Grand Plan

Nearly 20 years ago, MTV was the height of cool, with its weird images of rock stars wearing shredded leotards and polka-dot dresses. Its logo was an astronaut planting a flag.

MTV has planted its flag on the Net as well, but in this medium, its symbol of conquest is not the only flag on the landscape. Numerous music sites are competing for MTVs valued demographic, ages 13 to 24, and its unclear whether MTV.com will dominate with its content or become merely a promotional tool for its cable network.

MTVs newest edgy offering is convergence. Now the network sometimes lets the audience pick the next video. "We absolutely think convergence is important because our demographic is ready and willing to play on two screens," says Nicholas Butterworth, president and chief executive of MTVi Group, MTVs online arm.

Country.com, Sonicnet.com and VH1.com also belong to MTVi. MTV Networks, which is owned by Viacom, is a majority owner in MTVi. Liberty Digital holds a minority stake.

MTVis grandest convergence play isnt occurring on those properties, but on a sister network called MTV2. The cable channel has merged with The Box, an interactive 24-hour music network, and relaunched on Jan. 1. Butterworth says promotions will be wrapped around the channel, and there will also be e-commerce capabilities deployed through wireless devices and on set-top boxes. "It really represents our take on what an all-music channel means in 2001," Butterworth says.

For starters, viewers in the 30 million homes that MTV2 reaches have the chance to go online to pick the videos that appear on the television program Control Freak. Fans can also pick the videos that appear during the show Direct Effect, which launched in October on MTV and MTV.com. In November MTVi let viewers choose the winners of its interactive awards show, called My VH1 Music Awards.

MTVi is hoping to retain its audience and gain new visitors through its news offerings. The company uses its own reporting team, refusing to syndicate the expensive function that many other content sites havent been able to support.

MTVis fans are fanatical, says Michael Alex, vice president of MTVi News, and they demand expert reporters and writers presenting their news. Likewise, Alex says, musicians trust MTVis staff. "The hallmark of MTVi news is the ability to get interviews when artists are in difficult situations because they know they will be represented correctly in an interview."

For all MTVis strengths in brand, convergence and news, it delivers a relatively small number of music videos online. "Weve tried to do something different, and we think its early to do video on demand," Butterworth told the audience at Herring on Hollywood, a business conference, this summer. "It doesnt push our brand."

Not all of MTVis competitors agree. David Goldberg, chairman and chief executive director of Launch Media, says his site streamed more than 6 million music videos in September.

"We believe not only is there a consumer demand, but theres also a business model that works, since we can sell TV advertising around those music videos," Goldberg says.

He adds that MTVi hasnt been able to get many licenses to show music videos online. "Labels dont want MTV to be a dominant player online," Goldberg says. "They see us as an independent party that has the ability to be a strong player and to create a level playing field so they arent beholden to a monopoly like in the cable world."

Matt Bailey, senior analyst at Webnoize, a research group, speculates the cost of showing the large-bandwidth files of video over the Net is also keeping MTVi from streaming more videos. As a result, Bailey says, MTVi is suffering from an identity crisis and now acts mostly as a vehicle to promote its cable networks.

But MTVi properties will likely experience a boost once technology improves, Bailey says, and thats one reason its sites will continue to be funded by parent company Viacom. "Viacom is probably willing to take some loss to make sure that presence is maintained."

Even with a strong backer, MTVi has suffered from an online music sector shakeout that has already rocked Atomic Pop, Musicmaker.com, Riffage and SpinRecords.com out of the medium. MTVi laid off about one-quarter of its 400 staffers in September as part of a reorganization that included consolidating the properties news divisions. The New York company also dropped plans for an initial public offering in the fall.

Butterworth now says pulling the IPO was the right move. "We have a much better business than we did a year ago, and theres not an advantage to spinning off MTVi today."

Butterworth has recently strengthened that business by integrating CD sales into Sonicnets music reviews and its online radio streaming service. A subscription service for music could come next, but Butterworth doesnt expect these areas to be serious revenue streams while users can download music for free.

The sites rely instead on advertising for revenue, a model that scares many a Web entrepreneur. But it doesnt scare Butterworth.

"MTV Networks is the most successful seller of advertising in the TV industry; Viacom is the largest advertiser in the world. This is what we do for a living," he says.