MTV, Box Merger Raises Monopoly Concerns

Experts say Justice Department could find antitrust violations in its investigation of music-video giant.

With MTV Networks' acquisition of rival station The Box in the summer, the cable channel synonymous with music video risks being seen as a monopoly, several music business and antitrust lawyers said.

The Box transaction — in which MTV Networks also acquired SonicNet — has gotten the attention of the Justice Department, which is investigating the network.

"If The Box is MTV's next-largest competitor in terms of market share, it being acquired by MTV would certainly worsen the potential for an antitrust violation," said entertainment lawyer Gregory Victoroff, co-author of the book "Musician's Business and Legal Guide."

Referring to MTV's parent company, media expert Jack Banks said, "I was always concerned about whether or not Viacom has had too much control over the range of music available on cable systems." Banks spent a decade investigating MTV and sister station VH1 for his 1996 book "Monopoly Television: MTV's Quest to Control the Music."

The Justice Department reportedly is investigating the broadcaster's practice of demanding exclusive rights to some music videos. The probe also reportedly examines parent company Viacom's alleged efforts to get favorable licensing terms for digital versions of videos for the company's websites.

Viacom acquired The Box, a station on which viewers can request music videos for a fee, in the same July deal in which it also bought music news and entertainment sites SonicNet and Addicted To Noise, which are now part of MTV Interactive. The Box, based in Miami, shares New York offices with SonicNet.

The Box is available in 20 million homes in the United States, compared with 72.6 million homes that have access to MTV and 68.8 million that receive VH1.

A spokesperson for the Justice Department confirmed that its antitrust division is looking into potentially anti-competitive practices involving video networks but would not specify which networks were being investigated. An MTV Networks spokesperson, who requested anonymity, said the company is cooperating with an inquiry into its purchase of The Box. The spokesperson would not comment on the report that MTV's exclusivity deals are being examined, too.

"When [the investigation] is concluded, [the Justice Department] will agree that there is no violation of antitrust laws and that the program-services market in which we operate is highly competitive," the spokesperson said Tuesday (Dec. 21).

Banks, an associate professor of communications at the University of Hartford in Connecticut, said Viacom's purchase of The Box reminded him of a similar situation in 1984, when the fledgling Cable Music Channel, launched by media mogul Ted Turner, tried to gain a foothold in the music video market.

"Turner argued that [Cable Music Channel] failed because MTV had all these exclusive arrangements with labels [for rights to music videos]," Banks, who wrote "Monopoly Television" as his dissertation, said.

MTV ended up buying Turner's channel and later launched VH1, which was aimed at an older, Baby Boomer-leaning audience. "What they've done with The Box so far is consistent with what they did with Turner's service," Banks said.

The MTV spokesperson would not comment on Banks' assertions regarding the Cable Music Channel.

A spokesperson for Turner Broadcast Networks, who declined to be named, said no information was available on the failed project.

A longtime music executive who had extensive dealings with MTV when he worked at a major label in the '80s said the network routinely sought exclusive rights to videos. "I was totally opposed to those deals, but everyone else did them, so I couldn't disadvantage the label, I had to do them, too," said the executive, who requested anonymity.

He said his label gave MTV an exclusive on videos for a certain period in exchange for payment. "What it basically did was cripple anybody else's ability to mount a viable video program, because they'd always be late to the game with the hottest videos," the executive said.

The exclusivity deals originally appealed to labels because they would get exposure for their stars, and the contracts guaranteed that some lesser-known and newer artists also would get airtime, according to the current president of a major label, who also requested anonymity.

At the same time, MTV benefited by making sought-after videos more difficult for its fledgling competitors to attain, with exclusivity deals that ranged from one day to a year, according to Banks.

The label president said his experience with exclusivity on MTV has only worked to his acts' advantage. "It's always been a good thing," the executive said. "It just meant they want to play the sh-- out of it."

