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CBS Corp – ‘10-K’ for 12/31/02

On:  Thursday, 3/27/03, at 10:12am ET   ·   For:  12/31/02   ·   Accession #:  1047469-3-10441   ·   File #:  1-09553

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

 3/27/03  CBS Corp                          10-K       12/31/02   16:2.2M                                   Merrill Corp/New/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K        Annual Report                                       HTML   1.39M 
 2: EX-4.(A)    Instrument Defining the Rights of Security Holders  HTML     14K 
 3: EX-4.(B)    Instrument Defining the Rights of Security Holders  HTML     14K 
 6: EX-10.(AA)(I)  Material Contract                                HTML     62K 
 7: EX-10.(AA)(II)  Material Contract                               HTML     58K 
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 9: EX-10.(BB)  Material Contract                                   HTML      8K 
10: EX-10.(DD)  Material Contract                                   HTML     42K 
11: EX-10.(EE)  Material Contract                                   HTML     62K 
12: EX-10.(FF)  Material Contract                                   HTML    299K 
 4: EX-10.(J)   Material Contract                                   HTML     29K 
 5: EX-10.(K)   Material Contract                                   HTML     39K 
13: EX-12       Statement re: Computation of Ratios                 HTML     24K 
14: EX-21       Subsidiaries of the Registrant                      HTML    205K 
15: EX-23       Exhibit 23(A)                                       HTML      8K 
16: EX-24       Power of Attorney                                   HTML     36K 

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 the 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 the 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. / /

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes /x/ No / /

        As of June 28, 2002, which was the last business day of the registrant's most recently completed second fiscal quarter, the aggregate market value of the shares of Viacom Inc. Class A Common Stock, $0.01 par value ("Class A Common Stock"), held by non-affiliates was approximately $1,932,768,054 (based upon the closing price of $44.46 per share as reported by the New York Stock Exchange on that date) and the aggregate market value of the shares of the Viacom Inc. Class B Common Stock, $0.01 par value ("Class B Common Stock"), held by non-affiliates was approximately $67,175,168,187 (based upon the closing price of $44.37 per share as reported by the New York Stock Exchange on that date).

        As of March 14, 2003, 134,933,495 shares of Class A Common Stock and 1,621,605,094 shares of Class B Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of Viacom Inc.'s Notice of the 2003 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 consolidated subsidiaries unless the context otherwise requires, the "Company" or "Viacom") is a diversified worldwide entertainment company with operations, during 2002, in the following segments:

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CABLE NETWORKS: The Cable Networks segment operates MTV MUSIC TELEVISION®, SHOWTIME®, NICKELODEON®/NICK AT NITE®, VH1 MUSIC FIRST®, MTV2 MUSIC TELEVISION™, TV LAND®, 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, the Company's owned broadcast television stations and its television production and syndication business, including KING WORLD® PRODUCTIONS and PARAMOUNT TELEVISION™.



•

INFINITY: The Infinity segment owns and operates 185 radio stations through INFINITY RADIO®, and owns and/or operates outdoor advertising properties through VIACOM OUTDOOR™. Beginning January 1, 2003, the Company operates INFINITY as two segments, RADIO and OUTDOOR. Future disclosure of segment results will conform to this new presentation.



•

ENTERTAINMENT: The Entertainment segment includes PARAMOUNT PICTURES®, which produces and distributes theatrical motion pictures; the publishing and distribution of consumer books and multimedia products, under imprints such as SIMON & SCHUSTER®, POCKET BOOKS®, SCRIBNER® and THE FREE PRESS™; 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 80.4% equity interest in Blockbuster Inc., which operates and franchises BLOCKBUSTER® video stores worldwide.

        For the year ended December 31, 2002, contributions to the Company's consolidated revenues from its segments were as follows: Cable Networks 19%, Television 30%, Infinity 15%, Entertainment 15% and Video 23%. Intercompany revenue eliminations, as a percentage of total revenues, were 2% for the year ended December 31, 2002. The Company generated approximately 16% of its total revenues from international regions in 2002. For the year ended December 31, 2002, approximately 56% and 23% of total international revenues of $4.0 billion were generated in Europe and Canada, respectively.

        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 14, 2003, holds approximately 80.4% of the total equity value in, and approximately 95.3% 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 included the issuance of approximately 836.5 million shares of Viacom Class B Common Stock (the "Viacom/CBS Merger"). As a result of the Viacom/CBS Merger, the Company acquired an approximate 64.2% equity interest in Infinity Broadcasting Corporation ("Infinity"). On February 21, 2001, Infinity merged with and into a wholly owned subsidiary of the

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Company (the "Infinity Merger"). In connection with the Infinity Merger, the Company issued approximately 232 million shares of Viacom Class B Common Stock.

        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, among other services, for a total purchase price of approximately $3 billion, which included the net issuance of approximately 43 million shares of Viacom Class B Common Stock.

        On May 15, 2002, the Company acquired the assets of KCAL-TV for approximately $650 million in cash.

        As of March 14, 2003, 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 Class A Common Stock of the Company representing approximately 69% of the voting power of all classes of the Company's Common Stock, and approximately 11% of the Company's Class A Common Stock and Class B Common Stock on a combined basis. Owners of the Company's Class A Common Stock are entitled to one vote per share. The Company's Class B Common Stock does not have voting rights. 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    (19%, 19% and 20% of the Company's consolidated revenues in 2002, 2001 and 2000)

        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 for a fee 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"), TNN: THE NATIONAL NETWORK ("TNN") and COLLEGE TELEVISION NETWORK® ("CTN").

        MTV's programming consists of youth-oriented programming appealing primarily to an audience aged 18 to 24, including music videos, music-based programming, music and general lifestyle information, reality-based programming, comedy and dramatic series, animated programs, news specials, interviews and documentaries. Recent programming highlights include MTV's TOTAL REQUEST LIVE, THE OSBOURNES, MTV CRIBS and THE REAL WORLD. In addition to MTV's series programming, MTV continues to exhibit successful annual events such as THE MTV VIDEO MUSIC AWARDS, THE MTV MOVIE AWARDS and MTV ICON, all of which present various artist tributes and performances. At December 31, 2002 according to the Nielsen Media Research report, MTV reached approximately 85.0 million domestic subscriber households. MTV2, a 24-hour, seven-days-a-week spin-off of MTV, offers

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a "freeform" music format which features music videos from a broad range of musical genres and artists. At December 31, 2002 according to the Nielsen Media Research report, MTV2 had approximately 47.6 million domestic subscriber households. MTVN also operates "The Suite from MTV Networks" ("The Suite"), a package containing MTV2 and several digital television program services, including VH1 CLASSIC and seven other music related services including two Spanish-language music services. The Suite is available through DTH distributors and cable operators offering digital technology. On October 31, 2002, MTVN purchased CTN, a program service which offers to students on U.S. college campuses a blend of music, news, sports and college-specific programming.

        MTV FILMS® produced the feature films ORANGE COUNTY, MARTIN LAWRENCE LIVE: RUNTELDAT and JACKASS THE MOVIE. The feature film CROSSROADS was also presented in association with MTV FILMS. All of these films were released by PARAMOUNT PICTURES during 2002. MTV offers lines of home video, 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 popular shows such as RUGRATS, BLUE'S CLUES and SPONGEBOB SQUAREPANTS); and NICK AT NITE, which attracts primarily audiences ages 18 to 49 and offers mostly situation comedies from various eras, including CHEERS, THE COSBY SHOW, ALL IN THE FAMILY and COACH. At December 31, 2002, according to the Nielsen Media Research report, NICKELODEON/NICK AT NITE reached approximately 86.2 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 films HEY ARNOLD! THE MOVIE and THE WILD THORNBERRYS MOVIE, released in 2002 by PARAMOUNT PICTURES. In addition to services described above, The Suite contains NOGGIN® and three other program services from NICKELODEON. NOGGIN is a 24-hour, seven-days-a-week, children's program service, distributed primarily by digital cable and satellite. 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 and BLUE'S CLUES after their initial network runs. In April 2002, NOGGIN launched THE N™, a tween and teen program block for viewers ages 9 to 17. The Suite also includes NICKELODEON GAS GAMES and SPORTS FOR KIDS®, a program service featuring children's game shows and sports programming for viewers ages 6 to 11. 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. Additionally, the Company publishes monthly NICKELODEON MAGAZINE.

