F E A T U R E S    Issue 1.01 - May 1995

Viacom Doesn't Suck!

By John Battelle

Years before interactive TV trials were front-page news, Frank Biondi and Ed Horowitz tried to deliver the information superhighway into America's living rooms. In 1983, Biondi and Horowitz were senior executives at a successful, if growth- challenged, little company called Home Box Office. Peering over the media horizon, they realised HBO's future lay in expanding the pay-per-view market. Give the customer more choices, preferably ones HBO controlled, they reasoned, and market share would blossom. But to get that kind of choice into every cable household, HBO needed to overcome the ineluctable law of new media marketing: hardware must come first.

That meant someone had to pay for expensive, addressable cable boxes. But at $150 to $200 each, consumers refused to bear the cost. Cable operators weren't about to do it either.

So Biondi and Horowitz figured they'd do it themselves.

"We had the crazy idea of going to IBM and ordering 10 million PCs, and making them into set-top converters," Biondi explains. "We figured in those days IBM was selling stripped-down PCs for probably $599, $699. We said: 'What would happen if we ordered 10 million PCs in a black box, just the guts, with a phone jack and an infrared?' We figured they could get the manufacturing cost down to well under 79 or 80 bucks. We could then go to the cable industry and say, 'Hey! One of the problems you got here is a very expensive box, which you don't want to pay for. So here's what we'll do. If you take HBO, we will lease you the box at cost.'"

Putting the power of a personal computer into a cable television set-top box would certainly revolutionise the pay-television industry, but it wasn't the real reason for dreaming up the deal. Biondi and Horowitz saw a marketing coup in the making: by giving the cable operators what they wanted, HBO programming would jump to the top of the content heap, its movies would be in constant demand, its ability to garner fresh, newly released movies would be strengthened. HBO content would be King!

It was an audacious attempt to leapfrog the infrastructure problem that still vexes cable and telephone companies to this day. And it was absolutely the wrong way to do it.

"We thought we could drive the market," Biondi, now CEO of Viacom Inc, recalls from his office on the 28th floor of his Times Square headquarters. He shifts forward in his chair, amused at what he plans to say next. "Even in those days, we really thought you would see the convergence that today everybody is taking as gospel."

But in 1983, the term "convergence" still belonged to professors of physics and maths, not practitioners of business. Before Biondi got a chance to finish the deal, he was out of HBO in a management shake-up. But the 10-million-unit order that almost happened proved a valuable lesson. "Even though we saw it 11 years ago, it really has not happened," Biondi recalls. "Now it's sort of fun to watch it stutter, step, trip, fall, stumble."

Biondi can enjoy watching the hardware guys fall over each other as they rush to pave the information superhighway, because under his management, Viacom has quite happily bowed out of any role in building it. Once a serious contender in the race to own cable television systems, Viacom has engineered a remarkable and prescient about-face. Viacom's most recent revelation: Forget about building the infobahn. That's a commodity business. All Viacom wants is the most nimble content to run down the road once it's finally laid.

Up to now, the rush to define, own, or simply comprehend the interactive future has resembled the first mile of the Boston Marathon: far too many contenders elbowing for far too little running room. But with the first leg of the interactive race over, two types of companies have made it to the split: those big enough, tough enough, and smart enough to lead; and those smaller, creative organisations that can catch a slipstream behind them. Most of the big old-guard media companies tripped and fell at the start. But Viacom, a staid cable company just 10 years ago, has emerged at the head of the pack.

In the process, Viacom has led the charge for open systems as well. If you make content, you don't want a bunch of competing, closed-down hardware standards fouling up your access to the marketplace - particularly if some of the same companies that control the hardware also make the content (think Time Warner or Tele-Communications Inc). When a colossus like Viacom preaches open access, government and industry sit up and listen. It's as if WordPerfect Corporation or Lotus Development Corporation existed before the personal computer market took off, and could air their concerns about Microsoft cornering the DOS and Windows operating systems. The result could be more choices and more competition for that interactive wire that eventually will run into your home or business.

In fact, Biondi does finally have his magic black boxes in place, but they're platform independent, standards free, and work easily in all forms of media, from print to movies to online services. They're called brands, and in the past year Viacom, poised to become the largest media conglomerate on the face of the earth, has gathered a formidable library of them, particularly those that transfer gracefully to the 21st century media universe.

