience reach for purposes of the national ownership cap of approximately 39%. In connection with the Viacom/CBS merger, the FCC ordered the Company to come into compliance with the national television ownership cap by May 4, 2001. However, the Company challenged the national ownership limit in federal court and the FCC-mandated divestiture was stayed pending an order of the court. On February 19, 2002, the court found the FCC's 1998 decision not to repeal or to modify the national ownership cap to be arbitrary and capricious and remanded the rule to the FCC for further consideration whether to repeal or modify the rule. On March 28, 2002, the FCC ordered that the Company has until 12 months after the issuance of a final FCC decision on the remand to file any application that may be necessary to come into compliance with any limits that may exist at that time.

        Dual Network Rule.    In 1996, Congress directed the FCC to liberalize the dual network rule, which then generally prohibited television stations from affiliating with an entity that maintained more than one national network. In April 2001, the FCC eliminated the application of the dual network rule to the UPN and WB networks. As a result, the Company, which was temporarily permitted to own both CBS and UPN subject to programming separation requirements as a condition of the Commission's approval of the CBS merger, is now permitted to own both networks indefinitely and without restriction. The remaining provision of the current dual network rule prohibits any of the four major networks—ABC, CBS, FOX and NBC—from combining.

        Radio-Television Cross-Ownership.    The radio-television cross-ownership rule permits common ownership or control of a radio station, whether AM, FM or both, and a television station (or two television stations, if such combination is permitted by the local television ownership rule) in the same market. The rule embodies a graduated test based on the number of independently owned media voices in the local market. In the largest markets, common ownership of seven radio stations and one television station, or six radio stations and two television stations, is allowed.

        Attribution of Ownership.    Under the FCC's attribution rules, a direct or indirect purchaser of various types of securities of the Company could violate FCC regulations or policies if that purchaser owned or acquired an "attributable" interest in other media properties in a manner prohibited by the FCC. Under the FCC's rules, an "attributable" interest for purposes of the Commission's broadcast ownership rules generally includes: equity and debt interests which combined exceed 33% of a licensee's total assets, if the interest holder supplies more than 15% of total weekly programming, or is a same-market media entity, whether TV, radio, cable or newspaper; 5% or greater voting stock

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interest; 20% or greater voting stock interest, if the holder is a qualified passive investor; any equity interest in a limited liability company or limited partnership, unless properly "insulated" from management activities; and all officers and directors of a licensee and its direct or indirect parent.

        In a clarification of the attribution rules, which was issued in January 2001, the FCC eliminated the single majority shareholder exemption, which previously had rendered as non-attributable interests up to 49% if the licensee is controlled by a single majority shareholder. Minority interests acquired prior to December 14, 2000 were grandfathered. In December 2001, following a court decision which found the FCC's elimination of the exemption to be arbitrary and capricious, the FCC reinstated the single majority shareholder exemption pending the outcome of a rule making to reconsider this matter.

        Alien Ownership.    The Communications Act limits the ability of foreign entities or individuals to own or hold interests in broadcast licenses. As applicable to the Company, non-U.S. citizens, collectively, may directly or indirectly own or vote up to twenty percent of the capital stock of a corporate licensee. In addition, a broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation more than one-fourth of whose capital stock is owned or voted by non-U.S. citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. The FCC has interpreted this provision of the Communications Act to require an affirmative public interest finding before a broadcast license may be granted to or held by any such corporation, and the FCC has made such affirmative findings only in limited circumstances. The Company does periodic surveys of its public shareholders to ascertain compliance with this statute.

        Digital Television Service.    The FCC has taken a number of steps to implement digital television broadcasting service in the U.S. The FCC has adopted a digital television table of allotments that provides all authorized television stations with a second channel on which to broadcast a digital television signal. The FCC has attempted to provide digital television coverage areas that are comparable to stations' existing service areas. The FCC has ruled that television broadcast licensees may use their digital channels for a wide variety of services such as high definition television, multiple channels of standard definition television programming, audio, data, and other types of communications, subject to the requirement that each broadcaster provide at least one free video channel equal in quality to the current technical standard.

