MTV Networks Chairman Channels His Energy to Expanding Brands

Tom Freston, MTV Networks’ 53-year-old chairman, has one of the more unconventional resumes in entertainment. Abandoning a short-lived career in advertising in New York because of the “slow pace” and the prospect of working on a toilet paper account, Freston took off to see the world and, in the early 1970s, landed in Asia, where for eight years he and a partner ran a textile business out of Kabul and New Delhi manufacturing trendy peasant clothes for Bloomingdale’s customers.

“I didn’t have a clue what I was doing,” admits Freston, who recently spent his second honeymoon in Laos. Tired of dealing with Third World strikes, power blackouts and 120-degree days, he returned to New York. After reading an article in Billboard magazine about a few guys starting a music-video channel, he called them and said, “Hey, I’m an entrepreneur--you should hire me.”

He became director of marketing in March 1980 and the following August helped launch MTV, which Warner Amex Satellite Entertainment thought was not much of a business and sold to Viacom Inc. in 1985. A year later, Viacom was bought by Sumner Redstone, who often boasts about being MTV’s biggest fan.

Today, Freston oversees the company’s five basic cable TV programming networks--MTV, M2, VH1, Nickelodeon/Nick at Nite and TV Land--focusing his energies heavily on expanding the brands in all corners of the globe and on the Internet. Some analysts regard Freston as a possible successor to Redstone.

Freston has been instrumental in the networks’ strong growth over the last two decades and their influence on pop culture. MTV Networks’ worldwide revenue has nearly tripled over the last five years from $700 million to $1.9 billion, and its estimated earnings before interest, taxes, depreciation and amortization have more than doubled, from $275 million to nearly $750 million. Last year, the division accounted for 15% of Viacom’s overall revenue and 39% of its operating cash flow.

Freston was interviewed at MTV’s headquarters in Manhattan.

Question: There was a period a couple of years ago where MTV looked like it was flattening out.

Answer: That happens every few years--a generation sort of changes or the creative product gets stale or you lose your way, but in the last 18 months MTV has been in a major period of growth. MTV is, in a way, the most difficult network to manage, because it’s so much about what’s going on today. Nickelodeon is much more of a traditional type of television business. And VH1, because of the nature of the audience, isn’t so fickle. MTV is in a constant state of flux.

Q: The core MTV audience is 18 to 24. How are today’s MTV viewers different from those of a few years ago?

A: They’re much more optimistic, hard-working, experimental, open-minded, tolerant--a lot of good values--and they’re very technically oriented. A pretty remarkable generation. They are going to just wreak huge amounts of change throughout the economy as they go forward, just like the boomers did.

Q: What music do they like?

A: You see a lot of these kids that are very open in their musical tastes today. . . . The generation before, I was into alternative rock, or I was into hip-hop, or I was into classical Jimi Hendrix stuff. Today they’re very open-minded when it comes to music. They like swing, they like hip-hop, they like a lot of the hard rock, they like all kinds of different music.

Q: Is that easier for you?

A: Much easier. We have shows that specialize, but the bulk of the music that we play is all that stuff mixed up together, and it works. Our real focus here as a company is an almost maniacal view of our audience, trying to get into their heads, get into their closets, get into their lives, find out what’s going on.

Q: Is your goal to have networks that cover basically every age group?

A: Right now we’re cradle to near-grave.

Q: How old do you go?

A: Well, about 50. I wouldn’t say that’s the grave, but--it’s actually TV Land. But we’re looking at a [new] channel that serves the 50-plus audience.

Q: In the future, will your channels grow by taking from broadcast networks or in the international markets?

A: Both. I think the networks are going to be nibbled away at by us and others forever. You could posit that aggregate network share every year is going to get lower and lower and lower. Some networks will have a higher season than maybe the one before, but in the long run, their future is a steady, inexorable downward drift.

I think our international operations are profitable now. MTV is in 88 countries. . . . Nickelodeon is in about 100 million homes internationally, and in aggregate they’re profitable, and it’s the fastest-growing piece of our business.

Q: Is there some point at which broadcast networks become just another cable service?

A: Well, they might enjoy better economics were they to do that, but life is not quite that simple. It’s ironic that most all of the cable networks are more profitable than the broadcast networks. For starters, we get paid [subscription fees], and they have to pay basically for distribution.

Q: How’s the U.S. market?

A: About 85% of our revenues come from the U.S., and we’re still seeing high teen growth rates. We’ve been growing over 20% [a year] for the last 10 years or so. There’s a lot of upside left for us and for most of the other cable networks, I would say. There’s a drift of money coming from broadcast TV to cable over and above the amount of the ratings change. And you know, after a while the brands that you develop become more and more valuable.

Q: Are you everywhere you want to be internationally?

A: Well, we’re kind of running out of countries. We’ve got MTV in Russia, we’ve got it in China, we’ve got it in Lebanon. India is one of our best markets. We’re in Brazil. There’s two places we aren’t: Canada--I don’t think we’ll ever get there.

Q: Why?

A: There are cultural issues. It’s prohibited for American programmers to operate in Canada unless you have a minority piece of a Canadian business.

Q: And the other?

