I Want My Mtv Stockby
Maybe it was inevitable. The television network that exults in sound bites is now covering a Presidential campaign that is dominated by them. By reporting on the candidates the same way it reports on Guns n' Roses or Def Leppard, MTV: Music Television thinks it can awaken the civic instincts of its 18- to 24-year-old viewers. Says MTV Creative Director Judy McGrath: "They may look like deadbeats to everybody else. But not to us."
Not to Wall Street, either. MTV executives acknowledge that its parent company, Viacom International Inc., may sell a 10% to 15% stake in MTV Networks to the public. And in a sign gf just how lucrative its youthful franchise has become, they say the offering could raise up to $400 million. That would value MTV at $2.6 billion to $4 billion--roughly the same as one of the Big Three broadcast networks. In addition to MTV, the group includes a second music-video channel, Video Hits One, and a children's channel, Nickelodeon. For now, executives say, Viacom is still mulling proposals from several investment banks.
WORLD-BEATER. Some experts on Wall Street say a $400 million offering would fly. "The broadcast networks are barely making money, while MTV goes from strength to strength," says Porter Bibb, managing director of investment bank Ladenburg, Thalmann & Co. He points out that several cable networks have recently gone public at extravagant multiples: "This market seems to have an insatiable appetite for these networks."
Even among fast-growing cable networks, MTV is a sprinter. Twelve years after it introduced music videos to the cultural vernacular, MTV is well on its way to becoming the world's first global TV network. With new channels in Asia, Australia, Latin America, and Russia, it expanded its potential audience by nearly 100 million homes in 1991 (chart). In the U.S., MTV's push to become a full-service network for young people boosted advertising revenues 7.7% in 1991, to $114 million, according to cable-TV analyst Paul Kagan Associates Inc.
Viacom could use the cash from an offering. The company, which also owns the Showtime pay-cable network, several radio and TV stations, and a syndication unit, is still paying down $2.4 billion in debt from its 1987 leveraged buyout by Boston movie-theater magnate Sumner M. Redstone. The company is also spending $150 million a year on new programming for MTV and its other networks.
Viacom President Frank J. Biondi Jr. won't say whether the company plans an initial public offering. But he notes that it is whittling away its debt and reported its first positive net earnings since the leveraged buyout in the first quarter. Although programming costs are rising, he says Viacom can easily cover them by extending its bank credit lines and by issuing $150 million in new debt. Says Biondi: "There are arguments for and against a stock sale." For one thing, he says, MTV may fetch even more later: He's predicting a double-digit gain in advertising revenues this year. And Nickelodeon will benefit from NBC's decision to scrap its Saturday-morning cartoons.
FRESH FACES. But investment bankers warn that the bull market for cable stocks won't last forever. The Family Channel, a network owned by televangelist Pat Robertson, and Black Entertainment Television both went public recently at rich price-earnings multiples. Yet they're trading below their offering price, in part because investors are jittery about a bill now before Congress that would regulate cable rates.
Those worries haven't stopped MTV from further expansion. In 1993, it plans to launch two spin-off channels to appeal to the varying musical tastes of its viewers. MTV says it hasn't settled on the musical genres for each channel, which will be called MTV 2 and MTV 3. Still, the network says it wants to be ready for the day when digital compression and fiber-optic technology will vastly expand the number of cable channels.
And lest MTV lose its cutting-edge style, the network is undergoing a Menudo-like casting change. It recently retired thirtysomething veejays Julie Brown and Martha Quinn in favor of fresh faces such as Karyn Bryant and Steve Isaacs. And it's rolling out new programs that tackle issues such as racism and the environment. "We're trying to cover issues that are of more import than just music," says MTV Networks Chairman Tom Freston.
Still, MTV hasn't forgotten what got it into every rec room in America--and millions abroad. Eighty-five percent of MTV's airtime is devoted to music, and its traditional mixture of Michael Jackson and Motley Crue hasn't changed much. What media mavens are waiting to see is whether the MTV world tour will make a stop on Wall Street.