Microsoft, Viacom Forge $500M Ad Pact
- by Mark Walsh @markfwal, December 20, 2007
Under the deal, Viacom will license TV and movie content to Microsoft--while the software giant will serve display ads on Viacom's entertainment sites including MTV.com via its Atlas advertising platform. Microsoft also gains the exclusive right to handle Viacom's remnant display ad inventory.
The wide-ranging alliance will allow Microsoft to use content from MTV and BET shows and Paramount Pictures films in properties such as MSN.com and the Xbox 360 game system. Viacom will also work with Microsoft to develop downloadable casual games on MSN and Windows.
Financial terms of the deal were not disclosed, but the companies said it includes a "combination of revenue-sharing provisions, guarantees and content licensing agreements" amounting to at least $500 million.
The deal strikes a blow to DoubleClick--whose DART ad-serving technology is being replaced by Atlas AdManager, which Microsoft acquired through its $6 billion purchase of ad services company aQuantive in August.
It also represents a corporate tag-team play by Microsoft and Viacom against Google, which is poised to acquire DoubleClick for $3.1 billion pending approval by federal and European authorities. Viacom, meanwhile, is pursuing a $1 billion copyright suit against Google over unauthorized clips posted on YouTube.
For Microsoft, the deal represents further tangible payoff from its expensive aQuantive acquisition, and another step in its effort to become a major player in online advertising. Earlier this year, Microsoft CEO Steven Ballmer said the company plans to derive 25% of its total revenues from digital advertising within a few years.
In October, Microsoft gained exclusive rights to sell advertising on Facebook outside the United States in exchange for a $240 million investment in the hot social networking site. In its most recent quarterly earnings released that same month, Microsoft said its online services unit grew 25% to $671 million, but its revenues amounted to less than 6% of Microsoft's quarterly sales.
"This deal is another milestone in our quest to build a world-class advertising platform to serve the broad needs of advertisers and publishers," said Kevin Johnson, president of Microsoft's platforms and services division, in a statement. The company's ad platform has picked up about 50 Web publishers since the aQuantive deal was first announced in May.
Without knowing more about the financial details of the Viacom deal, analysts said its full impact was still difficult to assess. "It does help Microsoft in their quest to compete more head-on with Google, but it really is too early to determine just how meaningful it is in the long run," said Tim Bajarin, president of technology consulting firm Creative Strategies Inc.
He added that Microsoft would need to line up more agreements like that with Viacom to truly challenge Google in online advertising.
From Viacom's side, the pact provides yet another avenue of digital distribution that doesn't include YouTube. Viacom has lately shown increasing interest in expanding into video gaming, where Microsoft would be a powerful partner. Microsoft already distributes some Viacom content through its Xbox Live Marketplace.
Viacom on Wednesday also announced a high-profile deal with Hollywood producer Jerry Bruckheimer to develop video games across various MTV platforms. The Bruckheimer pact is the latest in a flurry of digital deals that MTV has disclosed this month, including an investment in video site GoFish and a plan to syndicate clips through AOL Video.
MTV last week also launched a new advertising division called Digital Fusion, designed to centralize marketing efforts for its portfolio of more than 300 disparate sites.
More Viacom sites are on the way. Through their deal, Microsoft and Viacom also plan to create co-branded sites for events such as the MTV Video Music Awards and BET Awards, and share ad revenue generated by the sites.
