Quotes of the Day

In the heart of the city, a castle dominates the skyline from the top of a jagged rock face — Edinburgh is built to expect invaders. But few have been as welcome as the hordes that arrived last week. On Wednesday night Justin Timberlake gave an impromptu DJ set in a pound-a-pint student pub, while Beyoncé Knowles went on a private shopping spree in the city's Harvey Nichols store. They were here for the MTV Europe Music Awards, where Christina Aguilera burst out of a nun's habit to reveal her trademark chaps, and, of course, little else. The event was broadcast live to more than 110 million homes in Europe and will be seen by a potential billion viewers worldwide — almost certainly the biggest moment in MTV Europe's 16-year history.

You might have missed the awards that went to Myslovitz (Best Polish Act), AB4 (Best Romanian Act) and Tiesto (Best Dutch Act). But they're huge stars in their home countries and keys to the local-market strategy that has kept MTV a step or two ahead of aggressive challengers. "Rather than beaming down into a market, we wanted to reach out from a more relevant point of view from within each market," says Brent Hansen, the head of MTV Europe and the impresario behind the awards. Hansen, 47, knows as well as anyone how fragile success can be in the music-television business. He's been on the MTV team since 1987, when MTV first dipped its toes into the European market. Back then, the Viacom-owned network was the only music channel on the dial. But along with the satellite and digital revolution came competition — and nowhere more so than in the U.K., where around 50% of British homes now have multichannel capability beyond the terrestrial networks.

MTV Europe remains the only pan-European music channel. A strong challenge has come from Emap, the London-based magazine publisher and radio broadcaster, which in 1996 bought the first video-jukebox channel, The Box. In the last three years, Emap Performance, the company's music division, has exploded to become MTV's main U.K. rival. It now has seven music-TV stations to MTV's eight, and takes 41% of the U.K. market to MTV's 52%.

Emap's success has come from piggybacking on the popularity of its established music magazines, including Smash! Hits, Q and Kerrang! The audiences for these channels are well-defined and know what kind of music they'll hear — chart pop on Smash! Hits, heavy metal on Kerrang! "Emap have been very clear in the way they view music TV," says Paul Richards, media analyst with Numis Securities. "It's radio with pictures." And the niche jukebox approach seems to work: viewers even phone in on premium rates to request a play. Boasts Tim Schoonmaker, CEO of Emap Performance: "We've got a business model which is far less expensive than the Viacom channels." Which is why Emap says it makes €9 million a year in profit on revenues of €37 million.

This has hurt MTV in more ways than just stealing market share. Before the competition, MTV could demand hefty fees from broadcasters, but with this leverage gone, Viacom will get about 20% less cash from satellite operator BSkyB this year compared to last. (BSkyB also launched three music channels of its own earlier this year, but thus far is a bit player.) Yet paradoxically, MTV U.K. is now enjoying its highest ratings ever. Says Deborah Bonello of Media Week, an industry magazine: "Rather than cannibalizing the market, Emap's channels actually grew them, so the audience expanded." That's why Hansen's attitude toward competition is: bring it on. "We're in a stronger position now in a funny kind of way," he says. "I think that competition has certainly meant that we have become a far more powerful player."

A similar dynamic occurred in Germany. MTV faced an early rival in Viva, a German-language music channel that was a joint venture between Time Warner (which publishes TIME) and EMI. Catering to a demand for local language and local acts, the Cologne-based channel launched in 1993 and became an instant hit and market leader overnight. "I wanted there to be more diversity and thought we could create an exciting alternative if we would just treat German music without prejudice," said Viva founder and CEO Dieter Gorny. Viva caught MTV flat-footed, admits Christiane Mühlemann, managing director of Munich-based MTV Germany. "It was rather surprising to see that Viva created such strong demand for German-language music," she says. MTV responded with the launch of MTV Germany in 1997, featuring localized programming in German. MTV is now back at No. 1, with its highest ratings ever in Germany.

If there's a lesson to be drawn from MTV's remarkable staying power, it's to always act locally. MTV Europe moved from being one pan-regional, English-language channel to being 35 local channels reaching 113 million homes in Europe. "It was a blond Scandinavian talking about Italian music to Germans — it's exotic for a period of time. But we knew right from the start that as soon as technology came our way, we would seek to reverse the process," says Hansen.

That means targeting programming to specific countries. But at the same time, MTV Europe is getting away from back-to-back-video competition on its flagship channels by following MTV's U.S. model, and investing in nonvideo, long-format programming. Buoyed by the success of shows like Jackass and The Osbournes and hot local ones like the U.K. version of TRL (Total Request Live), MTV Europe has increased its programming budget by 19% this year. This is a path Emap doesn't intend to follow.

Says Schoonmaker, "When we look at programming we look at things that are very quick and very sharp; maximum a minute." MTV is spreading in other areas too: earlier this year MTV Europe took a 50% stake in French gaming channel Game One and MTV International completed a €70 million deal to provide content to Motorola mobile handsets.

It's hard to argue with MTV Europe's strategy. The division brought in €110 million in revenues in 2002, according to Merrill Lynch, and predicts growth of €4.4 million for each of the next two years. "I've always been given pretty much a carte blanche to get ahead with it," says Hansen. "There is a limit in terms of the budgets you get to play with, but essentially I'm allowed to do these things." And the payoff? In a world packed with award ceremonies, MTV Europe's had Beyoncé, Kraftwerk, and the White Stripes. Both Emap's Smash! Hits Poll Winners Party and the BBC's Top of the Pops Awards have been postponed this year. Who's having the most fun?

• HUGH PORTER | Edinburgh
• Competitors beckon, but the world still wants its MTV