Microsoft, Viacom Ally In Google Ad Assault

December 21, 2007 0

After suing one Google acquisition for $1bn, US media behemoth Viacom has now divorced another, leaping headlong into the arms of Microsoft…

“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…”

New York — Microsoft Corp. won an estimated $500 million, 5-year Internet advertising deal with MTV Networks owner Viacom Inc., giving the software giant a boost against rivals Google Inc. and Yahoo Inc.

“The two companies will partner on the creation and distribution of digital advertising and content and work jointly to promote each other’s products and services.”

The agreement calls for Microsoft and Viacom to work cooperatively on a broad range of digital ventures. Among other things, the partnership calls for Microsoft’s Atlas division to become the exclusive advertising platform for all of Viacom’s U.S. Web sites — which include youth-targeted properties such as MTV.com, ComedyCentral.com, and Paramount Pictures for distribution over its MSN Web sites and Xbox Live online gaming platform.

Microsoft will also be the exclusive seller in the U.S. of remnant display advertising, which is ad space that Viacom has been unable to sell, company executives said on Wednesday.

“The deal is worth about $500 million, the companies said.”

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.

Microsoft further said that it plans to buy advertising space on Viacom’s broadcast and online networks over the agreement’s lifespan and work jointly with Viacom to create promotions for the MTV and BET Networks.

Viacom president and CEO Philippe Dauman in a statement called the deal “a novel and comprehensive partnership that demonstrates the scale of our digital operation and the value of our branded content across all distribution platforms.”

Microsoft Platforms & Services division president Kevin Johnson, also in a statement, said the agreement will help Microsoft’s “quest to build a world-class advertising platform.”

“We are very impressed with how closely Microsoft’s business plans complement our strategic objectives,” Dauman said.

The deal marks the latest effort by Microsoft to establish a bigger footprint in the fast growing digital advertising and content markets. 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.

The deal replaces online ad firm DoubleClick, whose services Viacom currently employs among other partners.

“Back in March, Viacom slapped a $1bn copyright infringement lawsuit on YouTube, and as lawyers continue to bicker about whether Google is responsible for Viacom-owned clips posted to the world’s most popular video site, the media giant has yanked its ad dollars out from under DoubleClick and spilled them onto Microsoft.”

DoubleClick, of course, is the online ad firm Google agreed to acquire back in April. The US Federal Trade Commission and the European Union are still investigating the $3.1bn acquisition, but according to Bloomberg, the FTC is set to rubber stamp the deal any day now.

The broad agreement involves Viacom’s online games, television shows and films. Microsoft will license long- and short-form television and movies from Viacom for Microsoft’s MSN Internet network and its Xbox 360 game system’s online network.

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.

Landing Viacom is a major victory for Microsoft’s acquisition-driven Internet advertising strategy. It is not surprising to see Viacom partner with a firm other than Google, however.

“The Redmond software titan won the Atlas AdManager graphical ad serving technology when it acquired aQuantive for $6 billion last summer.”

The deal is seen as a coup for Microsoft’s Atlas advertising platform as it makes inroads against Google Inc. and Yahoo Inc. in the overall online advertising business, which Microsoft has estimated at $80 billion by 2010.

“Each company has raced to purchase new advertising businesses and lock in exclusive agreements.”

Yahoo signed a deal in April with Viacom to provide search advertising for 33 of its Web sites, which remains in place. Viacom’s properties include the Paramount movie studio, and MTV and Comedy Central cable television networks.

In October, Microsoft sealed the exclusive rights to sell ads outside of the United States for Facebook, and it also purchased a small stake in the popular Internet social network.

This is the third big ad win for Microsoft and Atlas in recent weeks, after high-profile deals with CNBC.com and Digg. Having oozed $6bn in cash for aQuantive – yes, $6bn in cash – Redmond is nothing less than serious about this internet ad thing.

About 50 Web publishers have signed on to use Microsoft’s ad platform since it announced the aQuantive deal in May, said Johnson. “This deal is another milestone in our quest to build a world-class advertising platform,” he said in a phone interview.

But if the Google-DoubleClick deal goes through — as Bloomberg claims it will — Microsoft will have a mountain to climb. Redmond has vigorously fought the deal, claiming that a marriage between two of the most successful internet advertising operations will hamper market competition and destroy online privacy as we know it.

Indeed, although Microsoft has many irons in the fire when it comes to online advertising, this deal addresses a key strategic area. In order to continue to expand its money-making opportunities in online advertising, and thus continue to grow as a company, Microsoft has to do more than just sell ads on its own sites. “You need to link big publishers with big advertisers,” Matt Rosoff, lead analyst for consumer technologies at researcher Directions on Microsoft, said in a statement.

“Microsoft is really stepping up its advertising efforts,” Enderle Group Principal Analyst Rob Enderle, said in a statement.

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.

“Owning Atlas gave them an instant alternative to DoubleClick,” stated JupiterResearch analyst David Card. “The real target was the advertising agency part of aQuantive.”