"We were made to be interactive," says Geraldine Laybourne, vice chair of MTV Networks. Quick, think of an entertainment brand that reflects the new media gestalt. Star Trek, perhaps? Owned by television, film and publishing giant Paramount, which Viacom swallowed last year in a vicious bidding war that turned chairman Sumner Redstone into a public figure and Viacom into a household name. How about MTV? Purchased in 1985 from Warner Communications Inc (you can bet execs at Time Warner, which Viacom is poised to surpass in terms of market value, are still kicking themselves about that one). Or Blockbuster? This company controls 20 per cent of the domestic home-video market with its 50-million-name database, and holds aggressive businesses in film, videogame and television production - not to mention videogame and CD-ROM rentals. Viacom bought it late last year, scooping up control of Spelling Entertainment - Melrose Place, Beverly Hills 90210, and premier games publisher Virgin Interactive Entertainment - along with it.

Mystery Science Theater 3000, Duckman, Beavis and Butt-head, Nickelodeon and its pantheon of animated characters, Simon & Schuster and its library of 320,000 copyrights, Showtime, even Neal Stephenson's Snow Crash, which the company plans to turn into an interactive CD-ROM. You name it, Viacom owns either a piece of it or all of it.

"Viacom's properties lend themselves beautifully to episodic types of online experiences," says Keith Schaefer, the former president of Paramount Technology Group who left shortly after its acquisition to start Enter TV, a Cupertino, California-based start-up. Or as the top executive at a competing entertainment conglomerate put it: "They've got great early adopter copyrights."

Wall Street agrees, tagging Viacom as the dominant player in early 21st-century media. Of all the major entertainment companies, a recent report from Bear Stearns, a stockbroker, enthused, "Viacom will be in perhaps the best position to benefit from the coming interactive digital communications infrastructure." Indeed, Bear Stearns predicts that Viacom will outgrow its competitors, including Disney, Time Warner and News Corporation, by 10 per cent or more over the next few years. Given that Viacom's market value is edging towards $30 billion (the Blockbuster and Paramount deals gave it an estimated $18.4 billion boost in 1994 alone), that's serious growth. But as the next phase of the race begins, can it keep up the pace?

The Old New Media Company

Look at Viacom's record. In the past 10 years, while most of the media world served up more inane sitcoms, formulaic movies, and predictable newscasts, Viacom was making MTV into the most profitable network on the globe. It was branding kids from age 3 (Nickelodeon) to age 40 (VH-1). While the big three networks thrashed about, wondering why ad revenues were falling, Viacom was buying stakes in every hot media property in cable . Now, as the kids who grew up with MTV and videogames enter their 20s, Viacom's investments are paying off.

Besides shedding its boring cable businesses, Viacom intends to fulfil Wall Street's expectations by creating products for the new media marketplace. To that end, a year ago Redstone and Biondi created Viacom Interactive Media, a division charged with exploring and re-creating brands for new forms of media. Viacom Interactive Media consists of two branches, Viacom New Media (CD-ROM and cartridge titles), formed two years before, and Viacom Interactive Services (online and interactive TV). The logical candidate to head that group was Ed Horowitz, a man universally applauded in the media business for his savvy, no-nonsense approach to creating entertainment products. "Ed has been in the new media business before, it just wasn't called that back then," points out Jeff Berg, chairman and CEO at International Creative Management in Beverly Hills. "He knows the value of electronic publishing."

Viacom has always been a new media company, and its key executives have constantly focused on how technology forces sea changes in business. "Back in 1987, I saw a vast technological and global revolution that would change the habits of people all over the world, and I saw Viacom at the centre of it," Chairman Sumner Redstone recently told Time magazine. Hiring the HBO team - Frank Biondi as helmsman and Ed Horowitz as navigator - may have been the smartest move he's made. They swung Viacom's tack directly into the winds of new media.

"Most of what we've done here really comes out of the partnership that Eddie and I have around technology, and what it means for the business environment," says Biondi, a broad and deep business thinker who can correlate the launch cost of a Galaxy One commercial satellite against the per-mile expense of installing fibre to the home. "Almost every step we've taken is a direct derivative of that attitude: tracking technology as opposed to breaking technology."

