Viacom’s MTV entrances young people around the globe, helping to market Nokia, Nike, Sony and Shiseido.
BY BRETT PULLEY AND ANDREW TANZER
Forbes Global, February 21, 2000
Three hours north of London, the sleepy old fishing town of Hull wakes up to watch a parade of painted-on lace, skintight lame and baggy denim shimmies along a psychedelically carpeted walkway and onto a gigantic, neon-bathed dance floor.
Heads bob and bodies jiggle in a swarm of more than 1,500 young people. They are an advertiser’s dream, all of them drawn in by the sheer magnetism and power of a single media brand: MTV.
The music cable channel sponsored this party and heavily promoted it in Britain, imploring fans to “dress sexy, dress slick.” They have cooperated assiduously, and the labels they bear-Gap, Cadbury, Ericsson-read like a Who’s Who of MTV’s top sponsors.
Cool party, great product placement – just like MTV itself. It is increasingly clear that, like it or not, we live in an MTV world. From the British dance floor to Moscow’s Red Square, where 200,000 Russian youths gathered recently for an MTV concert, and on to the Philippines, where it is the No. 2 cable channel, MTV rules. The outfit that all but invented the rock video is now the main platform for marketers aiming to woo the young and acquisitive.
“When you really want to reach that audience, you can really only go with MTV,” says Toon Bouten, who until recently ran Compaq’s business in Europe, the Middle East and Africa. He attributes a recent 12% profit rise for Compaq in Europe to its presence on MTV. “Young people trust MTV, and they trust what is shown on MTV.”
MTV is the hidden gem in the pending $47 billion merger of its parent company, Viacom, one of the world’s largest entertainment groups, and CBS, a collection of television, radio and outdoor advertising properties. Once dismissed on Wall Street as a fad, MTV celebrates its 20th birthday this year. An initial public offering of its Internet division is in the works. Tie-in opportunities with CBS and its 163 radio stations could add to MTV’S might. “We can be the biggest force in the packaging and promotion of music,” asserts MTV Networks’ chairman, Thomas Freston.
All told, MTV Networks, which includes its siblings Nickelodeon and VH1, generated $1 billion in operating profit (net before depreciation, interest and taxes) on $2.4 billion in revenue last year, up 25% from 1998. Yet only $50 million in profit came from outside the U.S., so there is plenty of room for growth. MTV’s long- gestating international investment is beginning to pay off in Asia, Australia, Europe, Russia and Latin America.
In all MTV now airs 22 different feeds around the world, all tailored for their their respective markets. They comprise a mixture of licensmg agreements, joint ventures and wholly owned operations, but MTV holds creative control, and all the channels reflect the familiar, frenetic look and feel of MTV in the US.
The result is a melange in which Punjabi hip-hop sheiks spin rap in India, hipswiveling Ricky Martin was “livin’ la vida loca in China before making it in the U.S., and remote cable outposts go local yet evince an undertone of America. Viacom fIgures that every month, 218 million people ages 12 to 34 watch their MTV. 178 million of them outside the U.S.
That gives MTV a premier role in the marketing of celebrities around the world. Jennifer Lopez, the saucy, New York-born Latina entertainer heavily promoted on MTV, is parlaying her music-video fame into a line of cosmetics and jeans that she plans to market globally. “The exposure that I get on MTV and MTV internationally – II mean, you can’t buy that kind of advertising.”
Now Viacom and its chairman, the voluble Sumner Redstone, are pushing MTV ever deeper into the mother of markets: Asia; in particular, China.”You can jjust feel that over the next five to ten years, the growth in this part of the world is going to be explosive,” Redstone says, sitting in his hotel suite in Shanghai on a recent trip to the region. “When they explode, we explode with them.”
MTV launched its first Chinese channel five years ago.Since then it has dramatically boosted distribution in a pragmatic mix of cable, direct-satellite and broadcast TV. Today local MTV versions are in 116 million homes in Asia alone – -46 million more than in the U.S.
From its base in Singapore, MTV Asia operates an English-Hindic channel for India, separate Mandarin feeds for China and Taiwan, English and local language channels across Southeast Asia and a Korean outlet for South KOrea. In Indonesia cable coverage is minuscule, but more than 80% of urban youth regularly tune in to MTV’S Bahasa Ianguage broadcasts. China now gets MTV for up to 6 hours a day in 47 million cable homes – and 300 million households recently got the chance to see a Chinese version of MTV’s video awards.
That coverage is unmatched in reaching Asia’s vast ranks of young consumers. Nearly two thirds of Asia’s 3 billion people are under the age of 35.The middle class is expanding, and splashy Western brand goods Procter & Gamble’s personal care products, Nokia’s cell phones, whatever – are the preferred symbol of making it. When the Asian economic crisis two years ago hammered Kahlua’s main market, middle-aged businessmen, the liquor distributor Allied – Domecq turned to MTV. It became the sole sponsor of MTV Party Zone, a weekly dance show aired across Asia. Local MTV “veejays”(video jockeys) hosted Kahlua parties in Seoul, Manila, Taipei and Singapore (covered by MTV, naturally) with revelers imbibing the stuff on camera.
