(FORTUNE Magazine) – For evidence of the tensions at the top of Viacom, you only have to look at the contract that Mel Karmazin just signed, keeping him on as president and chief operating officer of the $24.6-billion-a-year media giant. Under the agreement Karmazin retains day-to-day custody of operations, while Sumner Redstone, the company's 79-year-old chairman and CEO, gets the corporate equivalent of visitation rights. To be specific, Karmazin has promised to ensure that Redstone has "full access to Viacom executives, to staff meetings convened by you, and to information compiled by management so that the chairman and CEO...[is] fully briefed on operating issues and the business of Viacom."

This is peculiar, to say the least, because Redstone is the boss. He also owns 68.2% of Viacom's voting stock. But the aging mogul is evidently so worried about being isolated atop his own company that he needed to guarantee, in writing, his right to show up at meetings and read memos. "I don't just want the CEO title," Redstone tells FORTUNE, by way of explanation. "I want to be the CEO." He also says that "the so-called friction (with Karmazin) was magnified 100%" and that "we are liking each other more these days." But he concedes that two Viacom directors had to intervene to make the new deal happen, and others say Redstone and Karmazin communicate mostly through intermediaries.

Given all the attention paid to the simmering feud between Redstone and Karmazin, which many expected to end with Karmazin's departure, you might presume that Viacom is suffering. It is not. Since Viacom agreed to acquire CBS for $39.8 billion in 2000, at the beginning of a difficult period for media companies, the company has thrived, particularly in comparison with its rivals. While senior executives have bailed out of AOL Time Warner and Disney, most everyone who matters has stayed at Viacom. The company has avoided major mistakes and kept its promises to Wall Street. Unexpectedly, Viacom has become the most valuable, the most admired, and the best-managed media company in the world.

The company, which owns CBS, UPN, MTV, Nickelodeon, Paramount Pictures, Infinity Radio, Blockbuster Video, and Simon & Schuster, is growing bigger. Late in March, MTV launched a 24-hour music channel in the Guangdong province of China, a sign that the firm's efforts to woo the Chinese authorities are paying off. Other media giants, meanwhile, are shrinking. When FORTUNE went to meet Redstone in his office recently, Richard Parsons, chairman and CEO of AOL Time Warner, was leaving. "What are you selling?" I asked. Parsons smiled and lifted his hands to the sky, as if to surrender. It turns out that AOL Time Warner, FORTUNE's parent, is about to sell its 50% stake in the Comedy Central cable network to Viacom, which owns the other half. Redstone has also been talking with the troubled French conglomerate Vivendi Universal about buying cable networks USA and the Sci-Fi channel. Looking ahead--not this year or next but down the road--Redstone says that he can envision Viacom growing strong enough to acquire Disney, AOL Time Warner, or General Electric's NBC.

How can the company be doing so well despite the Sumner-and-Mel soap opera? One explanation is that many of us--the business press, Wall Street analysts, investors, and boards of directors--overestimate the importance of the people at the very top of large companies. Redstone and Karmazin matter, of course: They set strategy, shape the corporate culture, and choose the senior staff. But Viacom has performed well lately because it has good assets and good people who are well paid and given freedom to do their jobs. As Karmazin puts it: "Viacom has 137,000 employees, and it's usually, 'Mel Karmazin did this or that.' We get far more credit than we deserve when things go right and too much blame when they don't." Media companies in particular rely on dozens of creative executives to find the hits that drive their businesses. "What sets Viacom apart from its peers," says Jill Krutick, an entertainment industry analyst with Salomon Smith Barney, "is that they have a management team that's incredibly seasoned. Each of the operating heads has a tremendous following." Hits like CBS's CSI, MTV's The Osbournes, and Paramount's How to Lose a Guy in 10 Days bubble up from the ranks.

The other reason the troubles at the top have not trickled down is that they are not, for the most part, about business. "I can't think of a single operational issue on which Mel and I have disagreed," says Redstone. Both men have confidence in their division heads: Leslie Moonves at CBS, Tom Freston at MTV Networks, Jonathan Dolgen and Sherry Lansing at Paramount, John Antioco at Blockbuster Video, and John Sykes at Infinity. They have also agreed on acquisitions--since the CBS deal, Viacom has bought the BET cable network for $3 billion and purchased another $2.5 billion of TV, radio, and outdoor properties. Both Redstone and Karmazin want the company to focus on generating free cash flow--Viacom produced $2.6 billion in free cash in 2002--and both care passionately about the stock, which has outperformed its media industry peers even as it lost about 20% of its value in the last year.

So what's all the fuss about? Ego, power, perception, and style. Self-made moguls--Redstone owns $7.5 billion worth of Viacom stock, while Karmazin owns $150 million--both men are driven, competitive, and accustomed to being in charge. "They're used to getting their way and making things happen," says a top Viacom executive. While Redstone has always shared power at Viacom, he was most comfortable with former deputy chairmen Philippe Dauman and Tom Dooley, who were low-key and content to stay in the background. By contrast, Karmazin, the brash, 59-year-old ex-CEO of Infinity and CBS, has his own following on Wall Street and attracts lots of attention, although he does not go out of his way to seek it.