Since Horowitz and Biondi have been through the thickets of hardware-based business before, you won't find an albatross like Time Warner's Orlando trial hanging around Viacom's neck (nor will you find suspended orders for millions of set-top boxes, which several media companies now face). In fact, Viacom is selling its modest interactive trial in Castro Valley, California, along with the rest of its cable plant, to a partnership sponsored in part by TCI's John Malone.

"If you look at the media landscape," says Chris Dixon, analyst with PaineWebber in New York, "Viacom is the only entertainment company that can take free capital and invest it back into content that is platform neutral - and take advantage of brands. At Time Warner any spare dollars are going into building out that cable plant."

The Viacom Heuristics

Created by CBS in 1971 when FCC rules mandated that broadcast networks divest themselves of all cable holdings, even Viacom's oddly onomatopoeic name is rooted in a pedestrian acronym: It's Vi-A-Com, for Video and Audio Communications. "The irony is how much it's actually lived up to that acronym," Biondi says.

Back in the '70s and early '80s, Viacom was anything but a content factory. It was, in fact, a plodding cable company that gradually acquired media properties - mostly television stations and cable systems at first. It also dabbled in network and cable television production (Nickelodeon, originally formed in 1979, is Viacom's most successful in-house brand). Most employees who can remember as far back as 1987 call the pre-Redstone company the "Old Viacom", a time when an institutional humidity kept the pace slow.

Today Viacom's corporate headquarters cover close to a million-square-feet of formidable Manhattan skyscraper at 1515 Broadway, in the heart of Times Square. While Viacom's tentacles reach to Florida (Blockbuster), Los Angeles (Paramount), Chicago (studios for Viacom New Media, which subsumed ICOM Simulations), and across the world, Viacom is centred here, in New York, where America takes its own cultural pulse. It is here that Tom Jones, Sheryl Crow and Snoop Doggy Dog come to pay tribute to MTV's cameras, often doing stand-ups from Viacom's 7th floor commissary, known as The Lodge.

Twenty-one floors above, in richly carpeted offices more reminiscent of lawyers' offices than of a creative hotbed for America's youth, is what one media analyst calls "the single smartest group of executives under one roof." They are plotting the next phase of the media revolution. Below, in offices which define corporate hip (Viacom let MTV and Nickelodeon design their own workplaces, as long as they didn't spend more money than the corporate offices did), producers, writers and animators carry out that revolution.

Redstone's reign has been a time of heady growth. His 1987 arrival brought a shot of vigour to the company. It coincided with the ascendancy of a certain generation of kids who were used to alternating Liquid Television clips with Sega Genesis riffs, who had watched enough MTV to work at MTV, be on MTV, or simply appreciate MTV for what it is: their brand of television. As Biondi likes to point out, by 1993, MTV Networks generated more operating profit than the network operations of CBS, ABC and NBC combined.

Viacom's initial dabblings in new media were cautious: instead of shovelling whatever content Viacom had onto a CD-ROM, Viacom New Media president Michele DiLorenzo, a Nickelodeon and MTV veteran, opted to study the market for a year or so and allow products to develop organically from Viacom's business units. The first full slate of 12 titles hit the market in Christmas '94. Combined with products picked up in the Paramount deal, Viacom New Media is already in year two with 18 titles on the shelf, an impressive feat for any start-up. And much more is planned, as Viacom turns the lessons learned from making CD-ROMs into products that will eventually live on the Net and in your living room.

To focus on this task, Horowitz turned to Geoffrey Darby, a whiz-kid Nickelodeon programmer (he had left Viacom to become president of programming at the doomed Medical News Network), to lead Viacom Interactive Services. Darby, who returned to Viacom last August, was charged with divining the future of interactive services, be they based on the TV or the PC, and hitching that future to Viacom's businesses.

Darby, who like many of Viacom's executives gives off an air of professionally contained exuberance, called his new position "quite a sandbox to play in." After studying his market, Darby decided to close down Paramount's fabled Media Kitchen in Palo Alto, California and integrate its resources directly into each of Viacom's business units. Instead of running a separate R&D unit, Darby decided to create an internal consulting unit that supports company wide new product development. That way, the creator and holder of the brand (MTV, Nickelodeon, Paramount) would remain in control of the interactive product.

