(FORTUNE Magazine) – Seen from afar--say, from the executive suites atop Viacom's building in Times Square or NBC's Rockefeller Center headquarters or Disney's base camp in Burbank--India looks like a great place to be in the television business. More than one billion people live in India, and while most remain poor, the middle class is expanding rapidly. The economy grew by 8% last year; advertising grew faster. Consumers are getting their first credit cards and buying mobile phones, motor scooters, CD players, and of course TV sets. What's more, unlike China, where the central government tightly controls television and print, India enjoys a robust democracy, a boisterous press, and a vibrant film and music industry. So it's no surprise that every one of the global entertainment giants, whose businesses are maturing in the U.S. and in Western Europe, have journeyed to India--and to the rest of Asia--in search of growth.

What they have found upon arrival is a media landscape unlike any other--as noisy, chaotic, overcrowded, and impossible to navigate, at least for a stranger, as the streets of Mumbai, the nation's entertainment capital. Here the past, present, and future live side by side: Shiny new Mercedes swerve around the three-wheeled taxis powered by motorcycle engines and known as autorickshaws, whose drivers honk impatiently at men pulling ancient wooden carts piled high with mangoes and bananas. Roadside billboards advertise reality TV shows (The Search for India's Smartest Kid) and cable networks (cricket coverage on ESPN). You can almost see money being made. But each time my taxi stops at a traffic light, scrawny children cluster at the windows, tapping on the glass and pointing at their mouths, begging for money to buy something to eat.

I've come to Mumbai to see MTV India. Why MTV? Two reasons: first, because MTV has been doing business here since 1991, before most of its competitors arrived; second, because MTV has done better than any other global TV network--better than CNN or anything owned by Rupert Murdoch--at spreading its brand and programs into every nook and cranny of the globe. MTV Networks, a division of Viacom, operates 72 international channels, including versions of Nickelodeon and VH1, that reach 321 million homes in Europe, Asia, Latin America, Canada, and Australia, and generate nearly $1 billion in annual revenues from outside the U.S. If any global TV company could figure out how to build a business in India, MTV could.

And in fact, MTV India has built a business. It's just not a big business--not yet anyway--and therein lies a cautionary tale about operating in unfamiliar territory. Yes, the company figured out quickly that it couldn't simply blast its American programming at Indian teenagers, who don't like rock or rap music--and who were utterly mystified by The Osbournes. MTV knew it had to tailor operations to fit the market. But that has proven to be harder than it looks.

And it's not just a programming puzzle. India's freewheeling cable TV industry, it turns out, has too many channels chasing too few advertising dollars: The cable advertising market today amounts to about $600 million a year, which is divided among more than 100 channels. Prying revenue out of cable subscribers is hard too--customers pay only about $3 a month for cable, leaving pennies, if that, for the networks. Finally, because most families own just one TV set, they tend to watch TV together, which means that MTV India has to compete with news, sports, and entertainment channels. India's top-rated TV show--a soap opera on Star Plus, a network owned by Murdoch--generates ratings that dwarf anything on MTV. Who would have thought that one of the world's strongest brands would get crushed by Kyonki Saas Bhi Kabhi Bahu Thi, which means "The Mother-in-Law Was the Daughter-in-Law Once"?

Alex Kuruvilla, MTV's top man in Mumbai, is not deterred by any of that. Doing business in the developing world requires enormous patience, he tells me. There's an art to refashioning products made in the U.S. to suit local tastes. He learned that when he helped bring corn flakes to India.

