Viacom Chairman Sumner Redstone lamented last week that his company's approach to the “digital revolution” had not been “aggressive” enough. But while many Wall Street analysts echoed Redstone's frustration, one has to wonder: If Viacom, with its 100-plus Websites and steady diet of acquisitions, isn't aggressive enough, then who is?
News Corp.'s aquisition of MySpace has grabbed headlines. And everyone from Disney and NBC Universal to Viacom's ex-sibling, CBS, has launched broadband and mobile products.
But Viacom, driven by MTV Networks (MTVN), has hardly been standing still. It seems that, with cable advertising gone soft and every media company scrambling to find new revenue streams in emerging platforms, no one can move fast enough. The explosion of social-networking site MySpace has only fueled the fever to close the next big digital deal.
And at this anxiety-filled moment in a still-formative business, it's simply too soon to tell whose strategy is actually working.
MTVN has been particularly vocal about its digital initiatives, touting many of them at its upfront presentation last spring. In addition to adding new content to its various broadband portals and mobile ventures, the company's recent purchase of gaming and short-film company Atom Entertainment capped a year of acquiring several youth-targeting online properties, including the virtual pet site Neopets and the online gaming company Xfire.
Last month, Viacom struck a deal with Google to share ad revenue on MTVN clips posted on third-party sites. It's all part of a strategy, says MTVN President/COO Michael Wolf, to deliver content to the company's young audiences by creating, buying and partnering with various sites.
Digital “entertainment hub”
“The company's digital strategy is to become the entertainment hub for each of its core audiences,” says Wolfe. “We offer targeted properties. Our TV networks aren't about reaching everybody, and our Internet [products], from an advertiser perspective, [aim for] a targeted audience.”
Some analysts, like Citigroup's Jason Bazinet, say MTVN's acquisitions haven't been aggressive enough. While they haven't gotten the attention that sweeping purchases like News Corp.'s $580 million for MySpace or even NBC Universal's $600 million for online women's portal iVillage have, MTVN's cash outlay has been roughly equivalent.
“This isn't about a flawed strategy,” says Pali Capital media analyst Rich Greenfield. “It's about the need to be more aggressive and clear in how all the pieces tie together.”
MTVN describes its acquisitions as “tuck-ins” meant to complement its existing brands, the way Neopets is aimed at the Nickelodeon audience. That strategy may well pay off, but for sheer simplicity and scale—what analysts and investors best understand—you can't beat MySpace.
Indeed, the conventional wisdom in the wake of Viacom CEO Tom Freston's ouster is that he was done in by Viacom's failure to outbid News Corp. for MySpace (even though Viacom declined to start a bidding war before Freston took charge). But Citibank's Bazinet says in a report that News Corp.'s apparent success with MySpace is “more luck than skill.” And while last month's deal making Google the exclusive search engine for MySpace will bring News Corp. $900 million over 3½ years, Bernstein Research analyst Michael B. Nathanson concedes in his report that “the wisdom of these deals will not be known for years.”
Beyond that $900 million, there is little way to measure the success of anyone's digital strategy beyond Web traffic and the potential ad revenues it may bring. Roughly 55 million people a month visit MySpace and its vast collection of Web pages. But some 60 million a month typically visit MTVN's various digital assets—and millions more can get MTVN content on other sites like Yahoo! and Google Video.
Nathanson worries that such uncertainty about the value of digital acquisitions and concern over acting aggressively could encourage recklessness.
“Redstone's frustration with Viacom's lack of aggression could translate into a slew of new-media deals driven by anger as opposed to logic,” he writes, cautioning that “the market will worry if Redstone's competitive juices will blur sound financial requirements.”
Sumner Redstone wants Viacom to quicken its new-media pace. Can anyone move fast enough?