        The FCC required affiliates of ABC, CBS, FOX and NBC in the top 10 television markets to begin digital broadcasting by May 1, 1999. Affiliates of the four major networks in the top 30 markets were required to begin digital broadcasting by November 1, 1999, and all other commercial broadcasters must do so by May 1, 2002. The FCC's plan calls for the digital television transition period to end in the year 2006, at which time the FCC expects that television broadcasters will cease non-digital broadcasting and return one of their two channels to the government, allowing that spectrum to be recovered for other uses. As provided by statute, however, the FCC is required to extend the end of the transition at the request of individual broadcast licensees on a market-by-market basis if one or more of the four largest network stations or affiliates is not broadcasting in digital, digital-to-analog converter technology is not generally available, or 15% or more television households are not receiving a digital signal. The Company will incur considerable costs in the conversion to digital television and is unable to predict the extent or timing of consumer demand for any such digital television services.

        Cable and Satellite Carriage of Television Broadcast Stations.    Under the 1992 Cable Act and implementing FCC regulations, cable television operators are prohibited from retransmitting the signal of a commercial television station unless the station consents or chooses mandatory carriage. Every three years, each station must elect, with respect to cable systems within its designated market area, either "must carry" status, pursuant to which the cable system's carriage of the station is mandatory, or "retransmission consent," pursuant to which the station gives up its right to mandatory carriage in order to seek

I-32

consideration in return for consenting to carriage. When stations elect mandatory carriage, cable operators are required to carry them on a tier of service provided to every subscriber, and in certain channel positions designated in the 1992 law. Cable operators are prohibited from degrading a television station's signal, but are not required to carry duplicative signals or video that is not considered primary. Television stations may file complaints with the Commission against cable operators for non-compliance with the mandatory carriage requirements; in addition, both cable operators and television stations may file petitions with the Commission either to expand or to contract a commercial television station's market for broadcast signal carriage purposes.

        In 1999, Congress enacted the Satellite Home Viewer Improvements Act (SHVIA), which permits satellite carriers to retransmit a local television station's signal into its local market without copyright liability, subject to the consent of the local broadcaster. Further, until the end of 2004, the satellite carrier may retransmit distant network signals to certain households unserved by local network affiliates. Finally, beginning on January 1, 2002, satellite carriers were required to carry the signals of all local broadcast stations, if they so request, in local markets in which the satellite carrier carries at least one signal under the local-to-local compulsory license. Every three years, each station must elect "must carry" or "retransmission consent" status, in a manner similar to that described above with respect to cable systems. Almost all of the Company's owned and operated television stations are being transmitted into their local markets by the two major satellite carriers, either through retransmission consent agreements or mandatory carriage obligations.

        The foregoing relates to cable and satellite carriage of analog television broadcast stations. Although a single programming stream transmitted by each digital television station will be required to be carried on both distribution platforms after the end of the digital television transition period, the FCC has tentatively concluded that cable operators will not be required to carry both a station's analog and digital signal during the transition period. The FCC has not yet decided whether to require satellite carriage of both analog and digital broadcast signals during the transition period.

        Digital Audio Radio Service and Low Power FM.    The FCC has authorized or is considering authorizing various digital audio radio services. In January 1995, the FCC adopted rules to allocate spectrum for satellite-delivered digital audio radio services (DARS). Recently, two satellite-delivered audio programming services launched, each providing up to 100 channels of pay audio services nationwide. While primarily pay services, advertising time will be sold on some of their channels. The FCC also has a pending proceeding which contemplates the use of digital technology by existing AM and FM radio broadcast stations to both improve sound quality and provide spectrum for enhanced data services to complement the existing programming service and provide new business opportunities for radio broadcasters. This digital technology is currently being tested on radio stations throughout the country, including certain stations owned by the Company. The Company cannot predict the impact of either DARS or terrestrial digital audio radio services on its business. The Company has an ownership interest in iBiquity Digital Corporation, which is now the only entity developing the technology for in-band on-channel digital audio terrestrial transmissions by existing radio stations.