Such a move spurred a predictable backlash from some new media quarters - betrayal, muttered cynics, corporate abandonment of pure new media research! But Darby's decision was completely in line with one of several tangible business strategies employed at Viacom. Stare long enough, and some striking patterns of success begin to emerge from Viacom's seemingly inscrutable mass of brands.

Focus on the Brand

Darby's decision to fold interactivity into each business unit, rather than reinvent the wheel in a separate "interactive division", reflects one of several distinctive Viacom strategies. Strategy number one is to build the business around the brand, not the technology. "MTV is in the best position to figure out what interactive MTV will look like," Darby says. "The people who are closest to the creative product are the people who should do the work. There are a lot of creative people at MTV who know their audience. We should leverage those people's knowledge. Same for Star Trek, Nickelodeon - whatever."

The mission of Darby and DiLorenzo, in fact, is to weave interactive production methods and technology know-how directly into Viacom's existing brands and into the people who create and manage them. Each Viacom New Media title that is based on a brand, such as Nickelodeon's Are You Afraid of the Dark series, has several "borrowed" employees from the unit that supplied the brand. "We have the producers from the networks working on these experiences," DiLorenzo explains. "We get two benefits: We get a product in the short term that has greater integrity. In the long term, the networks are getting that learning."

Live the Duality

Strategy number two: the ability to chant a creative mantra to a bottom-line beat. Among 15 or so executives, not one varied in their commitment to two traditionally conflicting standards: first, that products must arise from creative passion, and second, that a product doesn't get made if the spreadsheets don't add up. "Everything that gets done here is going to eventually be a business," says Sueann Ambron, a former VP of Paramount's Media Kitchen who is now executive vice president of Viacom Interactive Services.

Making last year's top-selling Beavis and Butt-head videogame, for example, was a business no-brainer. But MTV's Club Dead, an experimental CD-ROM game created with the help of the media wizards at H-Gun Labs in Chicago, was much more of a creative risk (and the jury is still out on whether it was well received by the finicky MTV marketplace).

Both products reflect Viacom New Media's commitment to combining outside talent and in-house management to finish a product. "If you're an independent creative, there is usually a reason why you're an independent creative," explains DiLorenzo. "We're not about trying to change that mindset." Many artists and writers agree with DiLorenzo. Even the stuffy analysts, paid to find fault, sang in a unified chorus about Viacom's management of creative talent. "I can't find anyone who has anything bad to say about the management at Viacom," says Keith Benjamin, a media analyst for Robertson Stephens & Co in San Francisco. "They seem to take a nurturing, hands-off approach to creative. That is extremely rare."

But there are folks willing to knock Viacom's creative management, both on and off the record. One author called Viacom the "stingiest company in the world. They look for nickels under the seat before sitting down for board meetings." Others see Viacom as distant and unappreciative of the creative challenges inherent to new media. Ian Verchere, a producer at Radical Entertainment in Vancouver, helped create Viacom New Media's Sega Genesis version of Beavis and Butt-head under a closely supervised licensing contract. "We were working with some very inexperienced people on Viacom's end," he said.

Culture of Intelligence

Viacom's strategy number three: develop smart people. Brands and creative talent mean little if the people who run them are out to lunch. Ask anyone in the entertainment business what makes Viacom work, and he or she will tick off the names of favourite executives. "In this business, smart, effective people are what's going to make the difference," says Neil Braun, a former Viacom executive who is now president of NBC Television Network. "There is incredible strength on Viacom's team."

These are executives steeped in media history, who have either studied it or lived it, depending on whom you talk to. Van Toffler, senior vice president for business development at MTV, is quick to point out that rock videos existed for 15 years before MTV wove them into the cultural fabric. Geoffrey Darby will remind you that the first cable TV system in the US came online in 1948, and that, 45 years later, only 60 per cent of households have cable. Ed Horowitz notes that no innovation in media has ever penetrated more than 25 per cent of households in less than 10 years. Anne Kreamer, an executive vice president at Nickelodeon, will tell you in no uncertain terms that the present school system is stuck in an industrial model that ignores the crucial learning skills for an information age: problem-solving, planning, and predicting, the "three Ps" upon which Nickelodeon has based its new preschool shows and products. And Frank Biondi will cut to the production and interface issues behind the supposed home-shopping bonanza.