A warm, outgoing 44-year-old, Kuruvilla, the son of an Indian air force officer, attended elite schools. He got into advertising, took a year off to backpack around Europe and the U.S., and then in the mid-1990s found himself working as an account executive at J. Walter Thompson in Mumbai when Kellogg introduced its corn flakes to the subcontinent. Traditional Indian breakfasts, it turns out, share four qualities: They are hot, fresh, savory, and cheap. (One popular dish: dalia, a thick soup of lentils, rice, wheat, peas, and onion, seasoned with chili powder.) "The Kellogg company came in with almost a missionary zeal for the idea that every Indian household should have a bowl of corn flakes on the table," recalls Kuruvilla. "But the whole concept of cold and crispy was foreign to us." When Indian women could be persuaded to try corn flakes, they boiled milk before adding it to the cereal because they were accustomed to pasteurizing fresh milk from cows; pouring hot milk onto Kellogg's "crunchy flakes of golden corn" created an unappetizing mush.

The Kellogg story had a happy ending. The company subsequently introduced wheat and rice cereals, as well as hot cereals with chocolate, strawberry, and honey flavors that are tailored for the local palate. Middle-class consumers got to know the Kellogg brand. Habits changed, and the company even sold a few boxes of corn flakes as well. "They adapted very, very quickly," Kuruvilla says. "The mistake a lot of multinationals have made here is looking at the size of the middle class, multiplying by x number of boxes per person or whatever, and seeing a business that looks enormous--until they discover, to their horror, that you have to do things differently. You need to reflect the local culture."

Indeed, one country's MTV looks very little like another's. Bill Roedy, the globetrotting president of MTV Networks International, says, "MTV India is very colorful, self-effacing, full of humor, a lot of street culture. China's is about family values, nurturing, a lot of love songs. In Indonesia, with our largest Islamic population, there's a call to prayer five times a day on the channel. Brazil is very sexy. Italy is stylish, elegant, with food shows because of the love of food there. Japan's very techie, a lot of wireless product." Of the 2,500 or so people who work for MTV International, fewer than 10% are Americans.

What MTV exports is a global brand, a culture driven by creativity and a handful of big events, like its annual Video Music Awards, that cross boundaries. (The conventional wisdom among antiglobalists--that America is shoving Britney Spears and Big Macs down people's throats everywhere--is neither supported by evidence nor respectful of the fact that people in the developing world decide for themselves what they want to consume.) The trouble is, once you decide, as MTV has, to build dozens of original channels, each with local programs and staffs, the economies of scale enjoyed by the global media giants dwindle. Still, every big media company--News Corp., Disney, Sony, Time Warner, Discovery Communications, and NBC--has jumped into the global game. Disney is about to launch its Disney Channel in India. One morning in Mumbai, I got on the treadmill at 8 A.M., flipped on the TV, and there was CNBC's Kudlow & Cramer. The media giants are jostling up against numerous local players as well. The point is, the global television business is just a whole lot tougher than the business in the U.S. because the TV markets are either smaller (any country in Europe or Latin America) or less mature (all of Asia), or more competitive (everywhere). Does this business make sense? That's what I went to India to find out.

Before leaving, I went to see Tom Freston, the well-traveled former CEO of MTV Networks and architect of its global strategy. "India is the most exhilarating country in the world, I find," he told me. Freston, 58, who was recently named co-president of Viacom, has made about a dozen trips to India for MTV. "It's so filled with surprise and wonder and excitement and chaos and commotion and, obviously, contrasts. Half the people live on a couple hundred dollars a year, and then you go out at night and see guys wearing fancy suits, talking on cellphones, and driving BMWs."

Freston knows the territory. He lived in South Asia during the 1970s, dividing his time between New Delhi and Kabul, where he ran a business that made women's clothes for export. Back then the state-controlled Indian economy was a shambles. "You had to wait weeks and weeks to get a phone, and then when you got one, it never worked," he recalls. Since then, free-market reforms have made India one of the fastest-growing economies in the world. In the meantime cable has become one of India's most dynamic businesses, with the number of subscribers growing about 20% a year and ad revenues increasing about 10% annually, albeit from a small base.