        The FCC established a new low power FM service (LPFM) on January 20, 2000, which envisions stations that would operate in the existing FM band to provide small area, localized service. LPFM applicants are eligible for LPFM licenses only if their proposed stations fully protect full service FM stations (and FM translator stations). At this time, the Company cannot predict the impact, if any, that LPFM authorizations might have on the Company's broadcast operations.

Outdoor Advertising

        The outdoor advertising industry is subject to extensive governmental regulation in the U.S. at the federal, state and local levels. These regulations include restrictions on the construction, repair, upgrading,

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height, size and location of and, in some instances, content of advertising copy being displayed on outdoor advertising structures.

        Federal law, principally the Highway Beautification Act of 1965 (Highway Beautification Act), encourages states, by the threat of withholding 10% of the federal appropriations for the construction and improvement of highways within such states, to implement state legislation to prohibit billboards located within 660 feet of, or visible from, interstate and primary highways, except in commercial or industrial areas where off-site signage is permitted provided it meets spacing and size restrictions. All of the states have implemented regulations at least as restrictive as the Highway Beautification Act. The Highway Beautification Act, and the various state statutes implementing it, require payment of just compensation whenever governmental authorities require legally erected and maintained billboards to be removed from areas adjacent to federally-aided highways.

        State and local jurisdictions have, in some cases, passed additional and more restrictive regulations applicable to the construction, repair, upgrading, height, size and location of outdoor advertising structures adjacent to federally-aided highways and other thoroughfares. In some cases, the construction of new billboards or the relocation or modification of existing billboards is prohibited. From time to time, governmental authorities order the removal of billboards by the exercise of eminent domain. Thus far, the Company believes it has been able to obtain satisfactory compensation for its structures removed at the direction of governmental authorities, although there is no assurance that it will be able to continue to do so in the future.

        Outdoor advertising in Canada is subject to regulation at the federal, provincial and municipal levels. These regulations may prohibit advertising of certain products on outdoor signs in certain locations. In Mexico, the placement of outdoor billboards is primarily regulated at the local level. For example, Mexico City regulates the placement of billboards near historical monuments. In France, outdoor advertising is regulated at the national, regional and local levels, including the regulation of content and the duration of certain contracts.

        To date, regulations in the Company's outdoor advertising markets have not materially adversely affected its operations. However, the outdoor advertising industry is heavily regulated and at various times and in various markets can be expected to be subject to varying degrees of regulation affecting the operation of advertising displays. Accordingly, although the Company's experience to date is that the regulatory environment is not unduly restrictive, no assurance can be given that existing or future laws or regulations will not adversely affect the Company.

Video

        BLOCKBUSTER is subject to various regulations affecting its business, including state and local advertising, consumer protection, credit protection, licensing, zoning, land use, construction, environmental, and minimum wage and other labor and employment regulations. BLOCKBUSTER must also comply with various federal, state and local laws that govern the access and use of its video stores by disabled people and the disclosure and retention of video rental records.

        BLOCKBUSTER is also subject to the Trade Regulation Rule of the Federal Trade Commission entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" and state laws and regulations that govern (i) the offer and sale of franchises and (ii) franchise relationships. These regulations require BLOCKBUSTER to furnish each prospective franchisee with a current franchise offering circular prior to the offer or sale of a franchise. In addition, a number of states require that BLOCKBUSTER, as franchisor, comply with that state's registration or filing requirements prior to offering or selling a franchise in the state and provide a prospective franchisee with a current franchise offering circular complying with the state's laws, prior to the offer or sale of the franchise. BLOCKBUSTER intends to maintain a franchise offering circular that complies with all applicable federal and state franchise sales and other applicable laws.

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        BLOCKBUSTER is also subject to a number of state laws and regulations that regulate some substantive aspects of the franchisor-franchisee relationship, including (i) those governing the termination or non-renewal of a franchise agreement; (ii) requirements that the franchisor deal with its franchisees in good faith; (iii) prohibitions against interference with the right of free association among franchisees; and (iv) those regulating discrimination among franchisees in charges, royalties or fees.