Perhaps the most refreshing trait among Viacom's executives is their apparent mastery of the issues involved in making a real business out of new media: the nitty-gritty of actually delivering interactive services to your living room or den. Take Frank Biondi's verdict on home shopping: At Viacom those who know their markets, succeed. "Viacom has a very focused management team that has been seasoned by living through a leveraged buyout," says PaineWebber's Dixon. "In terms of budgets, they have tight discipline." Tight indeed. Ed Horowitz lays out how he looks at new media, which he calls "the nonlinear environment", with the precision of a business case: "When I look at the non-linear environment from the point of view of a content creator, the first issue I face is, 'How do I divide up this nonlinear environment into usable work plans?'" Horowitz divides that "nonlinear" market into three distinct segments, each with its own problems and potentials.

First are cartridge and CD-ROM titles, a segment beset by platform wars ("we have to develop the same content three or four times," he says), but harbouring enviable growth and the lurking possibility of Donkey Kong-like megahits.

Second is narrowband interactive, the world of the Internet and America Online (AOL). True to his Viacom character, Horowitz sees this venue as worthy because of its growing acceptance into the home. ("If there's several million people using this media service, we'd like access to those users with our content.") But narrowband online is muddled by the lack of a formal architecture, an immature market structure, and the anticipated entry of Microsoft into the mix. Here Viacom's offerings are modest, but with Darby and Sueann Ambron overseeing a suite of unannounced products, much is in the works. MTV is already on AOL (and was the most heavily used area on AOL last summer, according to the executive in charge of the project). Paramount also has a Web site for Trek fans (http://voyager.paramount.com).

Third is broadband interactive, or interactive television, which Horowitz thinks will probably focus more on the television set than the PC, and may end up developing out of networked gaming environments, not the old video-on-demand and home-shopping markets other companies seem to be betting on. This might explain why Viacom, through its new subsidiary Blockbuster, is a major investor in Catapult, a company that is doing just the kind of gaming network Horowitz envisions. It's a classic HBO twist: take an engine - movies for HBO, games for Catapult - and let it drive a service into the home. Once the service is in place, you have access to the most valuable asset in the new media world: venue.

Own the Venue

Buying a stake in Catapult is a minor investment compared with purchasing Blockbuster, or forming another television network, but it reflects Viacom strategy number four: own the venue as well as the brand. Viacom's United Paramount Network is an attempt to outfox the big four networks with yet another collection of syndicated programming, male-focused comedies, and that big brand name, Star Trek. While it sounds like the same-old same-old, when you look at it from the viewpoint of Viacom's general heuristics, it starts to make sense. If major networks are the beachfront property of the information age, as Turner Entertainment's Scott Sassa puts it, then Viacom wants to make sure it gets prime towel space. And if the United Paramount Network craps out, Viacom is now big enough to buy CBS, Viacom's original parent.

Owning the venue is built into Redstone's original business of running movie theatres, which seems ironic given Viacom's new-found focus on content. "We are more interested in owning what's on the screen than owning the hardware that puts it up there," says Horowitz. And while movie theatres and video-rental stores might justifiably be considered "hardware", new media, from television through interactive services, has separated the screen - which now resides in the home - from its distribution network, now called Catapult, UPN, or Blockbuster.

Over at Paramount's Simon & Schuster publishing imprint (merely the second largest collection of printed copyrights in the world), Peter Yunich, president of Simon & Schuster Interactive (which works with Viacom New Media on Simon & Shuster brands) calls it "moving from the physical to the logical page." "The logical page is the ability to deliver content in any form that the consumer wants," Yunich says.

Litigate like hell

Focusing on the content keeps Viacom away from the front line of today's raging infrastructure battles, but it doesn't keep Biondi and company from having very distinct opinions on how that infrastructure should develop. Which leads to strategy number five: identify what you want and fight mercilessly to win it. As a result, Viacom has become a force for open systems in the new media marketplace. "We're really concerned about closed architecture in set-top boxes and in telephone delivery systems," Biondi says, his emphasis resting on the word "closed." In the future, a consumer's access to content may well be funnelled through a proprietary set-top box owned and operated by companies like TCI or Microsoft. Biondi is understandably anxious about how content providers like Viacom fit into that particular game.

