Casualties mount as digital cools off

As Viacom carries out what it says is a painful but necessary reduction of staffers across its ranks, the question arises: Just what’s driving the change?

It’s no secret that MTV Networks — and the flagship MTV in particular — has been in something of a ratings lull.

The net has been unable to break out many new hits lately. “Laguna Beach” spinoff “The Hills” has averaged only about 1.9 million viewers so far this season, and other series such as “Engaged and Underage” and “Bam’s Unholy Union” routinely average just over 1 million. Even steady vet “The Real World” has shown slippage.

MTV has gone through peaks and valleys before, but without so radical a makeover.

This time, though, a few things are different.

The cable-advertising train, which has been streamrolling forward over the past few years, seems to be slowing down.

MTV itself was a major beneficiary of this ride over the last five years with programs such as “The Osbournes.” But cash flow at the net has dwindled from 18% in 2003 to about half that this year, according to Kagan Research estimates.

Perhaps even more critical, the euphoria that came with the growth of digital is over. “This isn’t the rip-roaring ’90s anymore,” says one insider.

Back in the ’90s and earlier this decade, the advent of digital cable systems was essentially an open invitation for cable nets to create spinoff nets. They did, bundling them as part of their long-term deals with operators.

But for viewers, the digital menu is getting crowded, which has led to mediocre ratings and made the idea of spinoffs less attractive.

It’s no accident, then, that the highest-profile casualties of the MTVN cutbacks are spinoff nets such as VH1 Classic, MTV2 and MTV World.

Each capitalized on the digital revolution to take the net back to formats it had vacated.

In VH1 Classic’s case, that meant the nostalgia VH1 peddled before it got seriously into the reality game. For MTV2, it was a return to music and musicvideos reminiscent of the net’s early days.

And MTV World, which was comprised of Korea-, India- and China-themed nets, was about a mix of global cool with indigenous culture.

With ad money at the weaker spinoff nets on the decline — and, perhaps, cable operators questioning the fees they pay to poorer performers — those nets are less of a priority. They won’t be folded, but MTVN is reducing its investment in them.

“The premium distribution model for MTV World proved more challenging than we anticipated in this competitive environment,” the company acknowledged in a statement.

In a neat bit of symmetry, MTVN does hope to try to distribute some of the content from spinoff nets using a different sort of digital — online, mobile and video-on-demand, all of which the company believes can be important new platforms and revenue-drivers.

“To keep winning in this revolutionary environment, we have to refine our business and organizational models as well,” MTVN topper Judy McGrath said in a memo.

There are more personal reasons for the MTVN streamlining as well.

When Tom Freston was in charge — first at MTV, then as CEO of the newly configured Viacom in 2006 — the goal was always decentralization.

Freston was famous for setting up different camps and giving each access to resources. The vibe at the company was not unlike that of a newsroom: Give each network a big budget and plenty of resources, and the competition between the various camps ensures great programming will emerge.

While the layoffs are not specifically the after-effect of Freston’s departure — he was replaced way back in September — they may be happening, in part, because of his absence.

Under new Viacom CEO Philippe Dauman, one priority is economic efficiency. That means if the spinoffs can be run by, say, execs at MTV and VH1, they will be.

McGrath and other MTVN brass last week used the buzzword “centralization” –that is, let execs at the flagship not only find the hits but program the spinoffs.

MTVN was steadfast last week that the spinoffs would continue to function even with a reduced dedicated staff. “It’s not like they had that many people there in the first place,” one observer pointed out.

Which means that as changes on those nets set in, viewers who say they want their MTV World may have to settle for their MTV instead.

Follow @Variety on Twitter for breaking news, reviews and more