(FORTUNE Magazine) – It used to be that nothing could pry Sumner Redstone out of his office in New York City--except maybe a business dinner. Viacom's chairman and CEO literally had no home. He would arise at dawn in his hotel suite, arrive at work early, stay late, and fume when another executive departed at 6 P.M. "Where's he going?" Redstone would say. "We're just getting started here." His days and nights had to be programmed with meetings. "He hated downtime," says a colleague. "I swear, he liked going to the Middle East because they worked on Sundays."

The sprightly 81-year-old billionaire still gets up every morning at five. But Redstone now begins his day in the gently sloping backyard of his new estate in a gated community of movie stars and moguls high above Beverly Hills. "I never had any material aspirations until I saw this view," he says as he escorts a visitor outside. There, near the cactus garden, lap pool, and tennis court, he watches the sun rise. He brings a cordless phone. Old habits die hard.

Sightings of Redstone in Viacom's headquarters are less frequent. He flies East a couple of times a month, speaks at investment conferences, and takes several overseas trips a year for Viacom, the $22.5 billion content colossus whose programming, particularly MTV, is seen all over the world. Mostly, though, Redstone runs the company by phone from the comfort of his den, where he can keep an eye on his latest obsession: his world-class collection of tropical fish. This recovering workaholic is quite possibly the only telecommuting CEO in the FORTUNE 500.

Two things have changed Redstone. First, after an unhappy spell sharing power with Mel Karmazin, the former CBS executive who left Viacom last year, he has found in Tom Freston and Leslie Moonves two deputies he trusts. "I really love those guys," he says. "It makes such a difference when people who have affection for each other and respect for each other are running a company." Second, he has found a woman who loves him. In 2000, Redstone, who had been estranged from his first wife for years, went on a blind date with Paula Fortunato, now 42, a second-grade teacher. Two years ago they married. They haven't spent a day apart since. "I'm lucky," Redstone says. "I have a wife I love and a business I love. What else could anyone want?"

And then, just as it seems that the famously combative mogul has undergone a personality transplant, he explains how he got the house. He bought the place for $14.5 million from Sylvester Stallone, who lives next door. According to Redstone, Stallone had paid $16 million for the house to prevent it from being sold to Marion "Suge" Knight, a rap music impresario with an unsavory past. "I got it for a million and a half dollars less than Stallone paid for it," Redstone crows. "He always says it's the last negotiation he'll do with me." I repeat the story to a Viacom executive, who laughs. "That's our Sumner," he says. "It's not enough to have a great house. You have to have screwed someone else to get it."

In some ways Redstone remains a tough old bird. But while people at Viacom say Redstone can be as cranky, impatient, and self-absorbed as ever, they see far less of that behavior than before. They credit Paula. "She makes him happy," says one executive, "and when he's happy, we're happy." Now that Redstone has found a modicum of balance in life, he no longer needs Viacom to be everything to him. And he has begun to imagine the company without him. "I have come to terms with my mortality," Redstone says. Those changes allowed him to do the once unthinkable: take the company that he spent 18 years building and break it in two.

Every spring at the big national-cable-TV convention, MTV Networks hosts a dinner for the industry's most powerful people. This year Redstone spoke to the crowd at the Museum of Modern Art in San Francisco. "As some of you know," he said, smiling, "divorce is sometimes better than marriage."

He wasn't talking about his life. He was talking about Viacom. On March 16, in an effort to unlock the value of Viacom's stock, which has fallen 35% in the past five years, Redstone announced a plan to divide Viacom into two public companies, each aimed at pleasing Wall Street. One will consist of cable networks, including MTV, Nickelodeon, VH-1, Comedy Central, Spike, Showtime, Country Music Television, Black Entertainment Television, and the Paramount movie studio. Freston, the longtime MTV executive, will lead the firm, which is designed to attract investors seeking growth. The remaining assets, including the CBS and UPN broadcast networks, the Paramount television studio, TV and radio stations, a billboard company, Simon & Schuster publishing, and Paramount theme parks, will form a company that should throw off lots of cash. It is intended for investors seeking yield. Moonves, the veteran CBS executive, will be in command. The uncoupling, which needs the approval of Viacom's board, is expected to take place early next year.