        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 THE ANDY GRIFFITH SHOW, MACGYVER, LEAVE IT TO BEAVER, I LOVE LUCY, SANFORD & SON and HAPPY DAYS. In addition, TV LAND offers original programming, including TV LAND LEGENDS: THE 60 MINUTES INTERVIEWS and INSIDE TV LAND. At December 31, 2002, according to the Nielsen Media Research report, TV LAND reached approximately 78.3 million domestic subscriber households.

        VH1 presents music and related programming directed at an audience aged 18 to 49 with an emphasis on series which feature viewers' favorite music artists and pop culture highlights. Examples of such programming include: VH1 BEHIND THE MUSIC; DRIVEN; 100 GREATEST ONE HIT WONDERS; ALL ACCESS; I LOVE THE 80'S; and ULTIMATE ALBUMS. In addition, VH1 airs concerts, musically

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themed movies, music videos, as well as special events such as VH1/VOGUE FASHION AWARDS, DIVAS LAS VEGAS, and VH1 BIG IN 2002 AWARDS. At December 31, 2002, according to the Nielsen Media Research report, VH1 reached approximately 83.8 million domestic subscriber households. The VH1 SAVE THE MUSIC® Foundation, in connection with VH1's cable television and satellite affiliates, since its inception, has restored public school music programs in 900 schools located in 75 communities, and has donated over $21 million of musical instruments benefiting more than 400,000 children. In 2002, the cable television industry recognized the VH1 SAVE THE MUSIC Foundation with three Beacon Awards for excellence in public service.

        CMT presents country music-related original programming, specials, live concerts and events, as well as a mix of country music videos by established artists, including world premier videos. CMT is directed at an audience aged 18 to 49 and is offered in the U.S. and Canada. Its original programming in 2002 included CMT's 40 GREATEST WOMEN OF COUNTRY; CROSSROADS; INSIDE FAME; CMT GOT ME IN WITH THE BAND, as well as CMT's FLAMEWORTHY VIDEO MUSIC AWARDS. At December 31, 2002, according to the Nielsen Media Research report, CMT reached approximately 66.0 million domestic subscriber households and Mediastats reports CMT's Canadian distribution at November 2002, at approximately 8.0 million subscriber households.

        TNN presents a range of popular programming such as the highly-rated WWE RAW, CSI: CRIME SCENE INVESTIGATION and STAR TREK: THE NEXT GENERATION and original programming such as OBLIVIOUS and SLAMBALL. TNN's programming also includes popular movies such as the James Bond motion picture series and off-network television series such as BLIND DATE, REAL TV, and BAYWATCH. In January 2003, TNN announced that it would build on its strong male audience by becoming the first entertainment network for men, targeting an 18-49 demographic, with a focus on non-fiction programming and animated series. In 2003, TNN expects to introduce animated programming, including THE NEW REN & STIMPY, STRIPPERELLA and GARY THE RAT. The Company offers TNN in the U.S. and in Canada. At December 31, 2002, according to the Nielsen Media Research report, TNN reached approximately 86.0 million domestic subscriber households and Mediastats reports TNN's Canadian distribution at November 2002, at approximately 6.6 million subscriber households.

        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. 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 through 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 29 individual music and kids channels, including MTV (7 regionalized services), VH1 (3 services), MTV2, MTV Hits, MTV Base, MTV Dance, MTV2 Pop, MTV Classic, THE MUSIC FACTORY ("TMF") (3 services), Nickelodeon (9 services) and Kindernet. The network currently reaches more than 100 million households in Europe via a combination of satellite, cable, and terrestrial distribution. On June 26, 2002, the Company acquired Vivendi Universal's interest in the MTV Asia program service, which is now wholly owned by the Company.

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International MTVN Program Services

        The following table sets forth information regarding MTVN program services offered internationally as of March 14, 2003:

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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.

        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").

        MTVN operates Internet sites that appeal to the current audiences of its various MTV, VH1, CMT, TNN, NICKELODEON and CTN television program services, as well as to new online audiences. In

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addition to providing entertainment and information on such Web sites, these Web sites provide an additional outlet for sales of Company-licensed and third-party merchandise. In addition, MTVN has numerous music Web site destinations around the world, including MTV.com, VH1.com, CMT.com and collegetelevision.com. In December 2002, MTVN's Web sites attracted over 8.0 million U.S. monthly unique visitors, according to Nielsen/Net Ratings, 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 and VJ FOR A DAY. VH1.com offers users interactive entertainment, music news, fan club information, daily polls and community features. Collegetelevision.com provides information as a special feature relating to the programming of CTN. MTVN, on behalf of its Web sites, currently obtains much of its Web site 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.

        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 pre-school area featuring interactive games, art, stories and music. In December 2002, the Nick.com and NickJr.com Web sites attracted over 3.52 and 1.86 million U.S. monthly unique visitors, respectively, according to Nielsen/Net Ratings. MTVN also operates the TVLand.com and TNNonline.com Web sites providing information and special features relating to the programming on those cable networks.

        BET: Black Entertainment Television.    BET's owned and operated cable program services include the BET CABLE NETWORK and BET JAZZ: THE JAZZ CHANNEL ("BET JAZZ") and, during 2002, BET GOSPEL® and BET HIP HOP® were launched in Atlanta.

        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 programming includes original entertainment specials, hosted music video programs, talk shows, sports, news and public affairs offerings, comedy shows as well as acquired movies, series and gospel music programs.

        Entertainment specials are the most popular form of original programming on the BET CABLE NETWORK. In 2002, BET produced and aired the 2nd ANNUAL BET AWARDS SHOW, the 8th ANNUAL WALK OF FAME, SPRING BLING and the 2nd ANNUAL CELEBRATION OF GOSPEL. The 2002 presentations of these entertainment specials along with 106 & PARK and COMIC VIEW yielded some of the year's highest rated programming on the BET CABLE NETWORK.

        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, 106 & PARK: PRIME and RAP CITY: THA BASSMENT. Original programming also includes sports related and entertainment shows such as COMICVIEW, a stand-up comedy show; NYLA, an entertainment show that features movie premieres, fashion trends and music highlights; and MAAD SPORTS, a sports magazine show that examines the 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, PURPLE RAIN and COOLEY HIGH and drama and comedy series such as SOUL FOOD®, THE PARKERS, GIRLFRIENDS and the new animated series, HEY MONIE.

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        Music and entertainment fare on the BET CABLE NETWORK is balanced with original news and public affairs programming such as BET NIGHTLY NEWS and JOURNEYS IN BLACK, a documentary series that highlights the lives and achievements of African-Americans.

        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. Licensed programs on BET JAZZ feature artists such as Duke Ellington, Billie Holiday and Frank Sinatra. Original programming aired on the network includes JOURNEY WITH JAZZ AT LINCOLN CENTER, hosted by Wynton Marsalis; LYRIC CAFÉ, a poetry show hosted by celebrity guests; and JAZZ PADS, a broadcast that highlights the celebrity homes of jazz artists. During 2002, BET JAZZ also enhanced its original programming through partnerships and sponsorship alliances with major advertisers and industry partners.

        Both the BET CABLE NETWORK and BET JAZZ derive their revenues from the sale of advertising time on the networks and from subscription fees generated by license of the network to cable television operators, DTH and other distributors. As of December 31, 2002, according to the Nielsen Media Research report, the BET CABLE NETWORK reached approximately 74.5 million domestic subscriber households. BET JAZZ is marketed to a niche audience and is made available on both digital and analog distribution platforms.

        BET GOSPEL and BET HIP HOP, BET's digital services, launched in the summer of 2002 serving the Atlanta market. BET GOSPEL features gospel music programming, gospel artist performances and interviews, religious ministries, family programming and programming fare designed to provide spiritual fulfillment. BET HIP HOP features hip-hop and rap music videos, artists and performances.

        BET EVENT PRODUCTIONS® produces special musical events and festivals featuring music genres such as jazz, Latin jazz and rhythm & blues. Its services 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 which publishes romance, inspirational and mainstream fiction books targeted to the African-American market. Its revenues are generated by book sales through a subscriber book club, retail outlets, discount stores and online book merchants.

