The entertainment giant of Blockbuster, MTV, and Paramount is in trouble with plummeting stock

When media titans gathered in july for investment banker Herb Allen’s annual bury-the-hatchet retreat in Sun Valley, Idaho, one honcho was conspicuous by his absence: Viacom Inc. chairman and CEO Sumner Redstone. — Odds are Redstone was making it a Blockbuster night. Not renting movies, mind you, but trying to figure his way out of the struggling video chain’s multiple woes. Although much of Redstone’s media house is in disrepair, it’s Blockbuster Entertainment that has hurt Viacom’s stock — and Redstone’s credibility — the most: Last week, Viacom said it would write off $323 million in the second quarter because of Blockbuster’s troubles.

The legendarily tenacious Sumner Redstone does not suffer failure gladly. A crafty negotiator and vociferous champion of lawsuits, he usually wins his battles, besting media Goliaths and misfortune alike. The oft-told tale of his survivalist cojones concerns a 1979 fire at Boston’s Copley Plaza Hotel. As flames engulfed his room, Redstone supposedly hung by his fingertips from a window ledge until rescued. Actually, it’s likely he stayed in the room. Either way, his burns were serious enough to threaten full recovery. Yet at 74, he continues to play a weekly — and fanatical — game of tennis.

”He portrays a grandfatherly image, but he has a viper’s attitude,” says one longtime associate of Redstone’s barracuda-in-the-boardroom tactics. And part of Redstone’s dilemma is that up until now, he’s made it all look so easy. After turning his family’s theater chain (National Amusements, Inc.) into a multi-billion-dollar operation, the Harvard-educated Bostonian achieved mogul status with the 1987 purchase of Viacom, just as MTV and Nickelodeon were exploding. In 1993, concerned that Time Warner and Rupert Murdoch’s News Corp. were eclipsing Viacom in size and power, the fiercely competitive Redstone made a deal to buy Paramount Communications, beating Barry Diller in a bidding war. The $10 billion purchase was closed thanks to Viacom’s acquisition of cash-rich Blockbuster.

Once again, Redstone’s timing seemed impeccable. Not only was Paramount Pictures releasing Forrest Gump, but the synergistic opportunities were delicious: Paramount would produce hit movies; Blockbuster would rent out the videos. There was even talk of renaming Viacom’s Showtime the Blockbuster Channel.

What a difference a few years makes. Blockbuster is now simply the most pressing in a laundry list of Viacom problems:

— Viacom juggernaut MTV has alienated viewers (ratings were off 20 percent in the second quarter) with its shift from music videos to original programming; signature shows are aging (Singled Out, The Real World) or soon to be gone (Beavis and Butt-head). More significant, the channel’s key, trendsetting 18-to-24-year-old demographic appears to be getting younger, compromising its hip quotient and, thus, advertiser appeal.

— Paramount Pictures’ box office is down, and critics blame the studio’s slavish attention to the bottom line (read: cheap).