        Compliance with federal and state franchise laws is costly and time-consuming, and no assurance can be given that BLOCKBUSTER will not encounter difficulties or delays in this area or that it will not require significant capital for franchising activities.

Intellectual Property

        It is the Company's practice to protect its theatrical and television product, software, publications and its other original and acquired works. The following logos and trademarks and related trademark families are among those strongly identified with the product lines they represent and are significant assets of the Company: VIACOM®, BLOCKBUSTER®, CBS®, CBS ENTERTAINMENT™, CBS NEWS™, CBS SPORTS™, UPN®, INFINITY RADIO®, VIACOM OUTDOOR™, BET®, CMT®: COUNTRY MUSIC TELEVISION^TM, MTV MUSIC TELEVISION®, NICK AT NITE®, NICKELODEON®, THE NEW TNN: THE NATIONAL NETWORK®, TV LAND®, VH1 MUSIC FIRST®, PARAMOUNT®, FAMOUS MUSIC®, SPELLING TELEVISION®, BIG TICKET TELEVISION®, VIACOM PRODUCTIONS^TM, KING WORLD®, PARAMOUNT PARKS®, ENTERTAINMENT TONIGHT®, STAR TREK®, SHOWTIME®, THE MOVIE CHANNEL™, FLIX®, SIMON & SCHUSTER® and POCKET BOOKS™.

Employees and Labor Matters

        At December 31, 2001, the Company employed approximately 122,770 people, of which approximately 60,100 were full-time salaried employees.

Financial Information About Segments and Foreign and Domestic Operations

        Financial and other information by segment and relating to foreign and domestic operations for each of the last three years ending December 31, is set forth in Note 15 to the Consolidated Financial Statements.

Cautionary Statement Concerning Forward-Looking Statements

        This document and the documents incorporated by reference into this Form 10-K, contain both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of section 27A of the Securities Act of 1933, as amended, and section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are not based on historical facts, but rather reflect the Company's current expectations concerning future results and events. These forward-looking statements generally can be identified by the use of statements that include phrases such as "believe," "expect," "anticipate," "intend," "plan," "foresee," "likely," "will" or other similar words or phrases. Similarly, statements that describe the Company's objectives, plans or goals are or may be forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be different from any future results, performance and achievements expressed or implied by these statements. More information about these risks, uncertainties and other factors is set forth on pages II-32 to II-34 of "Management's Discussion and Analysis of Results of Operations and Financial Condition." The Company does not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

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Item 2.    Properties.

        The Company maintains its world headquarters at 1515 Broadway, New York, New York, where it rents approximately 1.2 million square feet for executive offices and certain of its operating divisions. The lease for the majority of the space runs to 2010, with four renewal options for five years each thereafter. The Company also leases the following major facilities in New York City for certain of its operating divisions: (a) approximately 548,000 square feet of office space at 1633 Broadway, New York, New York, which lease runs to 2010, and (b) approximately 237,000 square feet of office space at 1230 Avenue of the Americas, New York, New York, which lease runs to 2009. The Company owns the building located at 51 West 52nd Street New York, New York containing approximately 900,000 square feet which is utilized for executive and certain operating division offices or is leased to third parties, and the CBS Broadcast Center complex located on approximately 3.7 acres at 524 West 57th Street and consists of approximately 860,000 square feet. The Company also owns 3 studio facilities in California: (a) the Paramount Pictures studio at 5555 Melrose Avenue, Los Angeles, California, located on approximately 65 acres, (b) the CBS Studio Center at 4204 Radford Avenue, Studio City, California, located on approximately 40 acres, and (c) CBS Television City at 7800 Beverly Boulevard, Los Angeles, California, located on approximately 11 acres. PARAMOUNT PARKS' operations in the U.S. include approximately 1,950 acres owned and 108 acres leased and in Canada include approximately 380 acres owned. BLOCKBUSTER's headquarters at 1201 Elm Street, Dallas, Texas consists of approximately 240,000 square feet of leased space and its distribution center in McKinney, Texas consists of approximately 850,000 square feet of leased space.