        BET has an approximately 42% interest in BET INTERACTIVE, LLC, a company which, through its Web site, BET.com, offers users content and interactive features for news, entertainment, community and other areas tailored to the unique interests and issues of African Americans. BET.com also provides program schedules for the BET CABLE NETWORK and BET JAZZ, the latest music news, artist information, music offerings and interactive entertainment for programs such as 106 & PARK and BET.COM COUNTDOWN. In December 2002, BET.com attracted approximately 761,000 U.S. monthly unique visitors, according to Nielsen/NetRatings. BET.com obtains music content from record labels, music publishers and artists. The National Association of Black Journalists awarded BET.com "Best Online News Project" and "Best Use of Interactivity" for 2002.

        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, 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, 2002, SHOWTIME, THE MOVIE CHANNEL and FLIX, in the aggregate, had approximately 35.4 million subscriptions in the 50 states, certain U.S. territories and Bermuda. SUNDANCE CHANNEL®, a venture (among SNI, an affiliate of Robert Redford and Universal Studios) managed by SNI through a management agreement which expires on December 31, 2004, is a commercial-free premium subscription television program service in the U.S., dedicated to independent film, featuring top-quality American

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independent films, documentaries, foreign and classic art films, shorts and animation, with an emphasis on recently released titles.

        SNI also owns and operates several different channels 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™ 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 to 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, an additional channel of THE MOVIE CHANNEL, offering more and varied movie viewing choices. SNI also transmits SHOWTIME HDTV®, a high definition television version of SHOWTIME. In 2002, SNI launched SHOWTIME ON DEMAND® and THE MOVIE CHANNEL ON DEMAND™, which provide SHOWTIME and THE MOVIE CHANNEL subscribers with the ability to watch available programming on demand. SNI also owns with Zone Vision Enterprises Limited, a U.K. company, an advertiser-supported basic television program service in Turkey currently named SHOWTIME. In addition, SNI owns a 50% interest in an advertiser-supported basic television program service in Spain named SHOWTIME EXTREME®, also owned by Media Park, S.A., a leader in thematic channel production based in Barcelona.

        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. The unit has produced and distributed seven of the top ten pay-per-view events of all time, including the top four: Holyfield vs. Tyson II, Lewis vs. Tyson, Tyson vs. Holyfield I and Tyson vs. McNeeley. In addition to boxing, SHOWTIME EVENT TELEVISION has been instrumental in bringing other events to the viewing public, including numerous music concerts.

        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 typically cover the U.S. and Bermuda and may, on a contract-by-contract basis, cover additional territories. SNI has the exclusive U.S. premium subscription television rights to 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 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 quirky 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; SOUL FOOD®, a dramatic series (based on the theatrical motion picture of the same name) that follows the lives of three African-American sisters and their families; and STREET TIME, a critically acclaimed dramatic series that portrays a gritty look at parolees and parole officers. SNI's original programming in recent years has been

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honored with three George Foster Peabody awards, two Humanitas Prizes, and the Academy of Television Arts & Sciences' prestigious Governor's Award for diversity in programming. As part of its original programming strategy, SNI premiered 23 original motion pictures on SHOWTIME in 2002, and expects to premiere approximately 10 original motion pictures on SHOWTIME in 2003. 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 programming. In 2002, 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 180 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 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 LDC, a satellite direct-to-home platform offering the following channels in the Middle East, among others: MTV, VH1, NICKELODEON, TV LAND and THE PARAMOUNT COMEDY CHANNEL™.

    Television    (30%, 31% and 27% of the Company's consolidated revenue in 2002, 2001 and 2000)

        The Television segment consists of the CBS and UPN television networks, the Company's owned broadcast television stations, and its 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, 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 35th season, and its offspring, 60 MINUTES II, the CBS EVENING NEWS WITH DAN RATHER, 48 HOURS INVESTIGATES, 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 500 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 "World News Roundup—Late Edition." 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 football and basketball lineups on network television, in addition to the NFL's American Football Conference regular season

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schedule, the Post Season Divisional Playoff games and the AFC championship game. Among the events CBS SPORTS broadcasts are THE NFL TODAY; certain NCAA championships such as the NCAA Division I Men's Basketball Championship Tournament, including the Final Four; golf, including the Masters Tournament and the PGA Championship; the U.S. Open Tennis Championships; CBS SPORTS SPECTACULAR, including skiing and ice skating, track and field, and gymnastics events. Extending its franchises off the field and court, CBS SPORTS has activated its marketing rights for the 2003-2013 NCAA Championships, including coordination of licensing, merchandising, related multimedia and television, and other related business opportunities.

        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, reality-based programming, made-for-television movies and miniseries, theatrical films, specials, children's programs, daytime dramas, game shows and late-night programs. CBS ENTERTAINMENT introduced six dramas and three comedies in the 2002-2003 season, including CSI: MIAMI, WITHOUT A TRACE and STILL STANDING as well as the new reality-based series STAR SEARCH. 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 HACK. The Company also continued its reality-based SURVIVOR series, with SURVIVOR: THAILAND, and SURVIVOR: THE AMAZON. Specials presented by the division include THE GRAMMY AWARDS, THE COUNTRY MUSIC ASSOCIATION AWARDS and THE KENNEDY CENTER HONORS. Late-night programming presented by the division includes 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 14 consecutive years.

        At December 31, 2002, UPN provided 25 hours of programming a week, consisting of a two-hour primetime programming block five nights per week, Monday through Friday, a two-hour children's animated programming block six days a week, a two-hour weekend movie and one additional hour of ENTERPRISE during the weekend. UPN's programming is provided to its affiliates in 185 U.S. television markets, reaching approximately 96.4% of all U.S. television households, including secondary affiliates. Eighteen of the Company's owned television stations are affiliates of UPN. UPN's 2002-2003 season includes three dramas, including BUFFY THE VAMPIRE SLAYER, ENTERPRISE and THE TWILIGHT ZONE. ENTERPRISE is the latest series in the STAR TREK® franchise. In addition, UPN's primetime schedule includes the new comedies ABBY and HALF & HALF, both produced by CBS PRODUCTIONS, as well as the returning series WWE SMACKDOWN, ONE ON ONE, GIRLFRIENDS and THE PARKERS.

        Through CBS.com and CBSNews.com, the Company operates Web sites that collectively received more than 1 billion pageviews in 2002 and, according to comScore Media Metrix, a leading online audience research measurement service, attracted an average audience of 4.8 million U.S. monthly unique visitors. CBS.com produces Web sites for all CBS ENTERTAINMENT programs, including SURVIVOR, CSI, BIG BROTHER, STAR SEARCH and THE LATE SHOW WITH DAVID LETTERMAN. CBS.com is responsible for THE CBS TELEVISION NETWORK's promotional Web sites, online subscription services, fantasy leagues and interactive voting technology. CBSNews.com is a multimedia provider of continuous, in-depth news and information. CBSNews.com produces Web sites for all CBS NEWS programs. Both sites provide links to cbs.marketwatch.com, operated by MarketWatch.com, Inc., and cbs.sportsline.com, operated by SportsLine.com, Inc.

        The Company holds minority investments in SportsLine.com, Inc. (NASDAQ: SPLN), a provider of Internet sports content and e-commerce, and in MarketWatch.com, Inc. (NASDAQ: MKTW), a provider of business news, financial programming and analytic tools.

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        Television Stations.    The Company owns 39 broadcast television stations, all of which operate under licenses granted by the Federal Communications Commission ("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 owns two television stations within the same designated market area in 8 major markets: Los Angeles (market #2), Philadelphia (market #4), San Francisco (market #5), Boston (market #6), Dallas-Fort Worth (market #7), Detroit (market #10), Miami (market #17) and Pittsburgh (market #21). On May 15, 2002, the Company acquired KCAL-TV in Los Angeles, which provided the Company with its second station within the same designated market area in Los Angeles. 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 on 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. In September 2002, the FCC initiated a rulemaking proceeding for the purposes of comprehensively reviewing its broadcast ownership rules. Action on this matter is not expected before late spring 2003.

