Microsoft, Viacom Ink Ad Deal

By Benjamin J. Romano, Seattle Times

Dec. 20–The half-billion dollar deal that Microsoft announced Wednesday with media-giant Viacom is a sign that its online advertising and content distribution offerings are mature enough to land the big fish.

The five-year, multifaceted agreement has Microsoft serving digital ads across Viacom’s Web sites such as MTV and Comedy Central. Meanwhile, Microsoft gets more nonexclusive Viacom content to distribute through its own Xbox Live and MSN channels, and agrees to continue buying advertising for its own products from Viacom.

Viacom will use Atlas — a technology that Microsoft got as part of its $6 billion acquisition of Seattle-based aQuantive earlier this year — to manage the placement of ads on its U.S. Web properties. That function was performed by DoubleClick, the ad-serving company that Google is buying, pending a thorny regulatory review process.

“That’s an important reference win for Microsoft,” said Matt Rosoff, an analyst at Directions, of Kirkland, on Microsoft. “aQuantive is a relatively new part of Microsoft, so if they can get high-profile customers, it will help them sell more of the platform in the long run.”

Viacom Digital ranked 12th among top U.S. Web properties last month with nearly 42.8 million unique visitors, according to the latest comScore data.

It was more than just the aQuantive technology that attracted Viacom, said Kevin Johnson, president of Microsoft’s Platforms and Services Division. Technology developed internally, along with pieces gained through recent acquisitions — aQuantive, ScreenTonic in mobile advertising, the Massive Network for video-game ads and adECN, an advertising marketplace — have gone far toward the company’s goal of a total package for advertisers and publishers, he said.

“I think this was the all-up platform we have put together and are offering publishers,” Johnson said, adding that Microsoft thinks its technologies are “capable of meeting the needs of publishers of the magnitude of Viacom.”

Johnson said Microsoft and Viacom agree about the future of digital media and advertising. The companies had as a starting point a long-standing relationship around content.

In September, Johnson sat down with Viacom CEO Philippe Dauman at Advertising Week in New York City. A 30-minute conversation stretched to two hours, after which the top executives instructed their teams to begin crafting “a very broad agreement,” he said.

Negotiating agreement

Rosoff said it was notable that Johnson and one of his top partnership strategists, Yusuf Mehdi, appear to have a great deal of latitude to negotiate deals. Mehdi was previously the company’s chief advertising strategist.

“It will be interesting to see how many more of these kinds of deals Microsoft is able to find in the advertising space,” Rosoff said. If the company aims to eventually turn advertising into a core business on the order of its huge Windows and Office software franchises — which Chief Executive Steve Ballmer has pledged to do — it needs to lay the groundwork now, Rosoff said.

Johnson said the Viacom deal was fine-tuned through phone calls, e-mails and another face-to-face meeting with Dauman at the Web 2.0 Summit in San Francisco in October. Details were finalized in some “very substantive” conference calls in the last couple of weeks, and the deal was signed last week, he said.

“Shared vision”

There is “a lot of shared vision and a lot of cultural and strategic alignment between Philippe and myself in terms of what we were trying to do,” Johnson said.

Some observers suggested Viacom and Microsoft also shared an antagonist in Google. Microsoft is trying to wrest more digital advertising revenue, which Johnson pegged at $80 billion by 2010, from market leader Google. Early this year, Viacom sued YouTube and its corporate parent, Google, for copyright infringement.

Johnson dismissed any such suggestion.

“This has nothing to do with Google,” he said. “It has everything to do with our vision for growth and where the online advertising industry is going.”

Viacom and Microsoft said they would share the $500 million in “economic value” expected from the deal.

Johnson said there are fees Microsoft gets for serving ads, revenue-sharing agreements for content Microsoft distributes, and payments Microsoft makes for “the advertising that we spend with Viacom today and intend to do so in the future.”

A few other parts of the deal:

–Microsoft will have the right to sell any remaining Viacom advertising space itself, further broadening the inventory it can offer to advertisers through its internal sales force.

–The companies will jointly promote events such as the MTV Video Music Awards and BET Awards through a co-branded Web site.

–Viacom will aim to distribute more casual video games across Microsoft’s channels.

Microsoft’s stock inched up Wednesday, rising 5 cents to $34.79. Viacom shares gained 30 cents to close at $43.37.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

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