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Viacom Taps MTV Touch To Retune Once-Hot VH1

3/24/2002 7:00 PM Eastern

Five years ago, MTV: Music Television was in trouble. It had lost touch with its fickle young viewers, and its ratings had tanked. By contrast, sister service VH1 was on the rise, boosted by hits such as Behind the Music.

"There was a time when VH1 was hot and MTV was not," as one cable-network chief recalled.

That seems like eons ago. The tables have turned. MTV's ratings are soaring, with breakout shows like The Osbournes,
while hit-less VH1 is struggling.

Now Judy McGrath, who presided over MTV's turn- around three years ago, is being asked to work her comeback magic at VH1.

Earlier this month, to the surprise of insiders at its MTV Networks unit, Viacom Inc. unveiled a management reshuffling that moved VH1 and CMT: Country Music Television president John Sykes to the Infinity Radio unit, as chairman and CEO, succeeding Farid Suleman.

Under the restructuring, McGrath — formerly president of the MTV Group and chairman of interactive music — was promoted to president of the MTV Networks Music Group, a newly created post. That expanded her duties to include MTV, MTV2, VH1, CMT and all the company's digital-music services.

'OUT OF THE BLUE'

The move of Sykes to the giant radio division — with its 183 stations — left MTVN staffers scratching their heads, for a variety of reasons.

"People were expecting some change to happen, but they were not sure what it would be," one ex-MTVN staffer said. "This came out of the blue."

First of all Sykes, was being promoted even though VH1 had become the problem child in Viacom's cable family.

Sykes, considered smart and well-liked, is credited with turning VH1 into a real brand, with a legacy of hits like Pop-Up Video.
But the network hasn't had a ratings winner since top programmer Jeff Gaspin left, and its latest crop of shows has crapped out. And while most of Viacom's cable networks are racking up audience gains, VH1 was down 20 percent in primetime last year, to a 0.4 rating. It dropped 33 percent in total day, to a 0.2.

Beyond that, Infinity superstar Howard Stern has already pointed out — on the air — that Sykes has no specific radio experience to draw from in his new gig running the Infinity unit, although he is a music-industry veteran.

"It raises Sykes to the level of [MTV Networks chairman] Tom Freston, doesn't it?" one Viacom veteran said, marveling.

Infinity's revenue and profit last year were nearly at a par with those for Viacom's cable networks. Cable revenue hit $4.3 billion, versus $3.67 billion for Infinity, while cable EBITDA (cash flow) was $1.68 billion, just a shade above Infinity's $1.52 billion.

Viacom spokesman Carl Folta denied that Sykes's move to Infinity had anything to do with VH1's performance or that his lack of radio experience would hinder him.

"If there were any question about John's ability, why would we put him in charge of a vastly larger business?" Folta said.

Rarely does a chairman's position ever open at Viacom, Sykes said last week. "There are only six of them. When one of those slots opens, it's a rare opportunity to get one. When Farid left three or four weeks ago, Mel [Karmazin, Viacom president] immediately called me. I was thrilled Mel asked me because he is really the king of radio. He built Infinity."

Sykes added, "Mel wants brand new ideas in radio. He wants us to apply some of the MTV Network branding and marketing to radio, which I'm thrilled about."

Still, some MTVN insiders were also perplexed by the corporate politics behind the management changes. Sykes is a favorite of Viacom chairman Sumner Redstone. But he will be running a unit that is the beloved baby of Karmazin, to whom Sykes will report.

KARMAZIN FACTOR

Earlier this year, reports of tension between Redstone and Karmazin surfaced, as did talk that Redstone didn't plan to renew Karmazin's contract. In response, Viacom denied that Redstone has made any decision about Karmazin's deal, which expires at the end of 2003.

Despite the corporate denials, some Viacom insiders still believe Karmazin's days are numbered.

One source said Sykes — whom he described as "a great schmoozer" — has skillfully managed to cultivate a relationship with Karmazin without alienating Redstone in the process.

