MTV FOUNDER FRESTON RESIGNS VIACOM CHIEF EXECUTIVE MAKES WAY FOR DAUMAN AFTER TWO DECADES.

Byline: GREG HERNANDEZ Staff Writer

Tom Freston, the executive who was one of the founders of MTV, unexpectedly resigned Tuesday as chief executive of Viacom Inc., owner of MTV Networks and Paramount Pictures, after two decades with the company.

Freston, 60, will be replaced by Philippe P. Dauman, 52, who will report to Viacom Executive Chairman and founder Sumner M. Redstone, who caused a major stir last month when he blasted Tom Cruise for his off-screen behavior and ended the actor's production deal with Paramount.

``There's dissatisfaction by Sumner Redstone about the way the share price has gone down this year and he's looking with envy at News Corp. and MySpace,'' said media analyst Hal Vogel.

Viacom, with its cable and film properties, was believed to have strong earnings potential when it separated from the television and radio group spun off as CBS Inc. earlier this year. But Viacom stock has fallen more than 15 percent while CBS has climbed 12 percent since the split.

Wall Street analysts said Tuesday's move is likely an attempt by Redstone to reassert himself in an operating role at Viacom. But in the short term at least, it was not well-received by the investment community with Viacom's stock dropping a whopping 5.62 percent.

Influential Merrill Lynch analyst Jessica Reif Cohen downgraded her recommendation on the stock to ``neutral'' from ``buy,'' noting it was not clear why the executive changes were made.

In a conference call with analysts Tuesday, Redstone said, ``The (Viacom) board felt not enough was being done. We were not moving ahead as entrepreneurially and as aggressively as we should.

``The communication with Wall Street had been deficient.''

Redstone credited Freston with building MTV Networks ``into an unmatched force in the entertainment industry'' but clearly felt it was time for new leadership.

``I have great respect for Tom Freston and want to personally thank him for his tremendous contributions to Viacom over the past 20 years,'' he said in a statement. ``Tom has been a friend and a colleague for many years and we wish him well as he moves on to the next stage of his career.''

Freston was gracious in his parting remarks, saying he would do all he could to assure a smooth transition between he and Dauman.

``I've spent over 26 years at Viacom, 18 of them with Sumner. With my exceptional colleagues, we built a worldwide powerhouse of brands and businesses, literally from scratch,'' he stated. ``I have every confidence that Viacom is well positioned to prosper under Philippe's leadership.''

Dauman had previously been Viacom's general counsel as well as executive vice president in charge of strategic transactions, legal and government affairs.

``We are on the right track, but we have to move to the fast track,'' Dauman said during the conference call. ``I do not intend to make a radical shift in strategy.''

One of Dauman's main priorities will be to execute a strategy to drive Viacom's transformation into a digital media company of the future.

As part of the executive shuffle, Thomas E. Dooley, 49, was named to the newly created position of senior executive vice president and chief administrative officer.

Both are currently members of Viacom's board and since 2000, they have been co-chairmen and chief executives of DND Capital Partners LLC, a private equity firm specializing in media and telecommunication investments.

From 1996 to 2000, Viacom's stock price had tripled and Redstone said he is looking for a way to return to that time.

greg.hernandez(at)dailynews.com

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CAPTION(S):

2 photos, box

Photo:

(1 -- color) Viacom Inc. announced Tuesday that Tom Feston, left, has resigned and will be replaced by Philippe P. Dauman.

Associated Press

(2 -- color) Philippe Dauman

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PROFILE: New Viacom CEO