The news must have puzzled some investors. Wasn't bigger supposed to be better in the media world? Didn't content companies like Viacom need scale to go mano a mano with powerful distributors like Comcast and News Corp.'s DirecTV? It was only a few years ago, after all, that the $43.5 billion Viacom-CBS deal was being hailed as the best of the big media mergers of the 1990s. Was that deal a mistake? No, insists Redstone. "Marrying these companies together was a good idea at the time, but the world has changed," he says. "My job is to adjust."

Truth is, the deal has not worked out well. For one thing, it forced Redstone and Karmazin into their uncomfortable partnership. For another, it saddled the faster-growing Viacom cable businesses with the Infinity radio and outdoor units of CBS, which have performed poorly. Radio revenues--the company owns 185 stations, most in major markets--have been flat for nearly three years. In an admission that those assets had been overvalued, Viacom earlier this year wrote down the value of its radio stations by an eye-popping $10.9 billion and took another $7.1 billion noncash charge against its outdoor unit. The lesson? In the content business, synergies and scale are overrated. Great programming is what matters.

Viacom's falling stock price has given Redstone fits. His shares are worth about $6.8 billion, down a couple of billion from their peak. But his shrinking net worth isn't what upsets him. He views the stock price as a real-time referendum on his own performance. "If we don't deliver," he says, "that's a personal blow, as far as I'm concerned."

Redstone came up with the idea of dividing Viacom after investment bankers urged him to get out of radio by selling or spinning off stations. He didn't want to, because he thinks that with prudent investments radio can grow again. As an experiment Viacom invested about $13 million in programming and marketing at 10 stations last fall and saw their ratings rise. "If we just split off radio, so what? I wanted two strong companies," Redstone says.

The split solves another of his problems: Freston and Moonves each get to be a CEO, avoiding a bakeoff that would have been uncomfortable at best. Freston does not want to run a broadcast business or radio stations, so he's happy. Moonves was thought to be the underdog in the CEO contest, so he has to be delighted. What's not clear is whether the deal is good for the company and its shareholders. Skeptics say that taking the company apart will cost money (investment bankers don't come cheap), raise expenses (two corporate staffs), eliminate cross-promotional opportunities (once touted as the merger's big benefit), and create potential conflicts (if CBS and MTV want to acquire the same asset). Maybe that's why Viacom's stock, after a small pop on the day of Redstone's announcement, has slipped back to where it was before.

In any event, Viacom shareholders will have little to say about their company's fate. Only one vote ultimately counts: Redstone's. That will not change after the split. Like Viacom, the new companies will have two classes of stock. Class A shares, about 70% of which are owned by Redstone and his family through their National Amusements movie theater chain, carry voting rights. Class B shares, which are widely held, do not. Redstone's shares are held in a trust, but he is preparing his daughter Shari Redstone, 51, who now runs Boston-based National Amusements, to represent the family interests on the board after his death. She recently bought an apartment in New York City to be closer to Viacom's headquarters and has been accompanying her father to meetings with big investors. Shari sits on the boards of Viacom and Midway Games, a Chicago-based videogame company that is also controlled by the Redstone family.

Shareholder advocates, pointing to such media industry horror stories as Adelphia, Hollinger, and Cablevision, say the dual-stock arrangement gives the controlling family too much power. Redstone shrugs off the criticism. He can't be accused of milking the company: He took no salary from Viacom for years, and he has never sold his stock. He does not want to end up like Ted Turner or the Disney family, company founders who lost influence as their businesses grew. "What Turner does prove--and I feel badly for him," Redstone says, "is the importance of control, control, control."

Redstone's reputation for toughness goes way back. A Boston native and Harvard-educated lawyer, he worked as a Justice Department prosecutor before making a fortune running movie theaters and investing in entertainment businesses. In 1979 he survived a deadly fire at Boston's Copley Plaza Hotel by clinging with one arm to a third-story ledge, enduring severe burns that required months of surgeries. His early days at Viacom, which he acquired after a bruising takeover battle, only reinforced his image as a mogul who pulls no punches. He clashed with Barry Diller over Paramount and sued Time Warner (parent of FORTUNE's publisher) and John Malone's TCI for alleged antitrust violations when they did not carry his networks. He once testified before Congress that Malone, then the biggest distributor of his programming, was too powerful.