Within a year Kahlua had “cool credentials,” says Gregg Ainsworth, the Asia marketing director for Allied – Domecq. Average brand awareness surged from 15% to 50% among adults age 30 and younger. Kahlua sales tripled in some markets, even with the weak economy. “MTV attracts trendsetting early adopters. If we can bring them into the Kahlua franchise, the other people will follow,” Ainsworth says.
Reach comes first, profits later. In 1998 MTV Asia, which is 70%-owned by Viacom and 30%-owned by Seagram’s Polygram, posted an operating loss of $22 million. But Redstone says Asia will hit break-even in two to three years and adds, “The sky is the limit after that.”
MTV’S international operations turned an operating profit of about $50 million last year on revenue of $300 million. Units outside the U.S. now provide only 5% of MTV Networks’ profit. Redstone says by 2006 overseas markets could provide as much profit as the U.S., perhaps more.
Redstone may have sensed the potential, but the real visionary behind MTV’s international expansion is Tom Freston, MTV Networks’ chairman. After graduating from business school at New York University in 1969, he roamed the globe, eventually becoming an exporter of clothing in India and Afghanistan. In 1980 he became one of MTV’s first employees. By 1987 he was chairman.
“We had this dream of what it could be”, Freston says.
MTV started out as a joint venture of two powerful brands: American Express and Warner Communications. Almost from the outset, the channel put young viewers in a trance, influencing how they looked, talked – and shopped. In 1986 Viacom paid $513 million to acquire MTV Networks. A year later Redstone acquired a controlling stake in Viacom. Now the MTV properties alone are probably worth $24 billion.
But the banks that backed Redstone in buying Viacom were leaning on him to sell some of its assets. MTV and Nickelodeon topped their list. “They were saying that MTV was a fad and that Nickelodeon would never make it,” Redstone recalls. “They were demanding that we sell it.” He ignored them. “I saw the potential of MTV and Nickelodeon when they were nothing.”
Later in 1987 MTV launched its first channel outside the U.S., in Europe. The bosses at AmEx and Warner believed “that MTV had peaked out,” says Freston, so he partnered with British Telecom and the British media tycoon Robert Maxwell (a shaky backer if ever there was one- – investigators concluded that his death in 1991 was suicide). Redstone bought out both and began giving Freston what he needed to take MTV global.
MTV’s international foray got off to a wobbly start. It piped a single feed across Europe, composed almost entirely of American programming with English speaking veejays. MTV learned the hard way that while me world’s kids might buy the slogan “I want my MTV!” they didn’t want a homogenous, regurgitated version of the U.S. channel. In Europe, viewers in a dozen different countries might share an interest in big stars like Madonna and Michael Jackson, but otherwise their tastes vary by country. MTV suffered as a result. Soon, local copycats cropped up and stole MTV’s viewers and sponsors. “We were going for the most shallow layer of what united viewers and brought them together,” says Freston. “It didn’t go over well.”
In 1995 MTV wised up and broke Europe up into regional feeds. It now has five feeds on the Continent: one for the U.K. and Ireland; another for Germany, Austria and Switzerland; one for Scandinavia; a broader broadcast for 28 territories, including Belgium, Greece, France and Israel; and one just for Italy.
In Europe and Asia, digital and satellite technology have made the localizing of programming cheaper and easier. You can now beam half a dozen feeds off one satellite transponder. That has made it easier for MTV to sell commercials because the advertising budgets of multinationals tend to be local, rather than region-wide.
As much as 60% of the programming can still originate from the U.S., but MTV is banking more on locally produced fare to turn its non-U.S. channels into high-profit businesses. In Italy, MTV Kitchen combines cooking with a music count-down. Erotica airs in Brazil, featuring a panel of youngsters discussing sex.
Sure, MTV devotes airtime overseas to U.S. stars like Mariah Carey, Britney Spears and the Backstreet Boys. Some music genres, especially pop, transcend borders. In Taiwan, Japanese pop is all the rage, while Koreans currently have a huge appetite for soul and hip-hop. But in most markets, 70% of the video fare local music.
“People root for the home team, culturally and musically,” says William Roedy, the London-based president MTV’s international networks. “Local repertoire is a worldwide trend. The are fewer global megastars.”
India has one of the most vibrant and rapidly expanding music scenes in the world. Bollywood, India’s film industry, has a long tradition of producing movies with dubbed singers crooning soft ballads. “Most of these movies are just one song after another,” says Freston, who lived in India for seven years before joinging MTV.
So most of the music on MTV India comes from Hindi flicks.It’s a syrnbiotic relationship: MTV videos promote albums and films, and singers whose faces have never appeared on the big screen become stars through MTV.