"If you design the system and you control access, you really control the keys to the market," Biondi says. This is a familiar pattern to a company that has competed in the trench warfare of cable television. In that world, Viacom has aggressively employed litigation as a method of forcing competitors to back off. At the height of its battle for Paramount, Viacom sued TCI (which was backing Barry Diller's bid for the movie studio), claiming Malone has a stranglehold on the cable industry that threatened to monopolise the information superhighway's development. Biondi now claims that case was a factor in the government's current interest in open access.

It certainly sent a strong message in the insular, deal-driven media industry: don't mess with Viacom's right to get to market. Such a message may ultimately force competition away from the current cable and online model - in which companies compete to slice up and own segments of the market - to a model in which service providers all enjoy access to your living room, and compete purely on the quality of their offerings.

In late autumn, when asked if he had seen prototypes of the Microsoft Network - which Gates had been rumoured to be showing to select industry executives as a means of inviting them into the launch phase of the service - Horowitz had an immediate answer. "I said to Bill, 'I like your vision, but there's only one problem. Microsoft owns it.'"

What bothers Horowitz, though certainly not enough to ignore the business opportunity the Microsoft Network offers, is Microsoft's stated intent to develop its own content on its proprietary network. It's the same problem vexing software companies like WordPerfect or Lotus: Microsoft makes the operating system (Windows) and it makes the applications (Word, Excel). Some claim Microsoft is leveraging the two, creating an unfair playing field for those who don't have access to the proprietary operating system. The question becomes: Will Microsoft do it again in the online world? Horowitz hopes not, but is willing to compete if it turns out that way. "If I had my druthers, Microsoft's (network) operating system would not be proprietary," he says. Regardless, he plans to do business with Bill and Co. "We do content better than they can."

The Future of Interactive

In the meantime, there is work to be done. In the hallways of Viacom New Media, groups of producers, designers, and general media geeks are toying with the concepts that may (or may not) spark the same kind of media revolution that HBO or MTV once did. In one editing booth, a sound engineer toys with an animated program that represents music as an aural journey through a virtual environment, in which the user interacts with a musical lexicon created by the artist. "Form must grow from the artist's intent," states Stephen Gass, who often speaks in looping adages. "The future of interactive music is not a band on the screen with sliders and buttons at the bottom."

In another part of the building, several Nickelodeon employees are drawing on a large whiteboard, sketching out ideas for an environment in which kid-created figures explore, communicate, and make friends with one another. Sound vague? It is, but on purpose. The people behind core Viacom brands have been thinking hard about how their businesses might translate to the online world, and most of what they intend to do falls under the cloak of trade secrecy. "We can hardly wait till the technology catches up to us," says Geraldine Laybourne.

But the managers of two of Viacom's best known brands, Nickelodeon and Nick at Nite, agreed to share at least a broad sketch of what they intend to do. David Vogler, the recently appointed executive producer of Nickelodean Online, created an outline characterising Nickelodeon's interactive goals.

"The world of Nickelodeon Online is similar to the world Alice encounters through the looking glass," the outline reads. "It is an alternate universe, a place that is utterly impossible and complete engaging. It does not share the same logic and points of reference of the everyday world... Nickelodeon Online is a totally enveloping world that playfully subverts the medium ... it is not driven by "educational" guidelines or adult agendas. It's about the things that matter to kids and that immediately affect their world."

And here's what Vogler writes about Nick at Nite's future online space: "The Nick at Nite Online service will be the pre-eminent nerve centre for all aspects of classic TV and pop culture. It is the ultimate theatre, library, clubhouse and meeting place for the millions who have the common bond of 'Good TV.' In a sense, it is the virtual rec room for the TV generation... Nick at Nite Online is also the place for interaction with classic ads, games, music, products, experiences, events, movies and other forms of pop culture."