CNN's coverage of the 1991 Persian Gulf war got the industry off the ground. Indians cared about the war--many had friends or relatives in the Middle East--but Doordarshan, the dreary, state-owned broadcast network that monopolized TV, provided limited coverage. Smalltime entrepreneurs sensed opportunity. "They bought dishes, set up rudimentary cable head-ends in the garages of their homes or apartment blocks, and flung cable over buildings to offer services to neighboring apartment blocks, gradually upgrading their networks as they went along," says Anil Wanvari, founder and CEO of Indian Television Dot Com. Anyone could become a cable operator. Right about then, Star TV, a Hong Kong--based satellite platform founded by Hong Kong businessman Richard Li, began to deliver news, sports, and entertainment networks to all of Asia. "Star was really the catalyst," Freston says. "It was a total sensation."

A cable boom ensued. In India, where the government-owned phone company needed 50 years to hook up eight million lines, many thousands of unregulated and fiercely competitive "cable wallahs" needed just five years to sign up their first 16 million subscribers. While industry statistics are unreliable, for reasons we'll explain, today there are said to be about 25,000 cable operators in India. Before a wave of consolidation, there were supposedly 50,000. They serve some 50 million subscribers, about half of all homes with TV.

Cable in India is mostly a cash business. It can be a nasty business, too, plagued by piracy, cable cutting, and worse. Several years ago a gang in the state of Kerala set fire to the office of a cable operator, immolating two workers. Until recently most cable networks did not even try to collect subscriber fees from the cable wallahs. "Let me put it this way," says Kuruvilla, "the kind of people associated with the business were not necessarily the most upright citizens." Even now most cable operators pay fees to networks for only a fraction of the customers they serve; they simply underreport their numbers. Still, people in the business say the Wild East atmosphere has been preferable to the alternative--regulation by the stifling Indian bureaucracy. "Thank goodness for the chaos," says Wanvari, whose company promotes and analyzes Indian TV. "Had the government interfered, this industry never would have progressed. Never."

MTV got into India early by licensing a music channel designed for all of Asia to Star, which sold the ads, dealt with the cable wallahs, and shared the revenue with MTV. That was a low-risk strategy that backfired. When News Corp. bought Star in 1993, MTV decided to go it alone--it didn't want to depend on Murdoch. In response, Murdoch's people hired MTV staffers to start an Indian music channel called [V], with a logo resembling MTV's. "It was an ugly divorce," says Freston. To maintain a presence in India, MTV bought blocks of time during fringe hours on Doordarshan. But because the Indian market was still small, MTV continued to deliver a pan-Asian product, with English-speaking veejays and Western music. "MTV, when it first entered the country, made the mistake of coming in as MTV. No changes," says Divya Gupta, president of the Media Edge, one of India's big media buyers. "They didn't go anywhere." Not until 1996 did MTV open offices in Mumbai and launch its own 24-hour channel, designed for Indian audiences and able to compete with Murdoch's [V]. The new veejays spoke Hinglish, a mix of English and Hindi, and global pop music gave way to the songs of Bollywood, a cultural force that unites much of India.

"The only sustainable way to build a business is to drive down deep into the culture," says Roedy, who has run MTV's international operations since 1989. A West Point graduate and Harvard MBA, Roedy did a tour of duty in Vietnam and managed a NATO nuclear missile base in Italy before joining MTV. He recalls traveling in Europe after taking the job, seeing reruns of The Beverly Hillbillies and knowing they couldn't last.

In India, MTV gradually overtook [V] to become India's top-rated music channel. The channel embraced Bollywood and launched a nationwide hunt for new veejays. (One winner was a former Miss India.) It tapped into young people's passions for cricket and fashion. Most important, it came up with a few hits, notably MTV Bakra--the word means "goat" in Hindi--an Indian-style Candid Camera in which the host, Cyrus Broacha, plays gags on unsuspecting people. So popular is Bakra that friends of Bollywood stars or famous cricket players often contact MTV to ask Broacha to play a bakra on the celebrity. (Recently MTV tricked India's top cricketer, Rahul Dravid, into thinking that he was getting a marriage proposal during a film shoot for a Pepsi ad.) Broacha, who has both a goofy and a sober persona, has become the most famous face of MTV India; he interviewed Bill Gates when the Microsoft chairman wanted to speak to India's young people about AIDS. Says media buyer Divya Gupta: "Their content is now completely tailored to Indian youth."