        The Company also owns and leases office, studio, retail and warehouse space, broadcast, antenna and satellite transmission facilities and outdoor advertising throughout the U.S., Canada and several countries around the world for its businesses. The Company considers its properties adequate for its present needs.

Item 3.    Legal Proceedings.

        Antitrust.    The Company, Blockbuster and Paramount Home Entertainment are among the defendants in a lawsuit filed on July 21, 1999 in the United States District Court for the Western District of Texas by one former and three present independent video retailers against the major motion picture studios and the Company. The plaintiffs, purporting to act as class representatives on behalf of themselves and all others similarly situated, alleged that the Company and the studios conspired among themselves and with Blockbuster to restrain competition in the nationwide market for distribution of videocassettes for rental to the public in violation of federal and California law. Plaintiffs sought injunctive relief under federal law as well as triple the amount of the alleged actual damages to themselves and those similarly situated under California statutes. In January 2001, plaintiffs moved to withdraw their California state law claims from the federal lawsuit in Texas and filed a substantially similar complaint with approximately 200 additional named plaintiffs in Superior Court for the County of Los Angeles. This complaint also sought certification of a nationwide class of similarly situated plaintiffs. In March 2001, the Texas court denied the plaintiffs' motion for class certification of both the federal and the California state law claims in the federal action and denied the plaintiffs' motion to withdraw their California state law claims from that action. On January 8, 2002, the California court also denied plaintiffs' motion for class certification. The Company believes that the plaintiffs' position in these litigations is without merit and intends to defend itself vigorously in the litigations.

        Asbestos and Environmental.    The Company is a defendant in lawsuits claiming various asbestos-related personal injuries, which allegedly occurred as a result of exposure caused by various products manufactured by Westinghouse, a predecessor, generally prior to the early 1970s. Westinghouse was neither a producer nor a manufacturer of asbestos. The Company is typically named as one of a large number of defendants in both state and federal cases. In the majority of lawsuits, the plaintiffs have not identified which of the Company's products is the basis of a claim. Claims against the Company in which a product has been identified principally relate to exposures allegedly caused by asbestos-containing

I-36

insulating material in turbines sold for power-generation, industrial and marine use, or by asbestos-containing grades of decorative micarta, a laminate used in commercial ships.

        Claims typically are both filed and settled in large groups, which makes the amount and timing of settlements, and the number of pending claims, subject to significant fluctuation from period to period. As of December 31, 2001, the Company had pending approximately 106,000 asbestos claims, as compared to approximately 100,000 as of December 31, 2000 and 121,000 as of December 31, 1999. Of the claims pending as of December 31, 2001, approximately 75,000 were pending in state courts, 22,000 in federal court and approximately 9,000 were third party claims. During 2001, the Company received approximately 60,000 new claims and closed approximately the same number of claims. The Company reports claims as closed when it becomes aware that a dismissal order has been entered by a court or when the Company has reached agreement with the claimants on the material terms of a settlement.

        Settlement costs depend on the seriousness of the injuries that form the basis of the claim, the quality of evidence supporting the claims and other factors. To date, the Company has not been liable for any third-party claims. The Company's total costs in 2001 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits, were approximately $21 million. A portion of such costs relates to claims settled in prior years.

        Filings include claims for individuals suffering from mesothelioma, a rare cancer which is allegedly caused solely by exposure to asbestos, lung cancer, a cancer which may be caused by various factors, one of which is alleged to be asbestos exposure, other cancers, and conditions that are substantially less serious, including claims brought on behalf of individuals who are asymptomatic as to an allegedly asbestos-related disease. Only a very small percentage of the Company's pending asbestos claims that identify the alleged injury contain allegations that the plaintiff's exposure to asbestos resulted in cancer; in recent filings in which the Company knows the nature of the claimed injury, the percentage of cancer claims has been declining significantly. In more than 50% of the claims, the plaintiff has not yet identified the claimed injury.