        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, received by the viewing public in analog form. However, in April 1997, the FCC began the transition from an analog to a digital television service by assigning each existing television station an additional channel to be used for the broadcast of a digital signal. The FCC adopted a time schedule under which stations were required (absent conditions beyond their control) to construct digital transmission facilities and begin digital operations. The schedule had staggered deadlines; however, as of May 1, 2002, all commercial television stations were required to have commenced broadcast of a digital signal. With the exception of the UPN-affiliated stations in Pittsburgh, Oklahoma City and Providence, all of the Company's stations are transmitting digital broadcasts that comply with the FCC's requirements. These three stations are not broadcasting digital signals because the FCC has yet to grant the Company authorization to construct the digital facilities for them. The Company intends to promptly commence construction of the digital facilities for these stations upon receipt of authorization from the FCC.

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Television Stations

        The table below sets forth the broadcast television stations owned by the Company as of March 1, 2003.

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(1)

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

(2)

Market Rankings based on Nielsen Media Research Local Universe Estimates for use throughout the 2002-2003 Television Season.

(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 UPN. 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 UPN. The station has a secondary affiliation with the WB network.

(8)

WLWC-TV's primary affiliation is with UPN. 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®, BIG TICKET TELEVISION®, CBS PRODUCTIONS and VIACOM PRODUCTIONS® produces, acquires and/or distributes programming worldwide including series, specials and made-for-television movies primarily for broadcast on network television and exhibition on basic cable and premium subscription services, and first-run and off-network syndicated programming. First-run syndication is programming produced for initial sale to television stations on an individual basis without prior exhibition on a network. Off-network syndicated programming is programming produced for initial exhibition on a network, basic cable or premium subscription service, which is then redistributed for exhibition on either television stations or a cable network.

        Programming that was produced and/or distributed by the Company's production and syndication group and is broadcast on network television includes BECKER (CBS); CSI: CRIME SCENE INVESTIGATION (CBS); HACK (CBS); JAG (CBS); THE AGENCY (CBS); THE DISTRICT (CBS); ANDY RICHTER CONTROLS THE UNIVERSE (FOX); ED (NBC); FRASIER (NBC); IN-LAWS (NBC); ABBY (UPN); ENTERPRISE (UPN); GIRLFRIENDS (UPN); HALF & HALF (UPN); ONE ON ONE (UPN); THE PARKERS (UPN); CHARMED (WB); DO OVER (WB); GREETINGS FROM TUCSON (WB); SABRINA, THE TEENAGE WITCH (WB); THE JAMIE KENNEDY EXPERIMENT (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. Remaining distribution rights, including foreign and/or 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 series such as CAROLINE IN THE CITY; CSI: CRIME SCENE INVESTIGATION; DIAGNOSIS MURDER; EARLY EDITION; EVERYBODY LOVES RAYMOND; FRASIER; JAG; MOESHA; SABRINA, THE TEENAGE WITCH; SISTER, SISTER; SPIN CITY; STAR TREK: VOYAGER; and TOUCHED BY AN ANGEL. The Company also distributes a library of older television programs, including THE ANDY GRIFFITH SHOW and HAPPY DAYS.

        The Company produces and/or distributes programming for first-run syndication that it sells directly to television stations in the U.S. on a market-by-market basis. The Company's first-run syndicated programming includes shows such as BOB VILA'S HOME AGAIN, ENTERTAINMENT TONIGHT, HOLLYWOOD SQUARES, HOT TICKET, INSIDE EDITION, JEOPARDY!, JUDGE JOE BROWN, JUDGE JUDY, LIFE MOMENTS, MARTHA STEWART LIVING, MAXIMUM EXPOSURE, THE DR. PHIL SHOW, THE MONTEL WILLIAMS SHOW, THE OPRAH WINFREY SHOW and WHEEL OF FORTUNE. LIVING IT UP! WITH ALI AND JACK and UNEXPLAINED MYSTERIES are scheduled to be launched commencing in September 2003. The Company also distributes syndicated programming internationally.

        The Company produces and distributes original television programming to basic cable program services (such as the television series THE DIVISION on Lifetime and DEAD ZONE on USA Network) including to services in which the Company has an interest. It also produces and/or distributes original television programming for premium subscription services, such as SOUL FOOD®, including for services in which the Company has an interest. The Company also co-produces and/or distributes original television programming initially for foreign television exhibition, including shows such as LARGO and the miniseries 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, 2002, the unrecognized revenues attributable to television program license agreements were approximately $380.9 million, compared to approximately $460.1 million at December 31, 2001.

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    Infinity    (15%, 16% and 14% of the Company's consolidated revenue in 2002, 2001 and 2000)

        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 growth strategy generally is to acquire out-of-home media properties in the largest markets. Beginning January 1, 2003, the Company operates the INFINITY segment as two segments, RADIO and OUTDOOR. Future disclosure of segment results will conform to this new presentation.

        Infinity Radio.    INFINITY RADIO, which owns and operates 185 radio stations serving 41 markets, is one of the largest operators of radio stations in the U.S. Approximately 91% 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 INFINITY RADIO's 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.

        As of March 14, 2003, 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. Westwood One does not own or operate radio stations.

        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 public 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, Finland and Puerto Rico.

        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 as of March 1, 2003 in the top 25 U.S. radio markets:

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(1)

Market Rank based on Fall 2002 Market Survey Schedule and Population Ranking as provided by Arbitron Radio.

(2)

Sub-market of New York City. INFINITY RADIO's New York City radio stations serve Nassau-Suffolk.

    Entertainment    (15%, 15% and 17% of the Company's consolidated revenue in 2002, 2001 and 2000)

        The Entertainment segment's principal businesses are PARAMOUNT PICTURES, which produces and distributes motion pictures; the publishing and distribution of consumer books and multimedia products, under the SIMON & SCHUSTER and other imprints; 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. 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 2002, PARAMOUNT PICTURES produced, co-produced or acquired, and theatrically released, 19 feature motion pictures in the U.S., including WE WERE SOLDIERS, CHANGING LANES, THE SUM OF ALL FEARS, STAR TREK NEMESIS, NARC and THE HOURS; and CROSSROADS, presented in association with MTV FILMS; ORANGE COUNTY, MARTIN LAWRENCE LIVE: RUNTELDAT and JACKASS THE MOVIE, each of which was produced by MTV FILMS, and CLOCKSTOPPERS, HEY ARNOLD! THE MOVIE and THE WILD THORNBERRYS MOVIE, each of which was produced by NICKELODEON MOVIES, and released by PARAMOUNT PICTURES. PARAMOUNT PICTURES currently plans to release approximately 15 films in 2003 (which release plans may change due to a variety of factors), including HOW TO LOSE A GUY IN 10 DAYS, which was released in February 2003, THE HUNTED, which was released in March 2003, THE CORE, THE ITALIAN JOB, LARA CROFT TOMB RAIDER: THE CRADLE OF LIFE, BEYOND BORDERS and TIMELINE; THE RUGRATS GO WILD, produced by NICKELODEON MOVIES, and THE FIGHTING TEMPTATIONS, produced by MTV FILMS; and THE PERFECT SCORE, presented in association with MTV FILMS.

        PARAMOUNT CLASSICS®, a division of PARAMOUNT PICTURES, released nine films in 2002 including MEAN MACHINE, FESTIVAL IN CANNES, MOSTLY MARTHA and THE WAY HOME. PARAMOUNT CLASSICS was established to handle the distribution of specialized film product. PARAMOUNT CLASSICS currently plans to release approximately eight titles in 2003 (which release plans may change due to a variety of factors).

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

        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. 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 licenses its motion pictures to residential and hotel/motel pay-per-view, airlines, schools and universities.

        License fees for exhibition on broadcast and/or basic cable television are generally collected in installments. 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 December 31, 2002 and December 31, 2001, the unrecognized revenues attributable to such licensing of completed films from PARAMOUNT PICTURES' license agreements were approximately $948 million and $1.0 billion, respectively. At December 31, 2002, PARAMOUNT PICTURES had approximately 1,100 motion pictures in its library. The Company also has a library of additional motion picture titles, most of which comprise the SPELLING ENTERTAINMENT™ library.

