Viacom, Yahoo deal may be snub
Viacom Inc.’s advertising deal with Yahoo Inc. on Tuesday showed that Google Inc.’s legal battles with media giants might be opening doors for its competitors.
Viacom hired Yahoo to plaster its websites with the types of text ads that Google perfected.
Analysts say that Yahoo, the No. 2 provider of search-engine ads, probably benefited from Viacom’s legal battle over pirated TV shows and movies appearing on Google’s YouTube service.
But the Viacom deal, for which financial terms were not announced, also offered a strong vote of confidence in the advertising platform that Yahoo developed to narrow the profitability gap with Google.
“It’s a coup for Yahoo and a win for advertisers,” said Joshua Stylman, managing partner at Reprise Media, a New York-based advertising firm. “The worst thing for advertisers is to have one dominant player.”
Yahoo shares have soared 24% this year, largely on optimism about the new advertising system’s progress. Google shares have gained less than 2% during the same period, as investors worry about slowing growth and legal troubles caused by the $1.65-billion YouTube acquisition.
Scott Kessler, an analyst with Standard & Poor’s, said Viacom’s deal with Yahoo might represent “the first example of the acquisition of YouTube having an adverse impact” on Google’s bread-and-butter business -- its search service.
Viacom said it signed a long-term deal making Sunnyvale, Calif.-based Yahoo the exclusive provider of so-called sponsored search and other simple text ads on 33 of its websites, including those for MTV, Comedy Central and Nickelodeon.
For New York-based Viacom, the deal with Yahoo represents a step toward its target of $500 million in digital ad revenue for 2007, said UBS analyst Benjamin A. Schachter. But it also gave Viacom a chance to thumb its nose at Mountain View, Calif.-based Google by doing a deal with its biggest rival.
Viacom last month filed a $1-billion lawsuit against Google, alleging unauthorized use of Viacom-owned video clips by YouTube, Google’s popular video-swapping website.
In the companies’ statement, Yahoo Chief Executive Terry Semel made a clear dig at Google by saying that Viacom “shares Yahoo’s commitment to connecting users to the content, products and services for which they are looking while respecting copyrights and other intellectual property rights at the same time.”
For Yahoo, the deal with a major content provider -- particularly one with a generally young audience -- provided a much-needed win for its new search technology, known as Panama. Viacom is expected to begin displaying the Yahoo search box and text ads on its sites later this month.
“Looking at their Panama system and its capabilities made us comfortable,” Viacom CEO Philippe Dauman said in an interview. Viacom explored deals with Google and Microsoft Corp.’s MSN, but with Yahoo “the economic terms were very favorable in absolute and relative terms,” he said.
Search engines make money by displaying text ads alongside search results. Advertisers don’t pay unless someone clicks on their ads, so Google’s ability to deliver more relevant ads than those of its competitors gives it a financial edge.
Standard & Poor’s Kessler said Yahoo might have granted Viacom a higher-than-usual percentage of the advertising revenue to secure the deal.
The reason for Yahoo’s anxiousness? Demographics. Yahoo last year cut an advertising deal with seven newspaper chains and a deal to share video clips with CBS Corp.’s “60 Minutes” show. They were solid deals, Kessler said, “but clearly those are different demographics” than those involved in recent moves by its rivals.
Besides buying YouTube, Google signed an advertising deal with News Corp.’s MySpace social networking website. Microsoft made a deal with Facebook, another Internet hangout popular with youths.
Yahoo shares rose 5 cents to $31.69, while Google shares fell $1.71 to $466.50. Viacom shares closed at $40.64, down 36 cents.
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