        The Company believes that its reserves and insurance are adequate to cover its asbestos liabilities.

        The Company from time to time receives claims from federal and state environmental regulatory agencies and other entities asserting that it is or may be liable for environmental cleanup costs and related damages principally relating to discontinued operations conducted by companies acquired by the Company.

        Litigation is inherently uncertain and always difficult to predict. However, based on its understanding and evaluation of the relevant facts and circumstances, the Company believes that the above-described legal matters are not likely to have a material adverse effect on its results of operations, financial position or cash flows. (See Item 7. "Management's Discussion and Analysis of Results of Operations and Financial Condition.")

Item 4.    Submission of Matters to a Vote of Security Holders.

        Not Applicable

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Executive Officers of the Company

        Set forth below is certain information concerning the executive officers of the Company.

        None of the executive officers of the Company is related to any other executive officer or director by blood, marriage or adoption except that Brent D. Redstone and Shari Redstone, Directors of the Company, are the son and daughter, respectively, of Sumner M. Redstone.

        Mr. Redstone has been a Director of the Company since 1986 and Chairman of the Board since 1987, acquiring the additional title of Chief Executive Officer in January 1996. Mr. Redstone has served as Chief Executive Officer of NAI since 1967, and continues to serve in such capacity; he has also served as Chairman of the Board of NAI since 1986. Mr. Redstone was President of NAI from 1967 through 1999. Mr. Redstone became a Director of Blockbuster in 1999. He is a member of the Advisory Council for the Academy of Television Arts and Sciences Foundation and on the Board of Trustees for The Museum of Television and Radio. Mr. Redstone served as the first Chairman of the Board of the National Association of Theatre Owners, and is currently a member of the Executive Committee of that organization. Since 1982, Mr. Redstone has been a member of the faculty of Boston University Law School, where he has lectured on entertainment law, and since 1994, he has been a Visiting Professor at Brandeis University. He has also been a frequent lecturer at colleges, including Harvard Law School. In 1944, Mr. Redstone graduated from Harvard University and, in 1947, received an LL.B. from Harvard University School of Law. Upon graduation, he served as Law Secretary with the U.S. Court of Appeals, and then as a Special Assistant to the U.S. Attorney General.

        Mr. Karmazin has been President and Chief Operating Officer of the Company and a member of the Board of Directors since May 2000. He became a Director of Blockbuster in May 2000. Mr. Karmazin served as President and Chief Executive Officer of CBS Corporation from January 1999 until May 2000, and President and Chief Operating Officer from April 1998 through December 1998. Mr. Karmazin also served as Chairman, President and Chief Executive Officer of Infinity Broadcasting Corporation from December 1998, the time of Infinity's most recent initial public offering, until its public shares were acquired by the Company. Mr. Karmazin joined CBS in December 1996 as Chairman and Chief Executive Officer of CBS Radio and served as Chairman and Chief Executive Officer of the CBS Station Group (Radio and Television) from May 1997 to April 1998. Prior to joining CBS, Mr. Karmazin served as President and Chief Executive Officer of Infinity Broadcasting Corporation from 1981 to December 1996. Mr. Karmazin is Vice Chairman of the Board of Trustees for The Museum of Television and Radio and serves on the Board of Directors of the New York Stock Exchange, Inc. and Westwood One, Inc.

        Mr. Bressler has been Senior Executive Vice President and Chief Financial Officer since May 2001. He became a Director of Blockbuster in May 2001. Before joining the Company, Mr. Bressler was Executive Vice President of AOL Time Warner Inc. and Chief Executive Officer of AOL Time Warner Investments. Prior to that, Mr. Bressler served in various capacities with Time Warner Inc., including as Chairman and Chief Executive Officer of Time Warner Digital Media. He also served as Executive Vice

I-38

President and Chief Financial Officer of Time Warner Inc. from March 1995 to June 1999. Mr. Bressler serves on the National Advisory Committee of JPMorgan Chase.