        Publishing.    SIMON & SCHUSTER publishes and distributes adult and children's consumer books and CD-ROM products in the U.S. and internationally. SIMON & SCHUSTER's major imprints include SIMON & SCHUSTER, POCKET BOOKS, SCRIBNER and THE FREE PRESS. SIMON & SCHUSTER also develops special imprints and publishes titles based on MTVN, PARAMOUNT PICTURES and SHOWTIME products as well as that of third parties 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 2002, SIMON & SCHUSTER published 85 titles that were New York Times bestsellers, including 18 New York Times number one bestsellers. Best-selling titles released by its Adult Publishing Group in 2002 include "FROM A BUICK 8" by Stephen King; "DADDY'S LITTLE GIRL" by Mary Higgins Clark; "BUSH AT WAR" by Bob Woodward; "THE MULBERRY TREE" by Jude Deveraux; the Pulitzer Prize-winner "JOHN ADAMS" by David McCullough; "A MIND AT A TIME" by Mel Levine, M.D.; and "THE RIGHT WORDS AT THE RIGHT TIME" by Marlo Thomas. Best-selling titles published by the Children's Publishing Division include "AMERICA" by Lynne Cheney; Robert Sabuda's "THE NIGHT BEFORE CHRISTMAS"; "GIGGLE, GIGGLE, QUACK" by Doreen Cronin; Kay Thompson's "ELOISE TAKES A BAWTH"; and several series featuring characters from popular NICKELODEON programs.

        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 2002 include Grammy Award-nominee "LUCKY MAN" by Michael J. Fox, "BUSH AT WAR" by Bob Woodward, and "THE MAN IN THE BLACK SUIT" by Stephen King. CD-ROM titles are published by SIMON & SCHUSTER INTERACTIVE®. SIMON & SCHUSTER

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ONLINE™, through SimonSays.com, publishes original content, builds reader communities, and promotes and sells SIMON & SCHUSTER's books and products over the Internet.

        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. In 2002, SIMON & SCHUSTER acquired Distican, the longtime exclusive distributor of its books and products in Canada, which now conducts business as SIMON & SCHUSTER CANADA.

        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 represent a significant portion of SIMON & SCHUSTER's sales throughout the year. SIMON & SCHUSTER's top ten accounts drive a significant portion of its annual revenue. Consumer books are generally sold on a fully returnable basis, resulting in the return of unsold books. In the domestic and 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 presents its publishing business as part of the Entertainment segment.

        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 DOMINION™, located near Richmond, Virginia; Paramount's KINGS ISLAND™, located near Cincinnati, Ohio; Paramount CANADA'S WONDERLAND®, located near Toronto, Ontario; and the themed attraction, 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 an agreement to manage and operate Terra Mítica, a theme park located in the province of Valencia in Benidorm, Spain. In the first quarter of 2003, PARAMOUNT PARKS entered into an agreement to manage Bonfante Gardens, a family-oriented garden theme park in Gilroy, California.

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

        Theatrical Exhibition.    The Company's movie theater operations include FAMOUS PLAYERS which is operated through a wholly owned subsidiary of the Company, in Canada. At December 31, 2002, FAMOUS PLAYERS operated approximately 822 screens in 87 theaters across Canada. UNITED CINEMAS INTERNATIONAL, a 50%-owned joint venture of entities affiliated with the Company and Universal, operated as of December 31, 2002, approximately 1,120 screens in 121 theaters in the U.K., Ireland, Germany, Austria, Spain, Japan, Italy, Poland, Portugal, Argentina, Brazil, Panama and Taiwan. The Company also owns a 50% interest in two entities which operate approximately 148 screens in 24 theaters under the name MANN THEATRES, the substanial majority of which are located in California.

        Music Publishing.    The FAMOUS MUSIC publishing companies own, control and/or administer all or a portion of the copyrights 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 and are principally derived from (i) 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) agreements entered into directly by FAMOUS MUSIC with songwriters and music publishers, including exclusive songwriting agreements, music administration agreements and catalog purchases.

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    Video    (23%, 22% and 25% of the Company's consolidated revenue in 2002, 2001 and 2000)

        The Company operates in the retail home video business, which includes both the rental and sale of films on videocassette ("VHS") and DVD as well as the rental and sale of video games, through its approximately 80.4% equity interest in Blockbuster Inc. As of December 31, 2002, BLOCKBUSTER operated approximately 6,900 stores and its franchisees operated approximately 1,600 stores in the U.S., its territories and 28 other countries. BLOCKBUSTER stores operate primarily under the highly recognized BLOCKBUSTER brand name. BLOCKBUSTER also operates a Web site, blockbuster.com, primarily for the purpose of supporting its stores and driving store revenues through promotional offers.

        During 2002, BLOCKBUSTER increased its focus on the sale of new movies and games as a complement to its rental offering in order to accommodate increased demand for retail product. As part of its increased focus on product sales, BLOCKBUSTER expanded its selection of movies for sale, as well as its selection of games software and hardware. In particular, BLOCKBUSTER capitalized on increased consumer interest in purchasing DVDs, through aggressive merchandising, and continued to increase its DVD merchandise as a percentage of its total movie merchandise. Blockbuster also continued to take advantage of its ability to offer promotions that combine film rentals with sales of popular titles, thereby providing an alternative to the offerings that can be provided by a traditional retailer.

        During 2002, reflecting BLOCKBUSTER's increased focus on DVDs and games, DVD rental revenues increased from 18.5% of its total rental revenues in 2001 to 39.0% of its total rental revenues in 2002; and game rental revenues increased from 10.6% of BLOCKBUSTER's total rental revenues in 2001 to 11.9% of its total rental revenues in 2002. Rental revenues generated by the eventual sale of previously rented movies increased 33.1%, which reflects in part the increased sales of previously rented DVDs, which BLOCKBUSTER is able to sell at a higher price point than previously rented VHS movies because of the popularity and durability of the format. During 2002, BLOCKBUSTER's revenues from movie and game sales increased 75.8% from 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." Studios release their movies to different distribution channels at different points in time. The first distribution channel after theatrical release is home video on DVD and VHS. This distribution window is typically exclusive against most other forms of non-theatrical movie distribution, such as pay-per-view, video-on-demand, premium television, basic cable and network and syndicated television. The length of this exclusive distribution window for home video retailers varies, but has typically ranged from about 45 to 60 days for domestic video retailers. Thereafter, movies are made sequentially available to television distribution channels.

        During the "distribution window" described above, studios currently release substantially all DVD titles and an increasing percentage of VHS titles at what are commonly referred to as "sell-through" prices. Studios release a movie title at sell-through prices when the movie is being initially promoted for simultaneous sale and rental. The sell through price to the home video retailer is low enough to allow for an affordable sales price by the retailer to the consumer from the beginning of the home video distribution window. This sell-through pricing not only facilitates sales to consumers, it also facilitates the ability of a video retailer to purchase sufficient quantities of a title to satisfy consumer rental demand. Prior to the growth in the sell-through priced DVD format, studios typically promoted a significant portion of their VHS movie titles primarily for rental at the beginning of the home video distribution window. Studios release a title that is to be promoted primarily for rental at a price to the home video retailer that is too high to allow for an affordable sales price by the retailer to the consumer at the beginning of the retail home video distribution window. As rental demand subsides, a studio will reduce pricing in order to then allow for reasonably priced sales to consumers. The initial period during which a movie is released with higher pricing is commonly referred to as the "rental window." There has generally not been a rental window for DVDs. Although the studios have continued to release some VHS movies with a rental

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window, the fact that studios are releasing sell-through priced DVDs at the same time that they are releasing the same movies on VHS has reduced the significance of the rental window and has led to the increased sell-through pricing for VHS movies. The availability of DVDs for simultaneous sale and rental from the beginning of the retail home video distribution window has served to accelerate consumer interest in the format. However, it has also served to increase competition from mass merchant retailers, as mass merchant retailers are generally much more competitive with regard to sell-through priced titles than videocassettes priced for rental.

        BLOCKBUSTER currently purchases most DVDs for its U.S. company-operated stores directly from the studios on a title-by-title basis through purchase orders. In addition, it continues to increase the percentage of its VHS product that it purchases in this manner. This is in contrast to BLOCKBUSTER's historical method for purchasing most VHS rental product through "revenue-sharing" arrangements, which were attractive to studios when the production was initially promoted for rental. The increase in sell-through priced DVDs as a percentage of BLOCKBUSTER's product mix has decreased the significance of VHS, VHS revenue-sharing arrangements and the VHS rental window. The lower sell-through pricing for DVD product has enabled BLOCKBUSTER to acquire significant quantities of product with or without revenue sharing arrangements, which had required BLOCKBUSTER to purchase a minimum quantity of most titles released by the studios in exchange for minimal fixed payments by BLOCKBUSTER. BLOCKBUSTER continues to acquire some VHS titles under revenue-sharing arrangements, under which BLOCKBUSTER shares an agreed-upon percentage of its U.S. VHS rental revenues with a studio for a limited period of time. BLOCKBUSTER also obtains some DVD titles through revenue-sharing arrangements that allow it to share with the studios the upfront cost for the titles. BLOCKBUSTER continues to assess its various arrangements with the studios, and future arrangements could result in other changes in the DVD business model.