As in other countries, the management of MTV India, based in Bombay, has been localized. “We start with expatriate to do a gene transfer of company culture and operating principles,“ Freston says. Now the operations is 100% Indian.”We want them to be inside the Indian’s head”, he explains.
Today the Indian channel produces 21 homegrown shows hosted by local veejays who speak Hinglish, a kind of hip-city-bred blend of Hindi and English. Typically for MTV, they extol social causes such as AIDS awareness, the environment and voter registration. Hit shows: MTV Cricket in Control, for this cricket-crazed land; MTV Houseful, which homes in on Hindi film stars; and MTV Bakra, a Candid Camera-style show.
As MTV has grown more local, its revenue has risen. In India, where MTV reaches 13.3 million homes, ratings are up 700% since 1996. In Europe, MTV’s sales have increased more than 50% since 1995. And though the total market for pan-European advertising is valued just $200 million, the market for local advertising across Europe is a much larger pie, valued at $12 billion. MTV now gets two thirds of its European ad revenue from local spots, up from 15% in 1995.
Sean Dee, a Levi Strauss executive who oversaw global media spending when MTV launched its overseas invasion, says MTV “lost its luster with kids in Europe” when it did only pan-regiogal feeds. The localization push, says Dee, has made MTV a “more vIable partner.” Levi’s now devotes a larger portion of its ad budget to MTV than ever before. One Levi’s executive in Latin America says that a recent month long Levi’s promotion in Mexico, advertised only on MTV, drove a 30% sales increase in the 30 Levi’s stores in Mexico.
Going local offers political benefits, as well. MTV must constantly fight the perception that its forays create an American cultural hegemony. Its own gaffes haven’t helped. In India, MTV at first incorporated the country’s flag into its local logo, a gesture that Indian officials found disrespectful. They forced MTV to change it. Creating 22 new MTV’s outside the U.S. “hasn’t been easy,” sighs Roedy, the international chief. “We’re always trying to fight the stereotype that MTV is importing American culture.”
“We aren’t,” Sumner Redstone says flatly; to do so “would be a kind of cultural imperialism.” Instead, he says, MTV is “cultivating and nurturing local” artists and shows.
In September, a few days after he announced that Viacom would merge WIth CBS, Redstone traveled to China to warm up chIlly relations with government officials. A result of the accidental bombing of the Chinese Embassy in Yugoslavia by U.S. warplanes was that the government refused to air an MTV awards program produced expressly for the Asian market. Redstone’s mission was aimed at getting the show on. China later relented, and the MTV Mandarin Music Honors, produced in partnership with the state-owned propaganda broadcaster, CCTV, aired to more than 300 million Chinese households.
For MTV, the big money in the future most likely will be found in partnerships with companies that want to promote a product across MTV’s entire global platform all at once.The first such multimillion-dollar blitz kicked off the latest James Bond film, The World Is Not Enough.
In Europe, Asia, Latin America and the U.S., MTV taIlored programming to market the film. In the U.S., the popular MTV show Making the Video focused on the group Garbage, which performs the movie’s theme song. MTV is sponsoring the current Garbage tour. Pierce Brosnan, who plays Bond, appeared on the MTV European Music Awards. And each MTV channel staged contests and giveaways tied to the film.
It was the ideal setting for a film in the Bond series, which has wide international appeal (the last release, Tomorrow Never Dies, grossed $219 millionl outside the U.S.).”It is an alliance well beyond anything [before it],” says Gerry Rich, the top marketing executive at the film’s studio, MGM. “We were never able to do this before on a global basis.”
The value of MTV’s reach could grow as it builds a relationship with CBS. Its overseas experience might provide a pathway for CBS to create, say, an international news brand, using MTV’s satellite links and bundling it into MTV distribution. “We have the infrastructure now built around the world and some of the CBS activities could fit into that,” Redstone says.
Once the merger goes through, CBS’ two music networks, Nashville Network and Country Music Television, could likely be folded into MTV Networks. As purely American as country music is, Garth Brooks and other country superstars transcend national borders, says Bill Roedy. He will look for ways to take country music into foreign markets as soon as he can. MTV has tried but failed to buy radio stations overseas. With the expertise of CBS’ Infinity Broadcasting, that could change.
Along the way, MTV will have to navigate around governments that fear its incursions and fend off new competition. Foreign rivals mimic MTV’s look and style. Regulatory snags have thwarted repeated attempts to start channels in South Africa and Canada. In Italy,,where MTV runs one of its most popular channels, regulators are scaling back on the number of licensed broadcasters. In overregulated and undercabled Japan, MTV needs a partner to increase its penetration.
Not to worry, MTV executives say. Music is a lingua franca that travels, and MTV has a formula that entrances young people around the globe. Look at it that way and it doesn’t sound too far-fetched when Roedy pronounces: “We want MTV in every household.”