        Mr. Folta was elected Senior Vice President, Corporate Relations of the Company in November 1994. Prior to that, he served as Vice President, Corporate Relations of the Company from April 1994 to November 1994. From 1984 until joining the Company in April 1994, Mr. Folta held various Corporate Communications positions at Paramount Communications Inc., serving most recently as Senior Director, Corporate Communications.

        Mr. Freedline has been Vice President and Treasurer of the Company since May 2000. From May 1998 to May 2000, he served as Vice President and Controller of CBS Corporation. Mr. Freedline also served as Director of Business Planning and Development of CBS from June 1996 to May 1998.

        Mr. Fricklas was elected Executive Vice President, General Counsel and Secretary in May 2000. From October 1998 to May 2000, he served as Senior Vice President, General Counsel and Secretary of the Company and from July 1993 to October 1998, he served as Deputy General Counsel of the Company. He served as Vice President, General Counsel and Secretary of Minorco (U.S.A.) Inc. from 1990 to 1993. Prior to that, Mr. Fricklas was an attorney in private practice at the law firm of Shearman & Sterling.

        Ms. Gordon was elected Vice President, Controller and Chief Accounting Officer in April 1995. Prior to that, she served as Vice President, Internal Audit of the Company since October 1986. From June 1985 to October 1986, Ms. Gordon served as Controller of Viacom Broadcasting. She joined the Company in 1981 and held various positions in the corporate finance area.

        Ms. Melton was elected Senior Vice President, Government Affairs of the Company in May 1997. Before joining the Company, Ms. Melton served most recently as Vice President, Law and Public Policy at Time Warner Inc., having joined Warner Communications Inc. in 1987. Prior to that, Ms. Melton served as Legal Advisor to the Chairman of the Federal Communications Commission and as Assistant General Counsel for the National Cable Television Association.

        Mr. Roskin has been an executive officer of the Company since April 1988 when he became Vice President, Human Resources and Administration. In July 1992, Mr. Roskin was elected Senior Vice President, Human Resources and Administration of the Company. From May 1986 to April 1988, he was Senior Vice President, Human Resources at Coleco Industries, Inc. From 1976 to 1986, he held various executive positions at Warner Communications Inc., serving most recently as Vice President, Industrial and Labor Relations.

        Mr. Shea was elected Senior Vice President, Investor Relations of the Company in January 1998. From July 1994 to May 1995 and from November 1995 to December 1997, he was Senior Vice President, Corporate Communications for Triarc Companies, Inc. From June 1995 through October 1995, he served as Managing Director of Edelman Worldwide. From 1977 until July 1994, Mr. Shea held various Investor Relations positions at Paramount Communications Inc., serving most recently as Vice President, Investor Relations.

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PART II

Item 5.    Market for Viacom Inc.'s Common Equity and Related Security Holder Matters.

        Viacom Inc. voting Class A Common Stock and Viacom Inc. non-voting Class B Common Stock are listed and traded on the New York Stock Exchange ("NYSE") under the symbols "VIA" and "VIA.B", respectively.

        The following table sets forth, for the calendar periods indicated, the per share range of high and low sales prices for Viacom Inc.'s Class A Common Stock and Class B Common Stock, as reported on the NYSE.

         Viacom Inc. has not declared cash dividends on its common stock for the periods presented above and has no present intention of so doing.

        As of March 8, 2002, there were approximately 6,327 record holders of Viacom Inc. Class A Common Stock and 75,038 record holders of Viacom Inc. Class B Common Stock.

II-1

Item 6.    Selected Financial Data.

VIACOM INC. AND SUBSIDIARIES
(In millions, except per share amounts)

        Viacom Inc. has not declared cash dividends on its common stock for any of the periods presented above. All share and per share amounts reflect a two-for-one stock split in 1999. In 1998 and 1997 results include operating results and net gains on dispositions of businesses presented as discontinued operations.

        (a) Results include pre-tax special item Blockbuster charges of $395 million ($198 million, after-tax) primarily for the elimination of less-productive VHS tapes; and restructuring charges of approximately $67 million and $53 million for MTV Networks and United Paramount Network, respectively.

