Freston's Mission: Digesting Comedy, Fixing Spike, VH-16/08/2003 08:00:00 PM Eastern
For a man throwing a $3 million party, Tom Freston is fairly reserved. The MTV Networks chairman stands at the head of the red carpet leading into Los Angeles' Shrine Theater and the annual MTV Movie Awards. He watches high-octane actors, singers and rappers process past him and dozens of photographers and fans perched in bleachers high enough to prevent any grabbing.
|Freston's Lucrative Kingdom|
|Ad sales*||License fees*||Total Rev*||Operating cash flow*||Cash flow margin|
Source: Morgan Stanley media analyst Richard Bilotti; Broadcasting & Cable research
Freston steps up only to greet those celebs most clearly important to his business: filmmaker George Lucas ("He comes every year," Freston said); hot singer Beyoncé Knowles; singer and 2 Fast, 2 Furious
star Tyrese ("He started as a dancer on an MTV show"); and Kelly Osbourne.
"Everyone who's got something to pimp this summer is in this row," Freston said. They use MTV to promote their movie or album. MTV, in turn, uses them to promote itself to viewers and—more important—to advertisers.
Aside from picking up the tab, Freston deserves to be on that red carpet: He's got plenty of projects of his own to pimp.
Next Monday, Freston and his executives will relaunch the ailing general-entertainment network TNN, rechristening it Spike TV, "the first network for men." New management at VH1 has revived ratings, in large part by freshening existing ideas and not so much by developing new series. And parent company Viacom just spent $1.3 billion to buy the half of Comedy Central MTVN didn't already own. Although Comedy is not much of a problem child, the network is due for a polish, particularly in its promotion, which MTVN execs consider weak.
Also, growth is slowing at MTVN's two powerhouse channels, Nickelodeon and MTV. Nick continues to dominate kids programming and has topped Nielsen's total-day cable ratings for years (in the more lucrative prime time race, it typically ranks between third and fifth among basic cable nets). MTV remains a cornerstone of teen viewing and culture, but the days of consistent, double-digit percentage cash-flow growth are pretty much gone.
Freston notes that, with a portfolio of eight major domestic networks, 13 domestic digital networks and more than 30 international outlets, not all cylinders are ever going to be firing at the same time. "Every new network you have in there, the greater the probability that one of them's going to be out of sync. Last year, we had VH1 sort of out of the business cycle, and we had a good growth rate." MTVN's revenues and operating cash flow grew 10%-11% last year.
Wall Street, cable-system and advertising executives express little anxiety. "They've got a lot on their plate," said Morgan Stanley media analyst Richard Bilotti, "but MTV Networks is the best-managed operation in cable."
Viacom's bottom-line–worshipping President Mel Karmazin has no complaint: "MTV Networks is doing great." The unit is the biggest contributor to Viacom profits and runs with a huge 47% cash-flow margin.
MTVN executives are cheered by the upfronts, in which they are securing overall CPM gains of 11%-13% and volume gains of 17%-19%, selling about 65% of the domestic networks' $2.3 billion or so worth of inventory. MTVN President Mark Rosenthal said that, with the broadcast networks' committing even more inventory upfront than last year (85%-90%), he expects the scatter market to be extremely tight.
Freston does worry about one thing: getting too big. In addition to taking on more than a board seat at the 14-year-old Comedy Central, Viacom is openly pursuing Vivendi Universal Entertainment, whose USA Network and Sci Fi Channel would likely end up in Freston's lap.
Despite running an operation that generated $3.2 billion in sales, Freston strives to dilute the sense of bigness, keeping employees focused on their individual networks. "You want a sense of self-determination. Creativity and bigness usually don't work."
Current and former executives say Freston's style is to offer an unusual amount of freedom, and not to punish failure—at least not too quickly.
"You hear all these horror stories at other media companies where the CEOs are screaming and throwing things. That doesn't happen here, certainly not with Tom," said one senior executive.
Brian Graden, entertainment president for MTV and VH1, knows the difference. He previously worked at Fox, developing shows for its TV-station group, a much more tense shop.
He knows he will fail.
Most cable networks brag when they get one or two new series on the air. Graden's MTV strategy has been to put dozens of programs into development a year and more than 20 on the air. That leaves a lot of losers but also spawns several successes, such as reality shows The Osbournes, Sorority Life, and Fraternity Life
plus Candid Camera clone Punk'd. He's applying that strategy to VH1, and the folks at Spike are using it as well.
Graden contends that the attitude of Freston, MTV Group President Judy McGrath and MTV President Van Toffler doesn't leave him fretting about punishment if some risks don't pay off. "I just don't feel like covering my ass is my first responsibility."
Want to irritate Albie Hecht, the president of Spike? Tell him his guy network sounds like a TV version of Maxim
"No, no," said Hecht as he screened new Spike promo spots during a weekly meeting in Freston's New York office. "You can't just reach out to the frat-boy part of guys and say you're reaching out to all guys. That won't work."
He describes Spike as aiming to "be the ultimate brand for post-modern, post-feminist guy," a man who's interested in travel, fitness, extreme sports and cars, not just to the shallow, sex-obsessed men defined by Maxim. Think GQ. Think Men's Health.
To celebrate the launch, Spike is planning to throw a party at the Playboy Mansion.