        In BLOCKBUSTER's international markets, it purchases its movies on a title-by-title basis through purchase orders or through revenue-sharing or copy-depth arrangements. In addition, BLOCKBUSTER acquires product through sub-wholesalers appointed by the studios to distribute the studios' product in particular countries. BLOCKBUSTER's purchasing arrangements vary by country depending on factors such as the availability of the rental window and the availability of revenue-sharing arrangements.

        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.

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COMPETITION

        The Company competes with many different types of entities and media in various markets. Its business segments generally compete with similar businesses of other diversified international entertainment companies such as AOL Time Warner, News Corporation, Sony Corporation, The Walt Disney Company and Vivendi Universal.

    Cable Networks

        MTV Networks.    MTVN 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 compete with other cable services and broadcast television for the acquisition of popular programming. MTVN's strategy is generally to differentiate its services to provide advertising buyers with an efficient way to reach viewers in particular demographic categories. For example, Nickelodeon generally provides advertisers with an efficient way to reach viewers 2-11 years old. Programming blocks for children 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. In addition to the foregoing, there are also a number of other U.S. cable television program services specifically targeting 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. In the United States, Nickelodeon is a significant seller of advertising oriented toward this demographic.

        MTVN services also compete with other program services for channel space and compensation for carriage from cable television operators, DTH and other multichannel distributors. In general, the principal focus of competition for distribution comes with respect to MTVN's services that are not already distributed within a particular cable or DTH system. For such program services, distributors select services based on various considerations, including amounts paid by programmers for launches, subscription fees payable by distributors, and appeal to the distributors' subscribers, among others.

        Certain major record companies operate 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 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, DTH and other systems, and for distribution license fees and advertising revenues.

        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, BET JAZZ, BET GOSPEL and BET HIP HOP 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,

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musical artists and sponsorship and advertising revenues. BET BOOKS competes with other publishers generally, and particularly with those publishers that target its specific audience.

        For 2002, according to the Nielsen Media Research report (December 31, 2001—December 29, 2002), the Company's basic cable networks had the following percentage shares in the total day basic cable networks category: approximately 36% (for viewers ages 2-24), 31% (for viewers ages 2-34), 25% (for viewers ages 12-34), and 18% (for viewers ages 18-49).

        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 theatrical 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 competes with HBO but has a significantly smaller share of the premium subscription television category. Starz Encore Group L.L.C. owns Starz!, another premium subscription television program service, which features recently released theatrical 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 such as ABC, FOX, NBC and WB, independent television stations, basic cable program services as well as other media, including satellite television services, videocassettes, DVDs, print and the Internet. In addition, the CBS and UPN television networks compete with these other broadcast 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. According to Nielsen Media Research, for the broadcast television primetime daypart for the period September 23, 2002 to March 16, 2003, CBS television network secured the #1 position for total viewers and strengthened its #2 position for key adult viewers ages 25-54.

        Television stations compete for programming, for audiences 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. The owned and operated television stations' competitive position is largely influenced by (i) the strength of the CBS and UPN television networks, and, in particular, the viewership of the CBS television network in the time period immediately prior to the late evening news; (ii) the quality of the syndicated programs and local news programs in time periods not programmed by the network; and (iii) in some cases, by the quality of the broadcast signal.

        Because an extended conversion to digital television broadcasting has begun, current and future technological developments may affect competition within the television marketplace. 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 conditionally set to end in the year 2006, at which time, subject to the extensions that the FCC is permitted by statute to grant upon the request of any television station if certain levels of digital television penetration have not been met in that station's market, current rules would require broadcasters

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to 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 such as Disney, NBC, Sony, Universal and Warner Bros. 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/or outdoor advertising companies such as ABC Radio, Cox Radio, Emmis Communications, Entercom, Lamar Advertising, Radio One and Clear Channel Communications, as well as with other media, such as broadcast television, newspapers, magazines, cable and satellite 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 radio services ("DARS"). Two satellite-delivered audio programming services, Sirius and XM Satellite Radio, are now operational, each providing approximately 100 channels of pay audio services. While primarily pay services, advertising time is currently being sold by XM Satellite Radio on some of their channels and no regulation prohibits Sirius from adding advertising as well. 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. The FCC has authorized use of an in-band on-channel ("IBOC") digital technology developed by iBiquity Digital Corporation on FM stations full-time and on AM stations day-time only. The Company has tested the IBOC technology on certain of its stations and licensed the technology for use by several of its stations. The Company has an ownership interest in iBiquity. The Company cannot predict the impact of new media technology on its business.

        INFINITY RADIO's aggregate spot advertising sales revenues for its radio stations for 2002 in each of the top five U.S. markets by metro area population were ranked either #1 or #2, according to the 2002 Market Total Spot Performance Summary of Miller, Kaplan, Arase & Co., LLP (for the New York, Los Angeles, San Francisco and Dallas-Fort Worth markets) and the 2002 Cluster Radio Revenue Report of Hungerford Aldrin Nichols & Carter, PC (for the Chicago market).

    Entertainment

        Theatrical Motion Pictures.    The Company competes with other major studios such as Disney, Dreamworks, Fox, MGM, Sony, Universal and Warner Bros. 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.

        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. The Company must compete with other publishers such as Random

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House, Penguin Group and Harper Collins for the rights to works by well-known authors and public personalities.

        Parks.    During the last four years, the regional theme park industry has experienced increased consolidation. The Company competes with other 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 existing attractions and facilitate the development of new attractions, which encourage visitors to the PARAMOUNT PARKS theme parks. 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/or games 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 and games stores; (ii) mass merchant retailers such as Wal-Mart, Best-Buy and Target; (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 and game 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, digital cable television and internet delivery. 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"). Studio pricing for films that are released to home video retailers has historically been based on whether or not a studio desires to promote a film for both rental and sale to the consumer, or primarily for rental, from the beginning of the home video distribution window. Currently, substantially all DVDs are released at lower sell-through prices, which mean prices that are low enough to allow for an affordable sales price by the retailer to the consumer from the beginning of the home video distribution window. This sell-through pricing 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; if sell-through pricing of DVDs results in consumer preference for

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buying, rather than renting, movies and BLOCKBUSTER is unable to increase rental market share, to replace profits from rentals with profits from sales of sell-through product, or to otherwise positively affect gross profits, such as through increased pricing or cost reductions; and/or if new technologies become widely accepted by consumers.

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 was 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 January 2003, the U.S Supreme Court upheld 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 fees paid by cable, MMDS and SMATV operators for the retransmission of distant broadcast signals are currently established by statute. These amounts are then divided among the copyright owners of programs contained in such distant broadcast signals by agreement and binding arbitration. There is no compulsory licensing fee for the retransmission of local broadcast signals, but local stations may, under a different statute, elect to negotiate

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consideration in return for consenting to the retransmission of their signals by multichannel video distributors.

        DTH.    In November 1999, Congress enacted the Satellite Home Viewer Improvement Act ("SHVIA") to extend and reform original legislation which created a temporary compulsory license that allowed satellite carriers to import broadcast signals to those homes that were unable to receive over-the-air their local network-affiliated television signals. The legislation also created a temporary compulsory license that allowed satellite carriers to import non-network stations' signals. This compulsory license was to expire at the end of 1999. Through the 1999 SHVIA legislation, Congress extended the compulsory license until December 31, 2004, and set statutory compulsory license fees for these distant signals. These amounts are then divided among the copyright owners of programs contained in such broadcast signals by agreement or binding arbitration. In addition, Congress created a new and permanent compulsory license for the retransmission of local network broadcast signals back into the local market, the so-called "local-into-local" provision. Unlike the above mentioned compulsory license, the local signal compulsory license is royalty-free, but local stations may elect to negotiate consideration in return for consenting to the retransmission of their signals by satellite carriers.

