In a significant boost for its Internet unit, Microsoft has reached a long-term deal to work with media giant Viacom on content and advertising distribution, an agreement worth an estimated US$500 million.
The partnership calls for Microsoft’s Atlas to become the exclusive advertising platform for all of Viacom’s U.S. Web sites — which include youth-targeted properties such as MTV.com and ComedyCentral.com. The two companies will also collaborate on content distribution, event promotions and gaming.
The two companies did not disclose the financial details of the agreement, but said all the components have a “base value” of $500 million over the first five years. That figure includes the cost of Microsoft licensing Viacom content to distribute to its own MSN family of sites, the advertising revenue to be shared between the companies and the value of the business services such as the co-creation of new Web sites.
“We are very impressed with how closely Microsoft’s business plans complement our strategic objectives,” said Viacom President and CEO Philippe Dauman. “This is a novel and comprehensive partnership that demonstrates the scale of our digital operation and the value of our branded content across all distribution platforms.”
Landing Viacom is a major victory for Microsoft’s acquisition-driven Internet advertising strategy. It took over the Atlas platform earlier this year after integrating its $6 billion purchase of interactive ad agency aQuantive, a move aimed squarely at building the scale needed to compete with market leader Google.
It’s not surprising to see Viacom partner with a firm other than Google, however. The two companies are locked in a $1 billion copyright infringement battle over the use of Viacom content without authorization on Google’s YouTube. In fact, Viacom’s current ad platform partner is DoubleClick, which Google has agreed to purchase in a deal being held up by regulatory review.
The deal does not cover search advertising. Yahoo and Viacom signed a deal in April of this year to cover search ads on 33 of Viacom’s sites, including those in the U.S. and some overseas locations.
In addition to the advertising platform boost, Microsoft gains access to content that it said it will use across MSN and its Xbox 360 gaming platform. Microsoft will also buy ads on some Viacom cable networks and work together to promote certain shows and special events.
Atlas is actually a relatively small part of the overall aQuantive purchase, JupiterResearch analyst David Card told the E-Commerce Times. Of aQuantive’s 2006 revenues, less than 30 percent came from the Atlas unit, he noted.
“Owning Atlas gave them an instant alternative to DoubleClick,” Card said. “The real target was the advertising agency part of aQuantive.”
No Laughing Matter
Viacom’s reach is broad and includes not only cable channels such as Nickelodeon, VH1 and BET, but also the Paramount movie studio.
Some of the content Microsoft will be able to license and integrate with ads is among the most sought-after on the Web, such as video clips of Comedy Central’s “The Daily Show” and “The Colbert Report.”
Viacom has invested heavily in its Web properties in recent years, using its strong youth-friendly brands to drive traffic and building specialized content, such as casual games.
Viacom has also been an early backer of video startup Joost, though it has made it clear it wants to keep as much control over its video content as possible as it sees how the Internet distribution channel will shake out.
Stepping Up the Competition
“Microsoft is really stepping up its advertising efforts,” Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times. Earlier in the month, the company announced a deal to provide ads to MSNBC’s Web sites as well as a major initiative around mobile display advertising.
Microsoft has told investors and analysts to be patient that — over a five-year period — it will be able to make significant headway in its efforts to compete with Google. Partnering with a Google foe such as Viacom — and taking away a DoubleClick account at the same time — represents a step in that direction.
“They have definitely started to take the level up a notch,” Enderle added.