COMPANY TOWN : A Marriage in Asia : MTV-PolyGram Pairing Reflects Global Rivalry in Music Video Industry

When MTV Mandarin debuts in Asia today, it will not only be the first 24-hour Mandarin-language music video channel, it will also be the first MTV channel to launch with an outside partner--PolyGram.

The agreement to share costs and operations for two new Asian channels has been put together quietly over the past four months. So quietly in fact, that while MTV was negotiating with PolyGram, which has the biggest market share of all the major record labels in Asia, it was also complaining about alliances formed by other record companies to form rivals to MTV worldwide.

The PolyGram deal illustrates the intensifying competition and changing landscape in the fast-growing global music video business.

The suppliers of music videos--the record companies--are demanding a piece of the action. Rather than fight this trend, it seems, MTV is joining it.

MTV is one of cable’s great marketing successes. The music video channel, which premiered in the United States in 1981, now reaches 60 million cable homes domestically. MTV has captured the elusive youth market and drawn big-spending advertisers with cheap programming--music videos produced by record companies.

MTV has maintained a loyal following by spending more money on its original programming--the promotions and animation that runs between music videos--including breakout hits such as “Beavis and Butt-head.”

In 1987 Viacom Inc., MTV’s parent company, decided to export MTV first to Europe and then to Latin America, Asia and the rest of the world. MTV International now reaches 250 million homes in 67 countries--and is one of the world’s fastest-growing cable channels.

Competition to MTV was inevitable, says Bill Roedy, the London-based president of MTV International, but he admits that the rivals would be easier to brush off if they were not bankrolled by groups of record companies--MTV’s major suppliers.

They would also be easier to dismiss if they were not finding an audience that is eluding MTV. The first competitor to get MTV where it hurts was the German channel Viva, which attacked MTV’s strongest international territory--Europe.

After eight years, MTV Europe reaches 60 million viewers and has revenue close to $100 million. (The company does not release official figures.) Though MTV Europe says it is now operating in the black, analysts are dubious.

MTV Europe’s strategy has been to seek a Pan-European presence with English-language service delivered by European video jockeys and gradually establishing the market for Pan-European advertising.

Viva, however, targeted Germany--the second-largest advertising market in Europe--in its own language.

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EMI, Sony Pictures, Warner Germany and PolyGram each took 19.8% of Viva at its launch in December, 1993, with German media mogul Frank Otto owning the rest. In the 14-to-29 age group, Viva has 4% of the audience compared to MTV Europe’s 2.5%, according to a survey by GFM GETAS in October, 1994.

Then came the MTV mess in Asia. Rupert Murdoch’s Asian satellite service, STAR TV, and MTV Asia went their separate ways in May, 1994, after a dispute over control of the service ended a three-year partnership. MTV has been off the air for almost a year, and in that time STAR TV launched its own in-house music station, Channel (V), which now reaches 50 million homes. In January, BMG, EMI Music, Sony Pictures Entertainment and Warner Music Group joined as equity partners in Channel (V).

MTV regrouped and this week offered the surprise partnership with PolyGram, which will launch two new channels--MTV Mandarin, beginning today, and MTV Asia on May 5--for an investment of less than $100 million.

“One might say they got a jump on us in terms of total homes, but it’s still very early in the game,” said Tom Freston, MTV chairman and chief executive. “We see our homes ramping up very quickly and think we could be in 25 million to 30 million homes by the end of the year.”

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Both Channel (V) and Viva claim they are reaching an audience MTV ignored. While MTV was being global, the competitors focused on more local markets.

Tailoring a service for Asia is particularly difficult, according to Don Atyeo, general manager of Channel (V) in Hong Kong who established a music channel at STAR TV before Murdoch bought the service and ran MTV Asia under the STAR umbrella.

The regional differences within Asia require a number of different services on the one channel. “The more you stay here (Asia), the more you realize just how big the job is. MTV is still just dipping its toe in the water, but we are up to our bellybutton,” Atyeo said.

Local language has been the selling point of the rivals, and MTV has had to respond. Channel (V) has a Mandarin-language service and an English service in its regionally split satellite footprint, as well as a Hindi-language period within the English split. MTV will have two dedicated channels.

Viva’s success is based on its German-language service, reaching viewers in Germany, Austria and Switzerland. That success prompted MTV to launch VH-1 Germany in German this year as a supplement to the Pan-European MTV.

The link-up with PolyGram in Asia--which represents major local artists such as Jacky Cheung, Leon Lai and Faye Wong--gives MTV a connection with the indigenous music market from the 20 years of goodwill built up by PolyGram in Asia.

The growing competition between MTV and the record company-backed services has at times been marked by hostility.

When Warner Music, Sony, EMI, PolyGram and Ticketmaster announced that they were looking at launching a rival U.S. service to MTV last year, Viacom Chairman Sumner Redstone threatened an anti-trust suit and declared that Viacom and MTV would compete with its suppliers and start a record company--the missing piece in the newly merged Paramount-Viacom-Blockbuster media conglomerate.

Redstone’s threats rattled the record labels in the U.S. group, and sources say the U.S. plan has been put on ice, as have MTV’s record label plans.

But PolyGram says its involvement with MTV in Asia was not contingent on its dropping out of Viva in Germany or any other rival MTV channels. MTV did not ask PolyGram to divest and there would have been no Asian deal if it had, said Alain Levy, president and CEO of PolyGram.

Mark Beilby, London-based media analyst for Warburg International, says the entrance of record companies fundamentally changes the business.

“If it becomes a trend for record companies to take stakes in music video channels, that will change the whole equilibrium of the market. The fundamental question is whether there will be a ‘full line forcing’ by the software producers, like we see in the garment or the gem industries, where manufacturers push their bad products along with their good products. . . .”

MTV’s Freston says he does not think the PolyGram axis will change the “ecology” of the business.

“All I can say is that the integrity of our playlist is very important to us. We have taken a long time to build up a sense of independence and it is totally sacrosanct. We need everybody to make this work.”

While MTV is fighting back internationally, the services closer to home in the burgeoning market of Latin America and in the U.S. market look safe from significant competition for some time.

“It is so hard to compete with MTV in this country,” Merrill Lynch analyst Jessica Reif said. “There is little incentive for new channels here because of the stretched cable capacity. I am not at all nervous for MTV and Viacom domestically.”

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All Around the World

From its fledgling 1981 beginnings in 3 million U.S. households, MTV has expanded its music video empire to more than 250 million households worldwide. Households, in milions:

1993: 250.9

* Source: MTV