        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. The First Sale doctrine does not exist in many countries where the copyright owner retains the rental rights to a copyrighted work. In these countries the right to rent home video works is obtained through a licensing arrangement or a purchase with the right to rent 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 additional top level domains are continuing to be introduced, which 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, among other things, 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 remain 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

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area tends to erode cable operator incentives to invest in programming and particularly in start-up program services.

        Online Music Royalties.    MTVN, on behalf of its Web sites, and BET Interactive, LLC, on behalf of BET.com, currently obtains much of its Web site content from record labels, music publishers and artists. MTVN and BET Interactive also obtain certain rights to some of its Web site 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.

    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 pursuant to licenses 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 and other laws, including requirements affecting the content of broadcasts; 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 and satellite television systems and other electronic media that compete with broadcast stations.

        License Assignments and Renewals.    The Communications Act requires prior FCC approval for the assignment of a license or transfer of control of an FCC licensee. 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 have an official position or ownership interest, known as an "attributable" interest, above a specific level in broadcast stations as well as in other specified mass media entities. In September 2002, the FCC initiated a rulemaking proceeding (the "Omnibus Ownership Review") for the purpose of comprehensively reviewing its broadcast ownership rules, including the local radio ownership rule, the local television ownership rule, the national television ownership cap, the dual network rule, the newspaper-broadcast cross-ownership rule and the radio-television cross-ownership rule. The Company has filed comments urging the FCC to repeal all of the broadcast ownership rules and to defer to the Antitrust Division of the U.S. Department of Justice and the Federal Trade Commission on issues of potential over-concentration. Action on the FCC rulemaking is not expected before late spring 2003. The current ownership rules are briefly summarized below.

        Local Radio Ownership.    The maximum allowable number of radio 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. In the top 50 markets where INFINITY RADIO has significant holdings, the rule generally permits the common ownership of eight radio stations, no more than five of which may be either AM or FM. The FCC is considering possible changes to its method of defining local radio markets as part of a proceeding initiated in December 2000 and since incorporated into the Omnibus Ownership Review.

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        Local Television Ownership.    The FCC's local television ownership rule permits parties to own up to two television stations in the same market, referred to as designated market areas ("DMA"), so long as at least one of the two stations is not among the top four-ranked stations in the market based on audience share as of the date an application for approval of an acquisition is filed with the FCC, and at least eight independently owned and operating full-power television stations remain in the market following the acquisition. Further, without regard to numbers of remaining or independently owned TV stations, the FCC will permit ownership of two television stations within the same DMA so long as certain signal contours of the stations involved do not overlap. The U.S. Court of Appeals for the D.C. Circuit has ordered the FCC to reconsider its rationale for the type of media to include in the eight-voice limit. In the Omnibus Ownership Review, the FCC is considering this question, as well as whether to retain or modify the local television ownership rule.

        The Company has two television stations in the same DMA in the following eight television markets: Los Angeles, Philadelphia, San Francisco, Boston, Dallas-Fort Worth, Detroit, Miami, and Pittsburgh.

        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% of all U.S. television households. For purposes of calculating the total number of television households in a particular television station's DMA, the FCC attributes UHF television stations with only 50% percent of the television households in their respective DMA.

        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 and others 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 U.S. Court of Appeals for the D.C. Circuit 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 of whether to repeal or modify the rule. On March 28, 2002, the FCC ordered that the Company will have until 12 months after the issuance of a final FCC decision on remand to file any application that may be necessary to come into compliance with any limits that may exist at that time.

        Newspaper-Broadcast Cross-Ownership Rule.    The FCC's Newspaper-Broadcast Cross-Ownership Rule, enacted in 1975, provides that no party shall own a radio or television station in the same market in which the same party also owns a daily newspaper. There are, however, approximately 40 grandfathered newspaper-broadcast combinations in existence and the FCC has granted four permanent waivers of the rule since its inception. As part of the Omnibus Ownership Review, the FCC has asked for comments on a wide range of proposals regarding this rule, including whether it should retain the rule in its current form, modify either the geographic coverage areas or the media covered by the rule, apply a market concentration or market voice count test, or eliminate the rule completely.

        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 broadcast network. In April 2001, the FCC eliminated the application of the dual network rule to the UPN and WB networks. 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 Rule.    The radio-television cross-ownership rule permits common ownership or control of one or more radio stations, whether AM, FM or both, and one television station (or two television stations, if such combination is permitted by the local television ownership rule) in the

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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. The Company owns radio and television stations in the Los Angeles, San Francisco and Baltimore markets in excess of this limit. With respect to the Los Angeles and San Francisco markets, the Company has applications pending before the FCC that if granted would bring the Company into compliance with the rule. The Company has asked the FCC to extend the deadline for divestiture in Baltimore.

        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 FCC'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 the licensee's total weekly programming, or has an attributable same-market media interest, whether television, radio, cable or newspaper; a 5% or greater direct or indirect voting stock interest, including certain interests held in trust, unless the holder is a qualified passive investor in which case the criterion is a 20% or greater voting stock interest; any equity interest in a limited liability company or a partnership, including a limited partnership, unless properly "insulated" from management activities; and any position as an officer or director of a licensee or of its direct or indirect parent.

        The FCC is not considering changes to the attribution rules in the Omnibus Ownership Review. In a separate proceeding, however, the FCC is reviewing its single majority voting shareholder attribution exemption. In January 2001, the FCC eliminated this exemption, which previously had rendered as non-attributable voting interests up to 49% in a licensee controlled by a single majority voting 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 with respect to certain cable ownership rules, the FCC suspended enforcement of the elimination of the single majority shareholder exemption in the broadcast context pending the outcome of a rulemaking in which the FCC is reconsidering 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 periodically surveys 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 over-the-air video program signal at least comparable in resolution to the station's analog programming transmissions.

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        The FCC required all commercial television stations to begin broadcasting a digital signal by May 1, 2002. With the exception of the UPN-affiliated stations in Pittsburgh, Oklahoma City and Providence, all of the Company's stations are transmitting digital broadcasts that comply with the FCC's requirements. These three UPN-affiliated stations are not broadcasting a digital signal because the FCC has yet to grant the Company authorization to construct the digital facilities for them. The FCC's plan conditionally calls for the digital television transition period to end in the year 2006, at which time current rules would require television broadcasters to 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 DMA, 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 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 FCC against cable operators for non-compliance with the mandatory carriage requirements; in addition, both cable operators and television stations may file petitions with the FCC either to expand or to contract a commercial television station's market for broadcast signal carriage purposes. In general, the Company's stations have elected the retransmission consent option for cable carriage for the three-year period that began January 1, 2003. The Company is still in the process of negotiating retransmission consent agreements with some cable operators, but in all cases the cable systems continue to carry the stations' signals.

        In 1999, Congress enacted 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 elections.

        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 does not currently require either satellite or cable operators to carry both a station's analog and digital signals during the transition period.

        Digital Audio Radio Service.    The FCC has authorized various digital audio radio services. In January 1995, the FCC adopted rules to allocate spectrum for satellite-delivered digital audio radio services. Two satellite-delivered audio programming services have launched, Sirius and XM Satellite

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Radio, each providing approximately 100 channels of pay audio services. While primarily pay services, advertising time is currently being sold by XM Satellite Radio on some of its channels and no regulation prohibits Sirius from adding advertising as well. The FCC also has a pending proceeding which contemplates the use of digital technology by existing AM and FM radio broadcast stations both to improve sound quality and to provide spectrum for enhanced data services to complement the existing programming service and provide new business opportunities for radio broadcasters. The FCC has authorized use of an IBOC digital technology developed by iBiquity Digital Corporation on FM stations full-time and on AM stations day-time only. The Company has tested the IBOC technology on certain of its stations and licensed the technology for use by several of its stations. The Company has an ownership interest in iBiquity. The Company cannot predict the impact of new media technology on its business.

    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, 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, requires 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. A number of cities including New York City, Los Angeles and Miami have implemented or initiated legislative billboard controls including imposing taxes, fees and registration requirements in an effort to decrease or restrict the number of outdoor signs. The Company contests such laws and regulations that may adversely impact its constitutional or other legal rights and unlawfully restrict the growth of the outdoor advertising business. In addition, 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

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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, health and safety, 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 customer records, including laws pertaining to the use of BLOCKBUSTER's customer transaction database.