The first new shows were developed under TNN, including cartoon Stripperella, featuring Pamela Anderson's voice and body; new episodes of old Nickelodeon cartoon Ren & Stimpy
(the twist: they're going to seem increasingly gay); and Gary the Rat, an executive rodent voiced by Kelsey Grammer. Other coming shows include 10 Things Every Guy Should Experience, which will take a few lucky fellows to sporting events like The Super Bowl and Kentucky Derby and the GQ
Reworking TNN into Spike is particularly important because of the financial damage the operation has suffered. During two rounds of rebranding since Viacom bought TNN parent CBS in 2000, the network's ratings slide has been well-known. But the financial pain has been hidden by MTVN's stronger properties.
That's why Freston wants to pursue a niche, men 18-34. "Why be the fourth or fifth general-entertainment network? Let's claim something that's not really being served."
Viacom won't detail results. But Morgan Stanley's Bilotti estimates that, since TNN lost the rights to NASCAR and picked up World Wrestling Entertainment, which keeps all its ad time, annual ad sales have dropped 23% from the network's peak. Total 2003 revenues—including steadily growing fees from cable and DBS affiliates—should be down 6% from TNN's peak to $318 million. Estimated operating cash flow has plunged 32% to $118.3 million.
Herb Scannell, president of Nickelodeon, TV Land and TNN, says TNN's ad situation was precarious. Around 53% of ad revenue was tied to NASCAR, not just in the races themselves but in small-circuit races and things like home-improvement shows. And a lot revenue came infomercials, direct response and leased time. Just 21% of TNN's ad revenue was coming from cash sales to non-NASCAR advertisers, he says: "We've quadrupled cash sales."
The Spike overhaul is the big reason behind Freston's decision to put his newest acquisition—Comedy Central—in the hands of McGrath's MTV group rather than Scannell's, where an entertainment network is a more natural fit.
Scannell has lots on his plate. Plus, "Judy was banging on my door," Freston said. "Everybody thinks she's this little hippie gal, but she's competitive."
However, for all Freston encourages collaboration, he also likes to force networks to wrestle a bit. Comedy is already targeting the same male demos Spike seeks, and the two nets will probably chase similar programming. "They're probably going to be bumping up against each other," he said. "I want them to be subtly competitive."
McGrath said she has started going to standup comedy gigs for the first time in years, but she doesn't have many detailed ideas on where to take the network. One major flaw is that, while top music acts are seen all over MTV, top comedians are pretty much absent from Comedy Central. "Where do Jim Carrey, Adam Sandler go on Comedy Central other than a short interview on The Daily Show? [Comedy Central] should have more of a relationship with the Adam Sandlers of the world."
McGrath also expects to dramatically step up Comedy Central's development slate. The ad crunch meant the network launched just one series last year and just a few this year. Further, McGrath believes that the network's on-air promos don't say much.
At Comedy Central
Comedy Central executives aren't thrilled about being sold (particularly one lawyer who grouses too loudly to her hair stylist and unfortunately goes to the same salon as a very senior MTVN executive). But they generally express enthusiasm at working with MTV. "Look, we know these people. They've known us," said Comedy CEO Larry Divney. "We're looking forward to tapping their resources."
Want to irritate VH1 President Christina Norman? Suggest that the recent jump in VH1's rating is due to tricks from the mid-1990s' playbook of John Sykes. He's the former president who put VH1 on the map with Behind the Music
around 1996, then frittered those gains away by failing to establish strong followup.
During a meeting with Freston and McGrath to screen new promos and plan new events, Norman bristled, "What playbook is that? I haven't found it in this office."
VH1 executives express much excitement about the recent ratings lift they've gotten from programs like the Top 50 Greatest Hip-Hop Artists
and I Love the 80s, which was broader than just music, opening up to include movies and other pop culture. But those are stunts, not the kind of series that can deliver week in, week out.
Graden says he and Norman want to work quickly. "Development takes at least a year," he noted. For I Love the 80s, he replaced the single narrator with a load of musicians and other stars talking about their connection with certain songs. A more stable slate of shows will emerge over the next nine months.
Norman said ratings have been bolstered by more than stunts. The music mix has gotten much broader, with much more rap and hip-hop introduced. She and Graden are blending in more pop-culture programming, beyond just the features dictated by VH1's slogan "Music First." The approach is much different from what she was accustomed to when she was head of marketing at MTV. The reason reality shows like Real World
and Sorority Life
work so well on MTV is that "the MTV audience likes to look at themselves. This audience doesn't want to look at themselves at all." Hence, nostalgia shows and more shows focused on artists.
One thing that will not be on Freston's plate is a gay network. MTVN and Showtime had been collaborating on a service. But Karmazin said, because it will be a pay network, Showtime is better-equipped to handle the distribution. MTV might produce some shows.
What's next? MTVN executives say Freston is eager for Viacom to acquire Vivendi Universal's cable networks, expecting that MTVN would be able to run them. Getting USA, of course, would put Freston back into the general-entertainment business. Freston would say only that "I think Sci Fi Channel's very interesting."
One thing Freston does say is that he has never been interested in Karmazin's job. When it seemed last year that friction with Chairman Sumner Redstone might push Karmazin out the door, board members targeted Freston as his likely replacement.
But Freston's contends that he's having too much fun, even more than during his days in Afghanistan and India exporting clothes to U.S. department stores in the 1970s. "I was rooting for Mel to stay. I really like my job."