Victoroff, who worked in the legal department of Warner Bros. Studios' television division in the late '70s — when the Justice Department worked to limit the number of programs motion picture and television studios could produce — said, "Thanks to the Justice Department's diligence in breaking up monopolistic practices in the television industry, we now have hundreds of channels of diversity that we may not have had otherwise. ... And wouldn't it be great to see that happen with music videos? With all the mergers and acquisitions here, there certainly is a potential for unfair business practices."

The Justice Department investigation is part of a recent trend that finds government focusing on exclusivity deals in a number of businesses, from software to telecommunications, according to George Washington University law professor Bill Kovacic, who specializes in antitrust law. The trend also includes the government's investigation of computer giant Microsoft.

"If you are going to run a network that focuses on, among other things, current music hits, getting access to the video is a crucial ingredient of what you do," Kovacic said.

Viacom has reacted to the Justice Department action in much the same way the company did during previous government investigations, two of which resulted in out-of-court settlements, Banks said.

Viacom chairman Sumner Redstone called the Department of Justice's probe into a division of his company "much ado about nothing," the New York Times reported on Dec. 16.

Banks said in his book that two onetime rivals of MTV, Wodlinger Broadcasting (which ran Hit Video USA) and the defunct Discovery Music Network, have filed suits charging MTV with anti-competitive practices. Both ended in out-of-court settlements for undisclosed amounts.

The book also says the Justice Department's antitrust division investigated the network's exclusivity practices in the mid-'80s, as did the Federal Trade Commission and the Federal Communications Commission. Both inquiries were dropped for lack of evidence.

The MTV spokesperson would not comment on the previous antitrust investigations.

With The Box now a part of MTV Networks' operations, the competition includes Black Entertainment Television, which plays a mix of music videos and African-American oriented programs reaching 58 million homes, and the Montreal-based MuchMusic, available in 16 million homes in the United States.

Spokespersons for BET and MuchMusic declined to comment on the Justice Department's investigation of MTV Networks.

While competitors have decried MTV's exclusivity practices in the past, a number of music industry veterans said the exclusives are largely a moot point in the '90s.

An MTV Networks spokesperson said out of the 1,000 videos submitted to the station in 1999, only four became exclusives: "Freak on a Leash" (RealAudio excerpt) by thrash-rockers Korn, "Nookie" by rap-rockers Limp Bizkit, "Why Don't You Get a Job?" (RealAudio excerpt) from pop-punk group the Offspring and pop queens the Spice Girls' "Goodbye."

Although they have signed a few exclusivity deals over the years, R.E.M. generally have avoided them, the popular rock band's manager, Bertis Downs, said.

"Most of our videos have been fortunate enough to get on MTV, but we have also done a lot of nonexclusive ones so we can be on smaller and local outlets, even if they don't mean as much exposure," Downs said. He said he's never heard of such MTV competitors as Canada's MuchMusic asking for exclusives.

MuchMusic U.S.A. Vice President of Communications Chris Levesque would not comment on MTV's exclusivity deals and said she did not know if MuchMusic had any similar policy. "We're all music all the time," Levesque said. "Music is so broad-based, we think there's absolutely room for other networks."

Howie Klein, president of Reprise records — home to Green Day and Lou Reed — said he can't recall his label having made any exclusive agreements with MTV this year. "There may have been one at some point [recently]," Klein said, "but I don't even know if our exclusivity deal is still in place."

Banks said exclusivity has not been a factor for much of this decade, partly because of MTV's changing face.

"The record labels and MTV, though they had a period of cooperation in the '80s, began to have different agendas in the '90s," he said.

Banks said MTV's increasing reliance in the early '90s on nonmusical programming, such as game shows and talk shows, boosted ratings but angered some major labels, leading a group of them to attempt to try to launch a rival video music network. The network never got off the ground because of Justice Department concerns about video creators going into the programming business, but the labels never again returned to their former reliance on exclusivity deals with MTV, Banks said.

Four major record labels in 1993 created the German video channel Viva, which still competes with MTV overseas.

(Staff Writers Teri vanHorn and Chris Nelson contributed to this report.)