MTV May Merge MTV2, The Box

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Hoping to add subscribers and build a more attractive interactive-music-video service, MTV Networks is planning to merge its digital MTV2 music-video service with interactive music-video service The Box Music Network.

The combination, which could be finalized within the next month, would fold The Box into MTV2, a 24-hour music-video service, according to sources close to the situation. The Box's operations would move from Miami to MTV's New York studio headquarters.

Last week, The Box president Alan McGlade confirmed discussions with MTV2 about a potential merger. "Our ultimate goal is to create one strong and well-distributed network that will combine the best of both services," he said in a prepared statement.

An MTVN spokeswoman also confirmed that the networks were "in discussions" about a potential merger, but she would not comment further. A story on the plans appeared on Billboard magazine's Web site last week.

The planned merger is intended to boost distribution for MTV2. The network-launched in 1998 and offered as part of MTVN's digital package, The Suite-has fewer than 12 million subscribers and has been unable to gain significant cable distribution in a very crowded and competitive cable-network environment.

MTVN charges a monthly license fee of 38 cents per subscriber for The Suite, which also includes eight other digital services.

But several operators said that rate is predicated on carriage of all nine networks, and the rate card to carry just one or two of those channels is expensive.

Two weeks ago, MTVN did reach a long-term affiliation deal with Time Warner Cable for distribution of MTV2, as well as several other MTVN analog and digital services. The actual number of Time Warner homes receiving MTV2 was not disclosed.

The Box-which MTVN bought from Liberty Digital Inc. last year-is in approximately 20 million households, according to network officials. It's unclear how many households are duplicated between the two services.

"The combination of the two services would create a well-distributed cable network with great upside," one MTVN executive said.

The deal would also give MTVN the strong interactive element it's been seeking since the launch of MTV2. The Box's unique interactive-based programming format allows its cable-system affiliates to customize music-video offerings to serve a market's particular music tastes. Viewers can either call in requests or order videos via the network's Web site (www.thebox.com).

The network recently introduced Box Fusion, an interactive service that lets viewers simultaneously watch a video on The Box and get information online tied to that specific video. Viewers can watch their favorite videos as they read artist bios, see concert schedules, make purchases and interact with a virtual community.

Combined with MTVN's relationships with record labels and its own Web-based service, MTV Online-which includes popular music Web site SonicNet.com-industry observers believe the network could become a major player in the telecommunications and music industries.

"Both the leadership of The Box and MTV2 agree that this is the smartest course of action to maximize the growth of these businesses," McGlade said.

After MTVN-which also owns MTV: Music Television and VH1-agreed to buy The Box last year, the Department of Justice launched an investigation into the issue of licensing fees MTVN pays to air music videos and the exclusivity of such videos.

Some music-industry sources said last week that they believed the investigation-which came to light last December-was still under way. But Department of Justice officials could not be reached for comment on whether the investigation was ongoing, and MTVN officials would not comment on that situation.

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