Viacom: MTV Goes Critical

The MTV unit of Viacom (VIA), which makes up most of the revenue in its Media Networks operation, is in trouble. And, it has been coming on for some time. For the first six months of 2007, operating income in Media Networks was flat at just over $1.3 billion.

The problem at MTV is that it is still a winner on cable TV, but it is a loser on the internet.

The last two days have pointed out that MTV can’t get its online act together. Today, News Corp’s (NWS) MySpace and MTV announced a partnership on a series of dialogs between the leading Presidential candidates and the young TV and online audiences of the two firms. The events will take place on college campuses nationwide. Viacom’s shares promptly fell almost 1.5% to $37.50.

Over the last year, Viacom’s stock has continued to under-perform those of other entertainment companies like CBS (CBS) and Disney (DIS).

The news that should be harder on Viacom’s shareholders is that MTV has abandoned its URGE music download business to use the RealNetwork’s (RNWK) Rhapsody download operation. The two companies were good enough to call it a merger of the two services. Rhapsody has been an also-ran trailing far behind Apple (AAPL) iTunes for some time.

As an analyst at Forrester stated “It is an attempt to create a powerhouse that’s going to be able to compete with iTunes. It’s going to be very tough to compete that way. Many other companies have tried to do that and failed, including the limited success that MTV and Rhapsody have had separately.”

Perhaps the most troubling part of all this is that a global music brand as powerful as MTV has gone nowhere.

Viacom fired its CEO last September and put in a pal of controlling shareholder Sumner Redstone. But, the shares are right back where they were last September.

Douglas A. McIntyre

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