I Want My MTV Ukraine” Risk Management in Changing Markets
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“I Want My MTV Ukraine” Risk Management in Changing Markets GREEN PAPER V. 1.2 Please send comments by e-mail to [email protected] A final version of this study will be available at: http://www0.gsb.columbia.edu/ideasatwork/riskmanagement/archive or at: http://www.griffincap.com/rfp/MTV Ukraine Case Study.pdf This Green Paper provides an initial analysis of risk management in changing markets. The exploratory case study presented in this document is research in progress. The case study analyzes a broad range of management issues, by way of narrative and documents related to MTV Ukraine, in order to achieve a deeper understanding of risk management and media franchises. With the exception of the narrative provided by the authors, all information contained in this case study is publicly available or was provided unconditionally and directly by MTV Networks Europe or MTV Networks International, both affiliates of MTV Networks, a unit of Viacom Inc. This Green Paper is distributed for free and only for nonprofit educational, scholarship, or research purposes, pursuant to exemptions in the United States under 17 U.S.C. § 107; in the United Kingdom under the fair dealing exemptions of § 29-30 of the U.K. Copyright, Design and Patents Act of 1988; in Canada under the Copyright Act, R.S.C., ch. C-42, § 29 (1985); and in the European Union under Article § 5-2 and 5-3 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. This Green Paper is not intended for any commercial use or benefit whatsoever. It is the intent of the authors of this Green Paper that any third-party content appropriated for transformative use, and which may be subject to copyright, expressly acknowledges the copyright holder, where known and when reasonably possible. This Green Paper is not intended to provide legal or financial advice. Comments and questions are encouraged. © 2007 Griffin Capital Corporation and its affiliates. All rights reserved. Any duplication or transmission of this document is prohibited without prior written consent. “I Want My MTV Ukraine”1, 2 Risk Management in Changing Markets CONTENTS 3, 4 I) Introduction II) Internet Killed the Video Star: MTV Twenty-Five Years On III) Ukraine: “Another Brick in the Wall” IV) The Pitch V) The Business: A License to Bill VI) The Switch VII) “Failure to Launch” VIII) “Running on Empty” IX) “Night Moves” X) “Well ... How did I get here?” XI) “Same as it ever was”: MTV’s Principal-Agent Issue XII) “Into the blue again, …” 1 In the interests of fair disclosure, one of the authors of this case study was involved in some of the events set forth herein as an advisor and minority equity holder. 2 Actual names are used in this case study except where indicated. Pseudonyms are used only when the underlying name is not already a matter of generally-available public information. 3 This document is distributed at no charge and only for nonprofit educational, scholarship, or research purposes, pursuant to exemptions in the United States under 17 U.S.C. § 107; in the United Kingdom under the fair dealing exemptions of § 29-30 of the U.K. Copyright, Design and Patents Act of 1988 available at: http://www.legislation.hmso.gov.uk/acts/acts1988/Ukpga_19880048_en_1.htm; in Canada under the Copyright Act, R.S.C., ch. C-42, § 29 (1985) available at: http://laws.justice.gc.ca/en/C-42/; and in the European Union under Article § 5-2 and 5-3 of Directive 2001/29/EC of the European Parliament and of the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and related rights in the information society. 4 With the exception of the narrative provided by the authors, all information contained in this case study is publicly available or was provided unconditionally and directly by MTV Networks Europe or MTV Networks International, both affiliates of MTV Networks, a unit of Viacom Inc. © 2007 Griffin Capital Corporation and its affiliates. All rights reserved. Any duplication or transmission of this document is prohibited without prior written consent. Money for Nothin’ (aka “I want my MTV”) Now look at them yo-yo's that's the way you do it You play the guitar on the MTV That ain't workin' that's the way you do it Money for nothin' and your chicks for free Now that ain't workin' that's the way you do it Lemme tell ya them guys ain't dumb Maybe get a blister on your little finger Maybe get a blister on your thumb. Dire Straits, from “Brothers in Arms”, 1985 © 2007 Griffin Capital Corporation and its affiliates. All rights reserved. Any duplication or transmission of this document is prohibited without prior written consent. Introduction I should’ve