He has more perspective now. The new Redstone calls Malone a friend, speaks fondly of Time Warner's Richard Parsons, and says of Disney's Michael Eisner, "I tell him that I'm one of the few people who likes him."

He's also less involved with the operations of Viacom. In the old days he'd dive deep into a business, once all but moving to Dallas to tackle problems at Blockbuster. Now he talks to Freston and Moonves several times a week, functioning more as a senior advisor than as a hands-on CEO. "There's no way one man can run Viacom," he says. "If you have the right managers, you should give them a tremendous amount of autonomy. Micromanaging will drive people away." For all his bluster, Redstone is quick to lavish praise on his people, and he's loyal, sometimes to a fault, to those he deems sufficiently committed. That may be why Viacom has done so well at developing and retaining creative people--Freston, Moonves, Judy McGrath and her MTV Networks crew, and others.

"The best thing about Sumner," Moonves says, "is that he's there where I need him--to offer advice or counsel--and at the end of the conversation, it's, 'Do whatever you think is best.' That's very liberating." Freston, who has worked for Redstone since 1987, says, "He has never told me no on anything I've really wanted to do." Of course, Redstone is consulted on key personnel moves, interviewing candidates himself, and he gets deeply involved in any big transaction. "This last NFL deal cost almost $4 billion, so needless to say, that's not a decision I'm going to make by myself," Moonves says.

Now and again, Freston and Moonves drive up the steep, winding, narrow road through the Santa Monica Mountains to see Redstone. More often they have dinner together, with their wives, at L.A. hangouts like Dan Tana's, La Dolce Vita, and Mr. Chow's. A little business gets done, but the meals are mostly about building a camaraderie that Redstone says helps the company run smoothly. It rankled him that Karmazin, as his deputy, never joined in. "I don't think Mel ever went to dinner with anyone else who worked for Viacom," he says. "To me that's, like, crazy."

In another sign that he has mellowed, Redstone does not appear to harbor ill will toward Karmazin, although he is happy to have him gone. He complains that Karmazin focused on short-term results and did not give businesses like cable and radio enough money to invest in programming and promotion. "You can't run a company that way," Redstone says, "penny-pinching, starving the company, and making people unhappy." Worse, Redstone felt hamstrung, because as a condition of the CBS merger, all of Viacom's division heads reported to Karmazin. "People would come to me, and I felt paralyzed," Redstone says. "I felt like my throat was cut." Responds Karmazin, now CEO of Sirius Satellite Radio: "Sumner Redstone is full of shit."

At 6:30 A.M. on the West Coast, as the stock market opens in New York, Redstone settles into an overstuffed chair in his den with two telephones and a pad of paper at his side. Facing him is a flat-screen TV tuned to CNBC. To his left and right stand aquariums filled with dozens of the most exotic, beautiful, and valuable fish in the world. He'll spend the next six and a half hours there until the market closes.

After lunch, it's time for tennis, a ride on his stationary bike, or his favorite new pastime. When people around Viacom say, "Sumner's gone fishing," they don't mean that he has escaped with a fly-casting rod to a mountain stream. No, they mean Redstone has asked a driver to take him down the hill to visit aquarium stores all around Los Angeles in search of rare tropical fish. He owns about 200 of the creatures, which he keeps in five tanks--three for fish, one for coral, and one for sea horses, as well as a hospital tank for fish in need of medical treatment.

This is no casual hobby. Redstone knows the names of all the fish, studies their habits, and grows attached to them. "He's the only man I've ever seen who loves the fish that much," says Arthur Deukmejian, who owns All the Fish You Can Fish in Sherman Oaks. Angelfish are his specialty, and they require close supervision. "There's always conflicts, strategies, politics," says Peter Messenger, owner of the Aquarium Co., who visits almost every day to monitor Redstone's collection. "There's a pecking order in the tank. You remove the top fish, and a whole new fight starts. There are always things to do, things to discuss. It's a lot like business."

But when you ask Redstone why he loves his fish, you won't hear him talk about pecking orders or jostling for dominance. To him, they are not a microcosm of business but an escape from it. "The fish have a calming, almost mesmerizing effect on me," he says.

Hey, he's a big fish with his own pond. He's earned the right to relax. ■

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