Viacom’s Digital Strategy

Viacom, Inc. is a leading entertainment conglomerate operating through two segments: Media Networks, which includes MTV Networks and BET Networks, and Filmed Entertainment, which includes Paramount Pictures Corporation and Famous Music. The Company owns some of the most popular entertainment brands in the world including, BET, Famous Music, MTV, VH1, Nickelodeon, Nick at Nite, Comedy Central, CMT: Country Music Television, Spike TV and TV Land.

In the past one year the Company has acquired DreamWorks L.L.C., Caballero Television, Quizilla.com, Harmonix Music Systems Inc., Atom Entertainment, Inc., Xfire, Inc., Y2M: Youth Media & Marketing Networks, a controlling interest in Nickelodeon UK Limited, acquisition of the remaining 58% interest in BET.com and 63.8% interest in the multi-platform MTV Japan business that it did not own to consolidate its position as a major entertainment company across key media platforms.

The Company has been focusing on a two pronged strategy. First it wants to strengthen its popular brands by acquisition of complementary assets, divesting those that it feels are low yielding, improving the quality of the content and exploring partnerships for distribution of its rich content library.

Secondly it wants to grow its online / digital business rapidly through internal initiatives, strategic acquisitions (Quizilla.com) and partnerships. In this piece, we will explore Viacom’s Digital Media strategy.

Viacom is the first major media company to launch a series of virtual worlds that seamlessly integrate television programming with emerging virtual world technology, e.g. Nicktropolis, a new virtual destination for kids, which offers kids the opportunity to engage in a virtual world full of activities, and safely connect with friends.

Considering the fact that the social networking space for adults is overcrowded, Nicktropolis is a brilliant strategy to build a community around a segment in which it has a competitive advantage and across channels (TV, Internet). [Our comprehensive review of the pre-teen segment is here.]

MTVN has acquired Quizilla.com, an online, user-generated community of original teen authors who create and share quizzes, fiction, non-fiction, poetry, polls, and other creative content. Quizilla is a top-five online destination for female teens and joins the MTVN Kids and Family digital portfolio which already includes popular teen sites The-N.com and Neopets.com. [Our review of the Teenagers and College Kids market segments are here.]

Besides the Pre-teen and Teen markets, Viacom could also stengthen its community offerings around music and films, an obvious leverage point in their portfolio. Viacom has thus expanded MTV’s offerings, and MTV.com’s monthly unique visitors in January 2007 increased to over 55% year on year and comedycentral.com was up over 90% compared to January 2006. MTV Networks’ digital ad revenues rose 60% in 4Q 2006. Logo’s online platforms sold out in Q4 06 as ad revenue grew to a new high. Logo experienced a 121% increase in online ad revenue in Q4 06 over Q3 06.The total number of digital advertisers on Viacom’s digital properties grew by 60% in 4Q 2006. Viacom’s revenue from digital only clients grew two-and-a-half fold, and the Company hit a record high sell-through across most of its sites. The Company has also been able to generate high CPM rates for advertisements on its sites supported by premium content and branded virtual environments.

The Company has been focusing on further monetizing its properties and this is evident from deals like the one it did with Apple iTunes and Bit Torrent for selling online video. The Company has incorporated e-commerce facilities in most of its sites and it is exploring opportunities in pay-per-download and licensing.

The Company has been working on a number of initiatives, one of them being the partnership with Juice, the world’s first broadcast quality Internet television service. The Juice partnership will enable users to have free access to thousands of programs and channels of Viacom, which are not readily available on the web. Viacom intends to monetize this through ad-insertions in the videos.

Virtual Laguna Beach and Virtual Hills with over 360,000 registered users are two immersive virtual entertainment portals, which were recently launched by the Company. The engagement model of the sites is appealing to both users and advertisers. Viacom has made good progress in its wireless video and mobile applications business. It has introduced an innovative mobile wireless access portal from Paramount, a multi-year licensing agreement with Media Flow, a MTV branded mobile content subscription service, integration of mobile commerce into BET’s music programming, and a made-for-mobile programming deal with AT Mobile.

The $1 billion lawsuit filed by Viacom against Google and YouTube over copyrighted content has resulted in Google and YouTube removing over 100,000 video clips and Viacom’s sites witnessing dramatic growth in streaming video traffic. On Turbo, the Naked Brothers Band generated almost 15 million streams between January 1 and February 4, 2007 and the launch of the online game, Ready to Rock, on January 15th has generated over 2.6 million game plays. Viacom has established the largest global mobile distribution of any entertainment company, with over 75 carrier partnerships and connections with a potential 1.2 billion subscribers.

Viacom has made significant progress in the digital space. Viacom’s online properties have grown rapidly, registering more than 40 million unique visitors in December, 2006 and ranking as the number one online entertainment portfolio and the tenth most popular overall portfolio on the web. This is no mean achievement and with new initiatives in its digital business like the innovative Joost distribution platform, revived sites with strong focus on content, commerce and community, Wireless video, mobile applications, etc., Viacom expects to earn revenues of $500 million in 2007 from its online businesses. Clearly, Viacom has made a successful transition to the digital era.