..Can MTV Stay Cool?..

from Business Week

Can MTV Stay Cool?

The music channel may have seemed bold and experimental when it began in August, 1981. But the MTV empire today is a staple of the media Establishment and faces a slew of new threats. After all, it’s the iPod era, a broadband world, and the online generation is defining for itself what is edgy and new. Ratings may be strong for many of the channels, but the original MTV isn’t the must-see it was. “We watch it because it’s there,” says Marie McGrory, a Manhattan 10th grader. Can McGrath keep her empire cool enough and nimble enough for Marie’s generation and beyond?

Think about the cold dread the MTV chief and her coterie of aging hipster executives felt last summer when they heard Rupert Murdoch had outbid MTV parent Viacom for Myspace.com. The exploding social networking community of 54 million registered young people would have been a perfect fit with MTV. Instead, for $580 million, it went to Murdoch, a steely competitor but hardly an arbiter of hip. The Murdoch deal was no mere acquisition; it was a red flag. In a rare stern message to her senior staff, according to one executive present, McGrath warned that MTV could no longer afford to miss opportunities like myspace. Not when old business models were blowing up and every week brought a new outlet for doing what MTV had done so well for years — capturing the niche.

So McGrath has declared “a digital Marshall Plan.” It signals the end of the one-screen company. The troops must now deliver services across new broadband channels, over cell phones, and via video games. Because MTV is so tapped into its consumers — “we’re more inside the heads of our audience than anybody else” — advertisers will stay with MTV, she insists. McGrath is willing to shake things up, too.

MTV’s ratings growth was just 5% over the past three years, according to research outfit Bernstein & Co., while VH1, with an older, more loyal audience, grew 17%. Comedy Central pulled in 10% gains, largely because of Stewart. Meanwhile, Nickelodeon’s $1 billion in annual operating profits is fueled by sales of things like SpongeBob trinkets and Dora the Explorer dolls. “MTV turns 25 this year,” says Peter Golder, an associate professor of marketing at New York University’s Stern School of Business. “It’s difficult to be a mature brand.”

So McGrath is doing something alien to the start-from-scratch culture: seeking acquisitions and partnerships. MTV Networks last year bought companies like amateur short-film Web site IFILM Corp. and children’s Web site Neopets, treasure troves with tens of millions of sticky users. IFILM just launched a show on VH1, and the Nickelodeon team is helping to design consumer products for Neopets. In January, McGrath announced a deal in which MTV is teaming with Microsoft Corp. (MSFT ) to launch a music download service, URGE, later this year. Other forms of media are getting infusions, too, including the movie units at MTV (Hustle & Flow, Murderball) and Nickelodeon (Julia Roberts in Charlotte’s Web, due out this year). And never mind the culture wars: McGrath continues to break new ground with channels such as gay-and-lesbian-themed Logo, which so far is seen in 22 millon homes, despite pushback from some distributors.

Current online revenue is about $150 million, projected to grow to $500 million in three years. “Listen, the world has come to us,” says Wolf. “The Internet is no longer about text. It’s about video. We produce and own more video than anybody.” On any given day, he and his boss fuel up on Starbucks, sit on the big sofas in McGrath’s office, and plot how to reengineer MTV. They might analyze the 30 to 40 potential deals on his desk. Or he’ll recount his talks with advertisers. Right now, Wolf is crafting a plan with Honda Motor Co. (HMC ) to market cars to younger buyers across all MTV platforms. (Advertising brings in 60% of MTV revenues; distribution fees, 30%; consumer products, 10%.) “Advertisers would rather connect with that one alpha consumer [young trendsetter] vs. three beta consumers,” he says. “We understand that audience, and we can help them do that.”

His team is wielding the network’s consumer research to win deals, for example, with the makers of must-have gadgets. Studies done for Nickelodeon recently found that kids aged 8 to 14 send an average of 14.4 text messages and make 8.8 calls on their cell phones a day. Executives at SBC Communications Inc., now AT&T Inc. (T ), were fascinated by these findings and have begun working with the kids’ channel to develop a phone and services for preteens, says McGrath. Jason Hirschhorn, MTV’s chief digital officer, is talking to everyone from Verizon Communications Inc. (VZ ) to Best Buy Co. (BBY ) about using MTV shows and characters. “Consumer electronics are the new Nikes,” says Hirschhorn, 34. “Kids want their phones or their MP3 players to say something about who they are.” So MTV helped Virgin Mobile Holdings (VMOB ) and handset maker Kyocera Corp. (KYO ) design a new slider phone.

Her mantra: “The smartest thing we can do when confronted by something truly creative is to get out of the way.” That’s pretty much what happened when two young producers came to McGrath in the early 1990s with a new idea for a dramatic series that didn’t require hiring actors or writers. McGrath was intrigued. The idea was to film seven people living in a New York City loft over several months, following the soap opera of their daily lives and dropping a soundtrack of new tunes behind it. MTV’s The Real World debuted in 1992, and reality TV was born. Its 17th season is shooting now in Key West.