        (b) As a result of the adoption of Statement of Position 00-2, "Accounting by Producers or Distributors of Films," the Company recorded a non-cash after-tax charge of $452.3 million as a cumulative effect of a change in accounting.

        (c) On May 4, 2000, CBS Corporation merged with and into Viacom Inc., and effective from this date, its results of operations are included in the consolidated financial results of the Company.

        (d) During the second quarter of 1998, Blockbuster recorded a pre-tax charge of approximately $424 million ($273 million, after-tax) representing an adjustment to the carrying value of rental tapes due to a change in the method of amortizing rental inventory.

II-2

        (e) Results include an extraordinary pre-tax loss for the early extinguishment of debt of approximately $127 million ($75 million after-tax).

        See Notes to Consolidated Financial Statements for additional information on transactions and accounting classifications which have affected the comparability of the periods presented above.

Item 7.    Management's Discussion and Analysis of Results of Operations and Financial Condition.

(Tabular dollars in millions)

General

        Management's discussion and analysis of the results of operations and financial condition of Viacom Inc. and its subsidiaries ("Viacom" or the "Company") should be read in conjunction with the Consolidated Financial Statements and related Notes. Descriptions of all documents incorporated by reference herein or included as exhibits hereto are qualified in their entirety by reference to the full text of such documents so incorporated or included.

        Several events occurred during 2001 and 2000 that affect the comparability of the Company's historical results for the periods presented. The significant events were as follows:

•

In the second half of 2001, Blockbuster, a majority owned subsidiary of the Company, recorded primarily non-cash charges of approximately $395 million, principally related to the elimination of less-productive VHS tapes as part of its strategic re-merchandising plan to transition from VHS to the higher margin DVD rental market and a change in amortization.

•

The Company's 2001 results were impacted by lost revenues and increased costs attributable to the events of September 11 and by the challenging economic environment experienced during the year.

•

In the fourth quarter of 2001, the Company recognized restructuring charges of approximately $67 million at MTV Networks associated with a reduction in workforce and $53 million at United Paramount Network ("UPN") associated with the integration of UPN into CBS Network operations.

•

In February 2001, the Company completed a merger with Infinity Broadcasting Corporation ("Infinity"), acquiring all of the issued and outstanding shares of Infinity common stock that it did not already own for a purchase price of approximately $13.4 billion.

•

In January 2001, the Company completed its acquisition of BET Holdings II, Inc. ("BET") for approximately $3 billion, consisting principally of Viacom Class B Common Stock and the assumption of debt.

•

In May 2000, the Company completed its merger with CBS Corporation ("CBS") (the "Viacom/CBS Merger") for a purchase price of approximately $39.8 billion.

•

In the third quarter of 2000, Infinity completed the acquisition of 18 radio stations from Clear Channel Communications, Inc. ("Clear Channel") for approximately $1.4 billion in an asset transaction.

•

In the second quarter of 2000, Infinity completed the acquisition of Giraudy, one of France's largest outdoor advertising companies, for approximately $400 million.

II-3

Business Segment Information

        The Company operates six reportable business segments:

        Cable Networks—Basic cable and premium subscription television program services.

        Television—Television networks and stations; and production and distribution of television
programming.

        Infinity—Radio stations and outdoor advertising properties.

        Entertainment—Production and distribution of motion pictures; as well as the operation of movie
theaters, theme parks and music publishing.

        Video—Home videocassette, DVD and video game rental and retail operations.

        Publishing—Consumer publishing.

        Effective January 1, 2001, the Company operated its online businesses under the Cable Networks and Television segments and accordingly, the online businesses are presented as part of these respective segments. Prior period information has been reclassified to conform to the new presentation. Effective January 1, 2002, the Company operates its publishing business under the Entertainment segment and will present its publishing business as part of that segment from that date forward.

        The following tables set forth revenues and operating income (loss) by business segment, as reported for the years ended December 31, 2001, 2000 and 1999.