That's the good news. The problem is that being the No. 1 music channel isn't a big enough business to suit MTV. MTV is one of many national music channels, and it competes as well with regional music channels aimed at viewers who speak Tamil, Telegu, and Punjabi. India isn't one market but many, and as a result MTV may start or buy its own regional channels to reach viewers who don't speak Hindi. "It's a very, very fragmented media market across all genres, especially music," Kuruvilla says. With so many sellers of commercials, MTV cannot command premium prices for advertising, even on its popular shows. Media buyers say that a prime-time 30-second spot on MTV typically sells for roughly 8,000 to 11,500 rupees, or about $175 to $250. Daytime spots are even cheaper.

By comparison, commercials on the top-rated shows on Murdoch's Star TV, which delivers nine cable channels to India, sell for as much as $20,000. Its Star Plus channel, a general entertainment network, became the dominant No. 1 several years ago after it developed an Indian version of Who Wants to Be a Millionaire, hosted by Amitabh Bachan, a legendary Bollywood star. "That really was a turning point," says Peter Mukerjea, the chief executive of Star India. In one recent week Star Plus had all the top ten shows, led by Kyonki, a traditional family soap opera about the tensions between a mother-in-law and daughter-in-law, a perennial source of stories and jokes in India. Star's most formidable challenger is Sony Entertainment Television, which owns two Indian channels and distributes six others, including HBO and Discovery. Its most noteworthy success is a more contemporary soap about a career woman, called Jassi Jaissi Koi Nahin, or "There Is No One Like Jassi." The Sony show, about a bumbling but likable young girl trying to succeed in the fashion industry, taps into the aspirations and optimism felt by many young Indian women. "We think we have the right pulse for the long run," says Kunal Dasgupta, chairman of Sony Entertainment Television India.

The popularity of Star and Sony makes it hard for MTV to attract viewers, because India is still the kind of place where families tend to gather around the TV set. "The surfing option, the zapping option is pretty limited," says R. Gowthaman, general manager of Mindshare, India's biggest media buyer. Because most young viewers watch Kyonki or Jassi, media buyers don't need to advertise on MTV to reach them. "That is actually the single biggest challenge we face as a niche channel," Kuruvilla says. "How do you beat the story of the mass players who can deliver a high number of eyeballs?"

MTV has responded creatively. To go beyond the selling of 30-second spots as commodities, MTV invites advertisers to help it develop new programs. Last year, for example, MTV and Honda came up with a show called Roadies, loosely inspired by the U.S. MTV show Road Rules, that follows four boys and three girls who drive motorbikes across India. (Two-wheelers, as they are called, are selling like crazy to the middle class.) When Unilever wanted to launch a deodorant called Axe, with the theme of "long-lasting freshness," MTV staged what it called the world's longest dance party (55 hours) in a suburb of Delhi, attended by 15,000 people and certified by the Guinness Book of World Records. Other examples: Lycra introduced its brand to India by sponsoring an MTV-style awards show, and the channel designed a show called Web Watch expressly for Microsoft to promote its MSN online network.

Meanwhile, MTV is aiming at a slightly broader and older audience of 15-to 34-year-olds with new programs designed to hold them longer. "Right now the media consumption model for us is snacking," says Kuruvilla. "We want to migrate that audience to more regular appointment viewing every week." Imports don't do the job: The Osbournes flopped, and MTV Grind, a U.S.-based show about spring break, proved too risque and had to be taken off the air. Because soap operas are the most popular genre in India, MTV India recently ordered its first one, Kitni Mast Hai Zindagi ("It's a Beautiful Life"), a 39-episode youth-oriented series from Balaji Telefilms, India's leading TV studio and the maker of Kyonki. This is a departure for a company that mostly produces and owns its programs. Hoping to build anticipation for the new soap, MTV has held open tryouts for the show in more than 100 cities, big and small, across India. About 7,000 people showed up for a Delhi casting call. "This is the biggest audition ever," said Kuruvilla. MTV will produce a six-part reality series about the search for the stars of Kitni.