        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 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.

        BLOCKBUSTER is also subject to a number of state and international 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™, MTV MUSIC TELEVISION®, NICK AT NITE®, NICKELODEON®, TNN: THE NATIONAL NETWORK™, TV LAND®, VH1 MUSIC FIRST®, PARAMOUNT®, PARAMOUNT PICTURES®, FAMOUS MUSIC®, SPELLING TELEVISION®, BIG TICKET TELEVISION®, VIACOM PRODUCTIONS®, 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, 2002, the Company employed approximately 120,630 people, of which approximately 61,280 were full-time salaried employees.

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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 14 to the Consolidated Financial Statements.

AVAILABLE INFORMATION

        Viacom Inc.'s Web site address is www.viacom.com. Viacom Inc. makes available free of charge on or through its Web site at http://viacom.com/shareholder.tin its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. Such material is made available through the Company's Web site as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission.

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

        This document and the documents incorporated by reference into this Annual Report on Form 10-K including "Item 7 Management's Discussion and Analysis of Results of Operations and Financial Condition," 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 are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that are difficult to predict and 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-35 to II-36 of "Management's Discussion and Analysis of Results of Operations and Financial Condition." There may be additional risks, uncertainties and factors that the Company does not currently view as material or that are not necessarily known. The forward-looking statements included in this document are only made as of the date of this document and the Company does not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances. The Company cannot make any assurance that projected results or events will be achieved.

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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 245,000 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.

        Asbestos and Environmental.    The Company is a defendant in lawsuits claiming various personal injuries related to asbestos and other materials, 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 asbestos 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 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. The Company does not report as pending those claims on inactive, stayed, deferred or similar dockets which some jurisdictions have established for claimants who allege minimal or no impairment. As of December 31, 2002, the Company had pending approximately 103,800 asbestos claims, as compared to approximately 106,000 as of December 31, 2001 and approximately 100,000 as of December 31, 2000. The 2001 and 2000 numbers of claims included approximately 7,100 claims and 1,900 claims, respectively, on an inactive docket in Baltimore which would not be counted as pending under the Company's current methodology. In addition, the pending claim count was reduced by approximately 24,000 claims as a result of the Supreme Court of New York's order dated December 2002 establishing a deferred docket of claimants alleging minimal or no impairment. Of the claims pending as of December 31, 2002, approximately 73,900 were pending in state courts, 27,100 in federal court and approximately 2,800 were third party claims. During 2002, the Company received approximately 49,400 new claims and closed approximately 18,500 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.

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        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 2002 and 2001 for settlement and defense of asbestos claims after insurance recoveries and net of tax benefits were approximately $28 million and $21 million, respectively. A portion of such costs relates to claims settled in prior years.

        Filings include claims for individuals suffering from mesothelioma, a rare cancer, the risk of which is allegedly increased primarily 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. The total number of asbestos claims filed during 2002 has declined relative to 2001 primarily as a result of a decline in claims filed on behalf of individuals who have not identified the claimed injury or who are asymptomatic as to an alleged asbestos-related disease. Claims identified as cancer remain a small percentage of asbestos claims pending at December 31, 2002. In a substantial number of the pending 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 and that these asbestos liabilities are not likely to have a material adverse effect on its results of operations, financial position or cash flows.

        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. In addition, the Company from time to time receives personal injury claims including toxic tort claims arising from historical operations of the Company and its predecessors.

        Antitrust.    In March 2001, after a series of judicial rulings, three individuals remained as plaintiffs in a complaint filed in the United States District Court for the Western District of Texas against the Company, Blockbuster, Paramount Home Entertainment, and other major motion picture studios and their home video subsidiaries. They asserted, among other things, that the Company, Blockbuster and the studios conspired to fix the prices of videos to retailers and distributors, engaged in discriminatory pricing, and conspired to restrain competition. They were seeking treble damages for themselves and injunctive relief under both federal and California state law. In July 2002, judgment was entered in favor of the defendants. Plaintiffs have appealed the judgment to the Fifth Circuit Court of Appeals. In January 2001, a similar complaint was filed in California in a Los Angeles County Superior Court by over 200 individual plaintiffs seeking class certification and monetary damages against the same defendants. In January 2002, the California court denied the plaintiffs' request for class certification, and the plaintiffs have appealed that decision to a California appellate court. By order dated February 20, 2003, the California state court judge dismissed with prejudice all claims against the defendants. The Company believes that the plaintiffs' position in these litigations is without merit and intends to continue to defend itself vigorously in the litigations.

        Blockbuster Securities Actions.    During February and March 2003, three putative class action complaints were filed against Blockbuster in the United States District Court for the Northern District of Texas claiming violations of the Securities Exchange Act of 1934 and seeking a class determination for purchasers of Blockbuster stock for the approximately eight-month period between April and December 2002. Certain members of Blockbuster's senior management are also named as defendants. A shareholder derivative action arising from the same operative facts was filed in February 2003 in the same court; and another shareholder derivative action was filed in March 2003 in the 160th Judicial District Court for Dallas County, Texas claiming breach of fiduciary duties for an approximately three-week period from late April through mid-May 2002. These actions named certain Blockbuster directors, some of whom are directors and/or executive officers of the Company, and certain members of Blockbuster's senior management, as individual defendants, and Blockbuster as a nominal defendant. Responses have not yet

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been filed to any of these lawsuits. The Company believes the plaintiffs' positions in these lawsuits are without merit and intends to vigorously defend these matters.

        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 all of the above-described legal matters and other litigation to which it is a party are not likely, in the aggregate, 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 as of March 1, 2003.

        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 and Chief Executive Officer since 1996. Mr. Redstone has served as Chairman of the Board of NAI since 1986 and Chief Executive Officer of NAI since 1967. He also served as President of NAI from 1967 through 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 its Executive Committee. 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. Mr. Redstone graduated from Harvard University in 1944 and received an LL.B. from Harvard University School of Law in 1947. Upon graduation, Mr. Redstone served as Law Secretary with the U.S. Court of Appeals, and then as a Special Assistant to the U.S. Attorney General. He served as Director of Infinity until the Infinity Merger. Mr. Redstone is a Director of Blockbuster.

        Mr. Karmazin has been President and Chief Operating Officer of the Company and a member of the Board of Directors since May 2000. Mr. Karmazin served as President and Chief Executive Officer of CBS Corporation from January 1999 until the Viacom/CBS Merger. He was President and Chief Operating Officer of CBS Corporation from April 1998 through December 1998. Mr. Karmazin joined CBS Corporation 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 from 1981 until its acquisition by CBS Corporation in December 1996. Mr. Karmazin served as Chairman, President and Chief Executive Officer of Infinity from December 1998 until the Infinity Merger. Mr. Karmazin is Vice Chairman of the Board of Trustees for The Museum of Television and Radio and is a Director of Blockbuster, the New York Stock Exchange, Inc. and Westwood One, Inc. Mr. Karmazin was a Director of CBS Corporation at the time of the Viacom/CBS Merger and was a Director of Infinity until the Infinity Merger.

        Mr. Bressler has been Senior Executive Vice President and Chief Financial Officer of the Company since 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

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Time Warner Digital Media. He also served as Executive Vice 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 and is a Director of Blockbuster.

        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. Mr. Folta held various communications positions at Paramount Communications Inc. from 1984 until joining the Company in April 1994.

        Mr. Freedline was elected Senior Vice President and Treasurer of the Company in May 2002. Prior to that, he served as Vice President and Treasurer of the Company from May 2000 to May 2002. 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 of the Company 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.

        Ms. Gordon was elected Senior Vice President, Controller and Chief Accounting Officer of the Company in May 2002. Prior to that, she served as Vice President, Controller and Chief Accounting Officer of the Company from April 1995 to May 2002 and as Vice President, Internal Audit from October 1986 to April 1995. 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, Corporation 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 Stockholder 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 14, 2003, there were approximately 5,458 record holders of Viacom Inc. Class A Common Stock and 68,662 record holders of Viacom Inc. Class B Common Stock.

        Information regarding the Company's equity compensation plans is incorporated by reference into Item 12 in Part III of this Form 10-K.

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Item 6.    Selected Financial Data.

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