learned to play the guitar. Instead, I was warming my boots with a fellow shareholder at Charly's Tea Room and Confiserie in Gstaad. Not exactly heavy rotation. But as a corporate gig, it was as good a place as any for our first and last AGM. Peering through the window at the skating rink outside, we could see the pistes were iced as the arid sky offered precious little snow the final week of 2006. Finding a table wouldn’t be easy among the crush of would-be skiers, les riches and almost-famous. Pondering the events of the past year constituted the agenda of the AGM. We weren’t even a quorum. The majority shareholder and General Director remained holed up in his new flat in Kiev, the controlling owner of a once and former MTV licensee now worth something considerably less than zero. It had all been so promising twelve months ago. Experienced management, an iconic American media brand and a large European media market emerging from decades of Stalinist rule represented the risk-reward combination we thrived on – just like in Russia ten years earlier. The last place we expected to find systemic risk was within Viacom’s MTV unit. Among the questions we pondered were: 1) What risks do brands face when extending their global footprint? 2) How – and why – did MTV’s franchise model go so completely wrong in Ukraine? 3) How does this case illustrate the ‘principal-agent problem’ when a principal offers compensation unduly favorable to an agent? 4) Why did MTV host a press conference announcing the launch of MTV Ukraine when MTV’s management knew its licensee’s investors hadn’t agreed terms? 5) What happened to the one million dollars advanced to pay MTV’s licensing fee? 6) What was achieved at a midsummer night’s EGM at an unidentified hotel in Kiev? 7) Was MTV Ukraine a de facto affiliate of MTV, or simply an arms-length licensee? 8) Should MTV be concerned with its licensee governance and financial management issues? If so, how might MTV revise its license agreement to ensure licensees timely pay their employees and relevant authorities and don’t misallocate funds? 9) What risks does MTV face when intermediating a three-way deal between itself, as licensor, a follow-on Ukrainian licensee and a new investor? 10) What’s the likelihood Ukraine’s tax authorities might pursue the “new” MTV Ukraine for unpaid salaries, pensions and social insurance payments left by the first? 11) If you were the former General Director and controlling shareholder of MTV Ukraine, would you have sold out to your minority shareholders? At what price? 12) How can a content mill capture and monetize the growth of digital media? How can content providers best avoid, or minimize, disintermediation by advertisers? © 2007 Griffin Capital Corporation and its affiliates. All rights reserved. Any duplication or transmission of this document is prohibited without prior written consent. 13) Can shares of a listed company such as Viacom or News Corporation ever be fully valued if senior management indirectly control the majority of shares? © 2007 Griffin Capital Corporation and its affiliates. All rights reserved. Any duplication or transmission of this document is prohibited without prior written consent. Internet Killed the Video Star: MTV Twenty-Five Years On MTV flickered into life in 1981 to the sound of “Video Killed the Radio Star” by The Buggles. Riding the phenomenal popularity of cable TV, a new way of distributing music was launched without reliance on radio, DJs or “payola”. The VJ, or “Video Jockey”, was born into the exciting world of cable broadcasting. The crown jewel of the Viacom media empire5, MTV accounted for about 70% of Viacom’s over $9.6 billion (2005) revenue and more than 90% of its earnings. But as MTV celebrated its 25th anniversary, a new generation of digital media had emerged including the internet, video on-demand and mobile i-phone downloads. Analysts and investors began to question the prospects of established media as it struggled to learn how to market its content in an increasingly networked world. After all, hot 5 Viacom Inc. is a leading multiplatform, pure play content company, with prominent and respected brands in focused demographics. It engages audiences through television, motion pictures and digital platforms. Viacom seeks to reach its audiences wherever they consume content. MTV Networks (“MTVN”) is a unit of Viacom. MTVN owns and operates advertiser-supported basic cable television program services around the world. Outside the US, MTV Networks owns and operates, participates in as a joint venturer, and licenses third parties to operate, over 95 MTV Networks program services, including MTV, VH1, Nickelodeon, TV Land and Paramount Comedy among others.