Viacom, Microsoft Strike 5-Year, $500M Ad Deal

Mutual Respect of Copyright Provides 'Good Foundation' for Partnership

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NEW YORK (AdAge.com) -- Microsoft CEO Steve Ballmer and Viacom CEO Philippe Dauman have been two of the most bullish media magnates this year when it comes to aggressive digital-revenue strategies. So it's only fitting that the two teamed up today for a multiyear digital content and advertising partnership in which Microsoft's and Viacom's media properties will collaborate on advertising, content distribution, event promotions and games.
Philippe Dauman and Steve Ballmer
Philippe Dauman and Steve Ballmer

The five-year deal, valued at $500 million, will include Microsoft's Atlas ad platform acting as the ad server for Viacom's U.S. websites, for which Microsoft will have the exclusive right to sell remnant display ad inventory.

Network ad buys
Additionally, Microsoft will buy ads on Viacom's cable and online networks (including MTV, VH1, Comedy Central, BET and Paramount Pictures) and partner on monetizing the MTV and BET networks award shows; Viacom, meanwhile, will become a preferred publisher partner across Microsoft's casual-gaming platforms.

In a phone interview this morning, Kevin Johnson, Microsoft's president-platform and services, said, "The shift to digital consumption of media is driving this shift in media. Our commitment and our investment in technology and [research and development] to build this world-class ad platform is core to that strategy."

Mr. Dauman added that Viacom's digital properties, which doubled revenue in 2007 to $500 million, have reached the scale to build on the increased functionality and traffic those properties are starting to attain globally. The Microsoft deal, he said, "shows how far we have come. It shows the value of our content and the value of our brands in the online world."

If there was any under-rated aspect of the deal, he said, it's that "people miss how broad based this is. This is a very important announcement. In our view, it will be the foundation for lots of cooperation across the world. It will allow us to tap, on our end, Microsoft's vast resources."

Controlling content online
Viacom has been notorious in its efforts to control its own content online, slapping Google with a $1 billion lawsuit over the illegal streaming of its content on YouTube. At one point prior to the lawsuit, Google had dangled a guarantee of $500 million in ad revenue over several years. Mr. Dauman would not confirm those terms, but said, "For me and for our company this does not relate to Google or anyone but our finding in Microsoft a compatible partner. The scope of this agreement is much broader than some of [those] issues. ... Microsoft has a view of the world, a respect of copyright and intellectual property that's a good foundation for us in a partnership."

In 2008, online advertising spending is expected to reach $27.5 billion. Video advertising (which will accompany all that Viacom TV content) is the fastest-growing online ad format, jumping 74% in 2008 over 2007. Video advertising spending is expected to be $1.4 billion in 2008, growing to $4.3 billion in 2011.

Earlier this week, Viacom also announced a content-distribution deal with AOL, so Mr. Dauman remains open to partnering with all the major portals. "We're looking to distribute our content through as many platforms as possible in a way that's consistent with our business."

Boosting Atlas' scale and reach
Mr. Ballmer hinted at his ambitions in a Q&A with Ad Age at this year's Association of National Advertisers conference, where he said his goal was to make Microsoft "an advertising powerhouse." Microsoft trails Google and AOL in online ad revenues, but the Atlas-Viacom partnership gives MSN an opportunity to rival AOL's Advertising.com ad network -- the web's largest, according to ComScore -- and Google's Ad Sense by using a content play to increase its scale and reach.

"We have all the pieces we need to succeed," he told Ad Age at the ANA. "We have strong audience assets, including a network of digital media properties such as MSN, Xbox Live, Windows Live and Office Live that are visited by more than 500 million unique users every month. And with the recent acquisition of aQuantive, we have the tools and services to deliver breakthrough digital advertising solutions."

Mr. Johnson said discussions between Viacom and Microsoft had been active for years. He and Mr. Dauman conferred this year during Advertising Week and spent a lot of time with advertisers to gauge their interest in the strategy. Mr. Dauman said of the talks: "It was a great meeting. We were scheduled to meet for a half hour but it kept going. We had some isolated conversations on certain components and then we started talking about we can take this to a bigger place. We found each other on personal and company strategy standpoints to be very compatible."
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