Because driving ad revenues has been a challenge, MTV has also decided for the first time to try to collect subscriber fees for the network. To that end MTV joined the Sony-backed group of channels known as the One Alliance. "The ability to collect goes up significantly when you go in as a bouquet," Kuruvilla says. Even so, according to Sony's Dasgupta, the company gets paid for only about five million of its 38 to 40 million subscribers, at a rate of about 55 rupees, or $1.20, per subscriber, which must be divided among ten channels. Many cable operators either refuse to pay or undercount their subscriber base. Programmers don't want to turn off their signals because they'll lose viewers and hurt their ability to sell ads. "I look at it very pragmatically," says Dasgupta. "Five years ago we got not a single dollar out of distribution."

So chaotic is India's cable industry that MTV has entered entirely new lines of business to boost its earnings. You can buy MTV-branded fragrances, CDs, and a line of stylish clothing, and pay for them all with a credit card co-branded with Citigroup. In July, MTV announced a big partnership with Tata Indicom, a unit of the $12.8 billion Tata conglomerate, that will include ad buys, sponsorships, and co-branded mobile phones. MTV India also exports some of its programming to cable and satellite operators in Britain, the Middle East, and the Caribbean to reach the Indian diaspora.

All of this, coupled with close attention to costs--a star veejay at MTV India makes about $70,000 a year--has made the channel profitable, albeit on a relatively small base. Revenues are about $25 million a year and profits are "several million dollars," insiders say. That's a blip inside $27-billion-a-year Viacom. MTV's five biggest international markets are Britain, Germany, Italy, Japan, and Brazil. Except for Japan, Asia has been a tough region to crack.

But MTV India isn't built for today or even tomorrow. It's one of a handful of global businesses targeted for investment by Viacom because of their potential. (MTV channels in China, Japan, and Mexico are among the others.) Right now about 25 million homes in India can watch MTV. There's room to grow, given that India has more than 100 million TV homes--and that more than half of India's one billion people are under 25. MTV India is "mostly about the future," Freston says, "but the future looks bright." Cable operators keep signing up new subscribers. Advertising is growing at a double-digit pace. Direct-to-home satellite businesses have been launched. MTV plans to launch additional channels and acquire others to grab a bigger piece of the pie.

MTV International is also doing something Bill Roedy never expected to do when localization became the company mantra: It is centralizing once again. Recently he decided that the company had become too dispersed and that it needed to take better advantage of its scale and creativity. So he created regional and global sales teams to sell ads to multinational companies. "We offer the client one-stop shopping for the entire world," he says. Motorola, for instance, made a three-year, $75 million commitment to buy commercials on MTV in Europe, Latin America, and Asia. Roedy also has put together a think tank of programmers, split between New York City and London, who have come up with about a dozen concepts designed for global consumption.

That sounds like a long shot to me, but it's worth a try. For all the strangeness of India, as I leave MTV's headquarters in Parel, the textile-district-turned-media-center of Mumbai, the place feels oddly familiar. Grey Advertising and Leo Burnett have offices nearby. With their lofts, wide-open spaces, winding staircases, and exposed pipes, MTV's offices could have been airlifted out of New York City's SoHo or Tribeca. Young workers stare at their computers or buzz around a taping of a music countdown show, called MTV Ek, do, teen. And while Alex Kuruvilla thinks about the new Tata deal and the launch of VH1 in India and maybe expanding the MTV brand into Pakistan or Bangladesh, what he wants, above all, is a hit show. "We've got to find our Real World. We've got to find our Osbournes," he says. "We've got to drive our ratings up to the next level." From Bollywood to Hollywood, and everywhere in between, any television executive can relate to that.