What gnaws at Redstone is the sense that he's never quite gotten the credit he deserves for building Viacom. The fact is, he has not been as celebrated as the likes of Ted Turner, Michael Eisner, Rupert Murdoch, and Barry Diller, whom he regards as peers. Until he bought Viacom for $3.4 billion in 1987, he ran his family's chain of movie theaters. His forte, since then, has been dealmaking. He acquired Paramount, besting Diller in a nasty takeover fight, and Blockbuster, both of which turned out to be good deals, and he politely declined when Steve Case suggested a merger with AOL. He has also refused to overpay for assets--Viacom paid no premium to acquire CBS--and limited his exposure to categories like the Internet and music where profits are hard to come by. With a market capitalization of nearly $70 billion, Viacom is now worth 40% more than AOL Time Warner and nearly twice as much as Disney or News Corp. But instead of basking in the limelight, Redstone has to share it with Karmazin.

The two men also have contrasting styles. To Redstone, who has worked hard to foster a collegial environment at Viacom, business is personal. He often dines out with company executives. "We enjoy each other's company," he asserts. "It builds bonds of friendship, bonds of trust, bonds of loyalty." That helps the businesses, he argues. Paramount, for example, has made a series of profitable movies with MTV and Nickelodeon, and the studio library provides nearly 70% of the programming for TV Land, a fast-growing cable channel. "We're a family company," says Redstone, who casts himself as the kindly paterfamilias.

To Karmazin, business is business. "I don't want any of the people who work for me to see me spill soup on my tie," he says. He cultivates a reputation for being a tough boss and has a pugnacious, intimidating style. Much of it is bluster. Viacom executives say that Karmazin is smart, funny, and a good listener. He even has a tender side: Karmazin championed an ambitious and expensive companywide campaign to help prevent AIDS. When I tell Karmazin that Viacom people no longer fear him, he says, "I hope you don't print that, because my image is very important to me. The words 'nice guy' and 'Mel Karmazin' better not be written in the same sentence."

Okay, then: Karmazin has not gone out of his way to be nice to Redstone. He spurned dinner invitations. "Sucking up is not in his repertoire," says a colleague. It may be that Karmazin simply lacks the patience required to deal with Redstone, who can be wearying and self-absorbed. He also would prefer that Redstone not come between him and the people he supervises. In other words, he'd like to run the show.

That idea is anathema to Redstone. So is any suggestion that he might be slowing down. After going to China to promote MTV last fall, he tells me, he came home with more energy than anyone else. "I go 24 hours a day, seven days a week," he says. He plans to marry Paula Fortunato, a 40-year-old former school teacher, in Beverly Hills in April, and while they have bought a home there, he insists that this will not diminish his commitment to Viacom. The truth is, he can't let go of the company that he has worked so hard to build. "Sumner wants to be the great man," a longtime colleague says, "and he wants to be perceived as such by the marketplace. It's the need that he has." That he identifies closely with Viacom is no secret. His 2001 autobiography, A Passion to Win, begins, "Viacom is me."

For many years Redstone took no salary from Viacom. This year, on the same day Karmazin signed his contract, Redstone signed a new one too--with a pay package identical to Karmazin's: $1 million in salary, a $6.5 million bonus if certain targets are met, and $2.99 million in deferred compensation.

Presuming that Redstone and Karmazin coexist peacefully for another three years, the focus should return to Viacom's businesses. Television is the company's great strength. CBS has ended NBC's Thursday night dominance and become the most-watched network, albeit with an older and less valued audience. The MTV cable networks have strong brands, targeted audiences, and room to grow as digital channels get widely distributed. Taken together, Viacom's broadcast and cable networks capture an impressive 26% of all TV viewing. Disney-owned networks get 17%, AOL Time Warner's 15%, and NBC's and Fox's 13% each. Major-market radio stations add to Viacom's reach, and they are slowly taking local advertising market share away from newspapers.

Scale matters more than ever in media. Viacom is large enough to go toe-to-toe with big cable and satellite distributors, and with the global media-buying firms. It has also hedged against shifts in viewing patterns or advertiser preferences. "Maybe some money being spent on television moves to radio. I'm indifferent," Karmazin says. "Maybe the pricing of prime-time TV gets so high that advertisers decide to shift dollars to cable. I'm indifferent."

As smaller companies--owners of cable networks, TV, or radio stations--are squeezed, Viacom is poised to snap up assets. "They're well positioned," says analyst Tom Wolzien of Bernstein Research. "They're not going to have to spend ridiculous amounts of money." Both Redstone and Karmazin say their top priority is to acquire cable networks, followed by major-market TV and radio outlets. They're looking to do cash deals right now because they say their stock is undervalued.

Under a best-case scenario, Redstone says, Viacom could grow big enough and its stock could appreciate enough to permit a major acquisition down the road. Karmazin would like to buy another broadcast network. They'd both be interested in acquiring CNN, which would mesh well with CBS News. If Eisner can't turn Disney around, that company could become a target. "There could be a deal--a big, big deal--in the future. But not right now," Redstone says--sounding like a CEO who plans to stick around for a while.

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