A: The other would be South Africa. There’s been a big review of regulations there, and we’ve had a deal pending for a long time, but we’re still waiting for the government to sort of make a decision about licenses and so forth.

Q: Did your experience building a clothing business in India come into play as you have expanded into Asia?

A: Asia was like a real great training ground for me in business, a confidence builder. . . . India gave me a lot, and now we’re giving them MTV.

Q: How will your growth come internationally if you’re in most countries already?

A: Building up what we’ve got. If we can get more homes in more countries. And a lot of markets--Asia, Latin America--the advertising market is still rather underdeveloped. Europe is really kicking in now for us. In most of the Asian countries there was almost no television five, six, seven years ago, just the state-run stuff, and now you have the beginnings of advertiser-supported TV. There’s going to be a good market there, and we will be firmly established.

Q: Will international ever be as large as the domestic market?

A: Probably. Ten years from now. That is our plan--50-50 or 60-40. But, you know, the United States is a very unique market. Not only is it large and homogenous, we are a very strong advertising economy.

Q: Can you tell us more about your plans for a 50-plus channel?

A: We don’t know exactly what it is yet. . . . It wouldn’t be a nostalgia-based network. It’s a tricky thing to program for older people, because they don’t want to be told they’re old. But we’ve done very well with the baby boomers, and they’re used to having channels that are sort of specialized to them through their lives, so I don’t think it’s beyond reason that we can craft one that would somehow appeal to them--but I don’t know what it is.

Q: VH1 struggled before it finally caught on. Why?

A: We did a poor job of programming it. Also, a lot of the people who watch it now were still watching MTV. We repositioned it back in ’96. There have been a lot of people in the last five or six years who graduated from MTV into the VH1 audience who were used to having a music channel.

Q: You’ve been put in charge of Viacom’s Internet initiative, but those efforts seem modest compared with those of other major entertainment companies.

A: Well, we’re not going out and losing hundreds of millions of dollars or spending billions on portals that don’t necessarily make any sense for us, so we’re modest in that way. Our goals are ambitious.

Q: What are your goals?

A: We want to be the sort of leading Web destinations for kids and music fans. We already have a pretty good head start. Nickelodeon, if you factor in AOL usage, is the No. 1 Web site for kids.

Q: Doesn’t Disney say their site is No. 1?

A: They do. And it changes from month to month.

Q: What’s the revenue model for online?

A: Right now it’s advertising and e-commerce, and there’s probably some business to be made from the data side, in terms of direct marketing. Outside of some retailers like Amazon.com, most of the stuff isn’t that good. The Internet is crying out for good and easy-to-use creative applications that really get people involved. Right now it’s almost like the classic phase of a new industry. There’s just a lot of stuff out there, unedited and not terribly well-organized. I’d like to think that we’d be able to make some impact in terms of the creative approach to the Internet.

Q: Do you feel about the Internet the way you felt about MTV in the early days?

A: I think I’m on the verge of having that kind of feeling. I say that because the way the technology is improving and the way I think some creative ideas can be applied on the Internet, you can get very excited about the things you can do.

One of the differences is, of course, that the Internet is a place with absolutely no barriers to entry, so there’s seemingly so many different variations of things, so much competition. In a way, that bodes well, I think, for us because we have brand names. When a consumer has 2,000 choices, being a brand name is a good thing. The end play doesn’t seem so apparent to me as it did on the television side, I will say that.

Q: What will the Internet look like 10 years from now?

A: Vastly different because of broadband. The Internet, besides not being a creative wonderland, is also very hard to use if you’re sitting at home with a regular old modem. . . . You’re waiting for this, you’re waiting for that. Really, it’s amazing that people are willing to put up with all of that. It says that this thing has a real consumer draw. Imagine what it’s going to be like when it’s really easy to use and it’s fast and you can see video and you really have streamed video and streamed audio.

Q: How do feature films fit into your business?

A: Feature films are a great opportunity to stretch our creative abilities and resources, and we are able to attract young up-and-coming talent to our television networks. We have our toe in that pool, if you will, so we sort of have an advantage there, particularly when it comes to movies for kids or teenagers or young adults.

We know these audiences pretty well through the amount of research that we do, and a lot of material comes our way. We’ve got a learning curve, and I’d say we’ve done well. “Beavis and Butt-head” was a very big hit. We did like $65 million in realized box office. [Released by Viacom’s Paramount Pictures, it cost $11.7 million.]

Q: And “Rugrats” just crossed the $100-million mark in the U.S.

A: We produced that movie for $25 million, so that was a huge hit. “Varsity Blues” cost $15 million, and it’s closing in on $60 million.

Q: You don’t see getting into the big theatrical-event movies?

A: No. Our real focus, where we want to spend any money at all and develop a real ambitious business, is on the animation side. We want to be able in a few years to release one animated feature a year.

Q: What’s your top priority right now?

A: I spend maybe 60% of my time internationally. A lot of my focus is on international and on the online area right now. . . . What most concerns me about our company is being a unique place for creative people. If we can keep a line of creative people beating a path to our door and bringing that kind of energy and excitement in here, we’ll remain a pretty special place to work.