Is MTV Scared of Internet Music?

Even powerhouse music channel MTV faces challenges for eyeballs from online upstarts such as Universal's International Music Feed

In the media world, not many are tougher to topple than MTV. In its 26-year history, the Viacom-owned (VIA) music channel has become an American icon with roots so deep with U.S. youth that protests once broke out in several states when a cost-cutting cable system contemplated yanking it. But in the interactive world, where the user is king, no lion of the old-media world seems safe, and even a powerhouse such as MTV is facing a challenge from—of all folks—the very music companies that have for decades relied so heavily on it to promote their stars.

For more than two years, a challenge has been quietly growing. Backed by Universal Music, the industry's largest single player and a company that has a long history of tussling over music rights with cable and online companies, the International Music Feed is hustling to lure eyeballs away from MTV. Now the IMF, as it's called, appears to have pulled together a robust catalog of music videos from most of the major labels.

It's not a full-fledged, in-your-face, threat to MTV's hegemony just yet. But IMF is a nod to the music industry's ambitions to feed music to folks online, through their TVs, and even on cell phones. Of course, TV is the big banana—where money and eyeballs are the greatest—and so far, well, IMF is mostly dark for the couch potatoes of the world.

Universal Makes Them Pay

Still, this is a grand play by Vivendi's Universal on behalf of the music labels of the world—most of which have been grumbling for years that MTV doesn't pay enough (or, indeed, anything) to run their music videos, sets onerous terms on the exclusive use of videos from high-end acts, and generally has turned over its schedule to teen angst shows such as its current hit The Hills. "MTV doesn't just show music videos any longer," says IMF President and Chief Executive Officer Andy Schuon, a longtime Universal Music executive who got his start as the top programming executive at MTV. "That's what music lovers want. And it gives us a great opportunity to give it to them."

Universal Music Chairman Doug Morris has been fighting for years to get more money for music produced by his collection of hot acts, which range from U2 to Eminem. He's been a constant thorn in the side of Apple (AAPL) CEO Steve Jobs, wanting more money (which hasn't happened) to sell Universal-owned music through Apple's iTunes. And in 2005, Morris strong-armed online services such as AOL (TWX) and Yahoo! (YHOO) to make them pay to use music videos online that they had been streaming for free.

So creating its own music service to out-MTV MTV is par for the course for Universal. Executives at MTV, which would not comment for this story, did allow that it continues to play its fair share of music videos.

Sluggish Startups

So how do you go about setting up your own version of MTV to sidestep MTV and go directly to the consumer? You start with Schuon, who has a history of new media startups for Universal, including its failed online download service press play and the late-night music show Doug and Jimmy's Farm Club. Those efforts were slowed by the still sluggish rollout of broadband and an inability to get music from most of the major labels.

This time around, Universal is doing a little better. For starters, it has more music, having signed up music from EMI and BMG, which has since merged with Universal's press play partner Sony (SNE). In fact, other than Warner Music Group (WMG), Universal has music from every other company in the biz.

IMF is basically a Web site that's wall-to-wall music videos. It includes a companion TV lineup that features concert shows and music anthologies. You want Universal rapper 50 Cent? Or newcomer Joss Stone from EMI's Virgin label? They're available, and for the most part free. (Video on demand is available for $4.99 a month on Sprint's (S) cell phones as well.)

Who Wants Their IMF?

Who is watching IMF? Well, there's the rub. According to IMF, it gets an anemic 47,474 unique visitors a month to its Web site. And while it has 17 music channels on the online TV site Joost, and two channels on British cell-phone company Vodafone (VOD), it has just about no U.S. TV presence. It is available to some of satellite-operator DISH Network's (DISH) nearly 14 million subscribers, a couple of tiny local cable companies, and the still smallish Internet-based cable systems being rolled out by telcos Verizon Communications (VZ) and AT&T (T).

The company claims it has the potential to reach 10 million TV viewers in all, a far cry from the 91 million U.S. viewers that MTV gets in the U.S. (or for that matter the 90 million who can get MTV sister channel VH1 or the 59 million who get MTV2.)

It ain't MTV, that's for sure. But give Universal credit for trying. It's still pitching cable companies, although few of them seem to have the added channel capacity to take on another music channel when MTV is such a huge presence. A Cox cable executive says it met with IMF executives, but it is focused now on adding channels to its digital tier instead of the "linear" style channel that MTV offers.

Not Afraid to Make a Grab

And even at DISH, you can't get IMF on some cheaper packages. (A little history here: Universal parent company Vivendi had to go to court to get on the satellite service. In 2001, Vivendi invested $1.5 billion in Dish's parent company, Echostar Communications, getting the right to create five channels as part of that deal.)

Still, Universal executives say privately that IMF was profitable two years after it was launched, with a fairly tiny programming budget and revenues coming in from a video-on-demand service with Sprint mobile and other deals. The company intends to keep plugging away to get more eyeballs, says Universal Music Chief Financial Officer Nick Henry. So maybe it's not MTV. Maybe it never will be. But you have to hand it to the folks at Universal Music: They never seem to shrink from the challenge of squeezing nickels out of their music.