Tuesday, August 22, 2006

Business Week Online

AUGUST 22, 2006

By Catherine Holahan

Move Over, MTV

A growing number of Web sites are using music videos to lure young people and steal some of MTV's market share

Remember when MTV showed videos? It's got thousands to choose from online. And so do some formidable rivals, who are using their own music video strategies to grab hold of the valuable online youth audience.

Major Internet players—from search engine Yahoo! (YHOO) to startup video site YouTube—are striking deals to broadcast music videos over broadband. Their hope: The same strategy that won Viacom's (VIA ) MTV Networks cult-like control of the 12- to 34-year-old audience two decades ago will prove just as successful today on the Web.

Already Yahoo and News Corp's (NWS) MySpace regularly stream music videos from major and independent artists. And now YouTube is negotiating a deal to broadcast free music videos from several parties, according to a YouTube spokeswoman. Warner Music Group (WMG ) says it's among the would-be partners. Reuters recently reported that the list also includes EMI.

SIREN SONG. The music video strategy is a smart one for online companies, says David Hallerman, a senior analyst at eMarketer. After all, Internet advertising is a fast-growing market expected to bring in $16 billion this year alone, according to eMarketer projections, and advertisers particularly covet the teenage and young adult market.

According to the Pew Internet & American Life Project, more than 81% of people aged 18 to 29 use the Internet, compared with 78% of people aged 30 to 49, and 60% of people aged 50 to 64. "The younger group has a larger penetration of Internet users than the older group, and I just think it is natural that people want to hear music on the Web," Hallerman says. "The Internet lends itself to the same mentality of television, where you take a little bite here and a little bite there. It is not long extended plays. And music is small bites."

Competitors have made some key advances. Yahoo Music, which has streamed video since acquiring Launch Media in Dececember, 2001, is the most visited destination on the Web for free music videos, followed by AOL Music, according to July data from Nielsen//NetRatings. MTV Networks, with 8.3 million unique viewers, ranked No. 3. It trailed AOL's 19.1 million and Yahoo Music's 24.3 million.

PACKAGING EDGE. MTV began streaming broadband content in 2005 and now shows more than 9,000 music videos as well as clips from the original series MTV has increasingly relied on to build both its television and online audiences. Yahoo Music has more than 10,000 music videos online. In 2005, the company streamed more than 4 billion music videos to consumers.

Amy Doyle, MTV senior vice-president of music and talent, notes that MTV still has a larger audience in the 12-34 range, when avenues such as television are included. "That is because we have evolved and embraced all these digital platforms as they have become more important to our audience," she says. "This isn't the first time we have had competition. Music videos have lived on other places other than MTV for a long time, dating back to the early '80s. What separates us from our competition is the way that we package music videos."

MTV, with its cable stations and online presence, is still the go-to brand for music content, both for young people and artists. It has stayed this way, in part, because of time-limited agreements with artists that enable MTV to broadcast artists' videos exclusively for a brief period. Musicians sign these agreements to gain access to a large music-buying audience that flocks to MTV, in part, because it knows MTV's Web site and cable channels will have the videos first.

HOOKING UP. Analysts say MTV can't afford to be complacent. "Right now I don't really view (competition) as a problem because MTV has an Internet presence and they are the main brand," says Robert Routh, a managing director at Jefferies & Co. "Could it become a problem if Viacom doesn't carefully monitor the situation as time goes on? Sure. If MTV continues to focus more on the television product, then it could become a problem. We saw that with AOL, which was the dominant player online for years. Now look at what has happened."

MTV isn't standing idly by. The network has aggressively worked to raise its profile by alternatively partnering with competitors and purchasing sites with young audiences. For example, it distributes original content via a channel on Time Warner's (TWX ) newly launched AOL video site even though AOL's music video channel is a competitor (see BusinessWeek.com, 8/7/06, "AOL Video: Close But No TiVo").

Last week, MTV Networks purchased gaming site and online video outlet Atom Entertainment for $200 million (see BusinessWeek.com, 8/11/06, "I Want My GTV?"). Earlier this month, MTV's college campus network acquired Y2M: Youth Media & Marketing Networks, a publisher of online college newspapers (see BusinessWeek.com, 8/3/06, "Viacom: I Want My Demographic").

NETWORKING OPTIONS. It has also acquired gaming sites Xfire and GameTrailers, along with indie film site IFILM. Last year, Viacom tried to acquire social networking giant MySpace, which also streams music videos from independent and major artists, but lost out to News Corp. (see BusinessWeek.com, 7/19/05, "News Corp.'s Place in MySpace").

It could partner with more sites in the future. Routh thinks that Viacom is a prime candidate to merge with Yahoo. "It would be a phenomenal way to leverage the content," Routh says. He also thinks MTV could move some of its content to a premium subscription model, which would make paying site users more loyal to its brand and provide an additional revenue stream.

Future MTV partnerships could also move the music network giant into territory currently controlled by other sites. As evidenced by Viacom's bid for MySpace, MTV is looking to advance into the social networking arena, Routh says. In July, the company launched the Flux site and television channel featuring user-generated video clips and messages. There have been rumors that MTV may want to partner with a social networking site such as Facebook.

MTV is unlikely to relinquish its control of the music video market any time soon. Video sites may want to be MTV. But MTV wants to be on top.