Investors are reacting to a few things here. The obvious thesis is that by merging the two, a larger company would have more negotiating leverage when dealing with cable and satellite distributors.
Moonves, in fact, profited greatly off the licensing fees he negotiated from the cable and satellite distributors that carry CBS. Those fees will bring in more than $1 billion this year alone, and that is projected to double in four years.
CBS also has expensive rights to major pro sports franchises, which is more important to TV networks, as live sports are still (mostly) internet proof. But those contracts will have to be renegotiated by 2021 to 2022, and it'll become much harder to win those renewals if companies like Google and Facebook decide they need live sports content as well, meaning the bidding for these rights could go higher.
Before Shari Redstone made this move for a merger, some CBS executives had been considering looking to sell the network to a big tech company like Google (officially, Alphabet) as a longer term move, according to two sources.
That explains the state of media companies today — even a high flying, well-run company like CBS sees the headwinds coming as the internet continues to eat away at viewers' attentions.
Another possibility, according to the same sources, was merging with Time Warner in an effort to shore up the bundle of channels that still drives so much of the TV business.
The point being, some kind of merger or acquisition will likely have to happen for both Viacom and CBS, whether or not it's with each other.
—By Edmund Lee, Recode.net.
CNBC's parent NBCUniversal is an investor in Recode's parent Vox, and the companies have a content-sharing arrangement.