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CBS chair Shari Redstone. Photo: Drew Angerer/Getty Images

Merger talks between CBS and Viacom could reach a "critical stage" tomorrow, when the CBS board is scheduled to discuss the deal, according to Fox Business Network.

The bottom line: It's been a long time coming. Shari Redstone, the majority shareholder of both Viacom and CBS, has wanted to combine the companies for years, but was regularly thwarted by a CBS board led by then-CEO Les Moonves. With Moonves now gone and a new board in place, a merger seems likely.

The details: Sources tell FBN that bankers would try to structure the deal so that the two companies would come together as equals, although CBS is larger than Viacom.

Be smart: Who leads the combined company remains a big unknown, especially given that it was the source of a lot of the Redstone vs. Moonves drama. We hear that the two main contenders are:

  • Viacom CEO Bob Bakish, who has helped Viacom lead on advanced advertising and the creation of digital video opportunities for marketers. He also has a close working relationship with Redstone.
  • Acting CBS CEO Joe Ianniello, who has led CBS well through the post-Moonves transition. CBS stock is healthy and streaming numbers are good, but Ianniello represents the network's old guard, which butted heads with Redstone.

The big picture: Television industry consolidation has accelerated over the past two years, as large networks struggle to attract live TV audiences and consumers ditch large bundled cable packages for cheaper alternatives.

  • This is especially true for entertainment TV networks, which is mostly what Viacom owns, as entertainment content usually doesn't need to be consumed live, like a sports game or newscast.
  • CBS' board had resisted a merger, in part, because it worried about the impact that adopting Viacom's cable networks would have on its business, according to sources.
  • But as the industry becomes more competitive, scale is becoming an important asset, and Viacom and CBS combined would likely be better positioned to compete with bigger technology firms and TV companies for production power, ad dollars and distribution deals.

Our thought bubble: Viacom is in a much stronger position today than when merger talks first reignited several years ago. The company has dramatically expanded its digital footprint through the acquisition of several digital video companies and has invested heavily in its digital ad business.

  • While Viacom's linear cable channels are subject to industry trends of declining viewership, it's remained focused under Bakish's leadership on creating digital opportunities for advertisers to reach a younger demographic at scale.
  • CBS has focused on monetizing its younger digital audience through streaming subscriptions. Its streaming services mostly focus on national news, local news, sports and entertainment.
  • Viacom's direct-to-consumer products for channels like Nickelodeon and BET could expand the demographic appeal of CBS' direct-to-consumer services.

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