Viacom executives are secretive about details of their interactive and online plans, but they sound like more than another Web site cluttered with shovelware. Ask Michele DiLorenzo about that online future and she gets almost rhapsodic. "Look at a product like Director's Lab," she points out, referring to one of Viacom New Media's first software applications, a multimedia authoring product that manages to weave drawing, video and audio clips, and text into a friendly, Nickelodeon-like experience that even adults enjoy fiddling with. "You could certainly imagine something similar to that being a piece of this interactive place called Nickelodeon. Nick is about empowering kids. And Nickelodeon's Director's Lab is absolutely the ultimate product for empowering kids. Letting kids know that they should be inquisitive, that they should ask questions, that they should explore, that they have more power than they think, that they're creative..."

I interrupt this litany, struck that Viacom is making tools that are essentially teaching kids to make interactive television. "It sounds like a training tool for the people you want to hire in ten years," I say. "It absolutely is!" she replies.

Can This Be Done?

Back when there was still a Media Kitchen, I stopped by to visit executive vice president Nick Iuppa, who four weeks later was considering whether he wanted to move his family out to New York to comply with Darby's unexpected restructuring. Perhaps in a fit of wishful thinking, Iuppa had compared Viacom to the Ancient Roman Empire. "They were very good at creating autonomous countries that they had taken over. Those countries depended on Rome for protection. Viacom has respect for the identity and structure of each of its operating units."

That was certainly true for Virgin Interactive Entertainment - a mature and respected games business with $120 million in revenues, more than 100 titles across three platforms, and a strong brand name. By all accounts, Biondi plans to leave the company alone with its affiliated studios and excellent distribution network. For the moment.

But a quick dip into the history books reveals that, after a strong run as the centre of the civilised world, the Roman Empire eventually capsized under its own weight. And Viacom certainly carries a heavy load. There's a debt of more than $10 billion - fiscal heartburn from scarfing up Paramount and Blockbuster. As PaineWebber's Dixon puts it: "Any time you are trying to consume three large companies you'll run into a case of the hiccups." The intricate task of inculcating those companies with Viacom's heuristics is a tricky integration process that could deaden the creative assets for which Viacom paid so dearly. "This desire to have their fingers in lots and lots of pies, for extraordinarily high prices, could end up backfiring on them," one media analyst says.

"Right now everyone is running around trying to score synergy points," adds a competing media executive. "The biggest potential stumbling block is that they are so big, the synergy ends up, as at Time Warner, not really being there."

The tension is perhaps most evident at new businesses like Viacom New Media, a small company that could become the next cash and branding machine, à la MTV, but has yet to prove itself against Viacom's bottom-line mentality. The people are in place, the ideas have started to flow, product development is underway. But what if the new ideas don't work out? Are old brands enough? What if someone else gets there first with a better product?

"Two years from now, Viacom New Media could be one of the half dozen largest interactive studios," says Keith Benjamin, the media analyst at Robertson Stephens. But for now, it lost an estimated $6 million in 1994, according to a Bear Stearns analysis. But Bear Stearns also expects a turnaround in 1995, with revenues of $60 million and a profit of $6 million.

Not everyone is sure that will happen. Last year was a bad Christmas for videogames in general and cartridge games in particular. Thanks to a glut of new machines, any one of which could be the next Genesis or the next Commodore, 1995 could be worse. "Viacom New Media came into the cartridge market when it was evaporating," says Gilman Louie, chairman of games giant Spectrum HoloByte. "It's going to take them a few years to learn the business."

Just three weeks after he was installed as president of Viacom Interactive Services, I visited Geoffrey Darby in his office, a stunning corner of Viacom's skyscraper which commands a river-to-river view of Manhattan. Flowers from a well-wisher still adorned a conference table. Yellow roses - for good luck Does he need it? I ask. "I don't think the answers are there yet," he replied. "Which is why everyone wants the answers."

Will Viacom be the company to find them? Darby thinks a moment, considering the size of the job ahead. "Have we figured it out yet? No. Are we going to? You bet."

Darby is almost self-conscious as he makes this prediction, realising that he now speaks for a $30 billion media conglomerate susceptible to institutional malaise, not the scrappy little company he worked for 10 years ago. True, Viacom is big, smart, and it's a tough competitor. But it faces impressive creative and organisational challenges. Certainly, I ask him, one company can't singlehandedly conjure up the future of new media. "Well, I don't think one company in itself can create that kind of critical mass. Although, maybe." Darby smiles, pauses, and does some quick calculations in his head. "Maybe with Blockbuster you can."

John Battelle is Managing Editor of Wired US.