Sykes said that "Sumner was completely supportive, 100 percent supportive" of his promotion.

The end result of Sykes's succeeding longtime Karmazin lieutenant Suleman at Infinity is a strategic plus for Redstone and Freston. It buttresses the power of both executives, according to several sources familiar with MTVN.

In Freston's case, he now has an ally firmly planted on Karmazin's turf.

"Everyone at MTV is thinking that Mel is out," one source said. "With Freston having Sykes at Infinity, it strengthens his position to be Sumner's No. 2, once Mel is gone. So it works out great for Freston."

Sykes's departure from VH1, according to one source, also sends a signal to Madison Avenue that the network will be fixed.

"VH1 is in such a slide and its new programs aren't working," the source said. "They [Viacom] had to make a move before the upfront. Now they can point to the success MTV has had under Judy."

Folta denied that the timing of Sykes's promotion had anything to do with the upfront, but was motivated by the need to quickly fill Suleman's vacancy.

McGrath describes her promotion as "her dream job." But she admits to finding the post a bit daunting.

"I vacillate from elation, hysteria and panic," she joked last week.

McGrath, seeming to allude to MTV's problems several years ago, referred to the cyclical nature of programming. "Everybody goes through these rough patches," she said.

McGrath said she plans to look at VH1's development slate, and noted that a hit show like a Pop-Up Video
or The Osbournes
can quickly put a network "right back in the groove.
"
Sykes stressed that under his eight-year watch, VH1 saw its ratings grow 42 percent and its EBITDA rise 2,000 percent, with the network making "hundreds of millions of dollars" in profits.

SYKES: 'REPOSITIONING'

"What happened to us is what happens to every cable network every few years, is that you go through a repositioning phase," Sykes said. "Your audience shifts. You've got to recalibrate and put some fresh programming on the air, and that's exactly what we're doing this year. We had seven straight years of growth, and then we hit our ratings challenges."

VH1's task is in many ways harder than MTV's, because the demographic it now serves — 18 to 49, with a median primetime age of 33 — is targeted by many networks, according to McGrath.

VH1 once served Baby Boomers, but its target audience is Generation X, Sykes has said.

"You can't marry one generation," McGrath said of VH1's challenge. "Like Nickelodeon, you have to keep redefining the audience."

McGrath plans to get "deep into the research" to learn what VH1 viewers are watching most often, and what "they've had enough of."

At a Viacom retreat last week, McGrath said she has already started to talk to Betsy Frank, MTVN's executive vice president of research and planning, about VH1 data.

McGrath plans to meet with VH1's senior management team — which includes executive vice president of programming Fred Graver and chief operating officer Ann Sarnoff — to determine the best structure for the network.

An MTVN spokeswoman said McGrath will most likely hire a general manager for VH1, but will wait before making that decision.

WILL GRADEN RISE?

McGrath complimented VH1's current management team, including Graver. But MTVN insiders are already speculating that she'll eventually get Brian Graden, MTV's president of entertainment, to also take a hands-on role in developing programming for VH1. Graden is the programming hit-meister
who spearheaded MTV's revival under McGrath.

Sykes has enjoyed success in rejuvenating CMT, which MTVN inherited from Viacom's CBS Cable. He's added original programming to its schedule, and the network has gained 11 million homes in the past year, pushing it to 58 million subscribers, McGrath said.

She said CMT's general manager, Brian Phillips, is highly regarded, and she looks forward to working with him.

So far, Wall Street seems to like Viacom's recent management shuffle.

In a report, Merrill Lunch & Co. Jessica Reif Cohen described Sykes as "a superior executive," saying he "transformed VH1 from a flanker brand into a very powerful and profitable cable network." Reif Cohen lauded McGrath for having "an impressive track record."

Sanford Bernstein & Co. analyst Tom Wolzien said it makes sense for McGrath to run both VH1 and MTV, since "there is a flow of audience from one to the other."

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