Microsoft makes deal with Viacom

Times Staff Writer

Microsoft Corp. won the right to deliver advertising on Viacom Inc.'s network of websites for the next five years Wednesday, the latest in a series of deals demonstrating the software titan’s willingness to spend heavily to establish itself as a major player in online ads.

The alliance announced Wednesday gave Microsoft a big partner in trying to catch up to Google Inc., the top broker of Internet advertising. Microsoft will displace DoubleClick Inc. in showing ads to Web surfers visiting and other Viacom sites, just as DoubleClick is about to be bought by Google.

Viacom and Microsoft have a common foe in the search leader. Google last year bought YouTube, which Viacom later sued for $1 billion over copyright violations by users who posted its shows and movies without permission.

Viacom Chief Executive Philippe Dauman said the spat wasn’t a motivating factor in choosing Microsoft, and he added that Microsoft’s newly improved products gave his company a reasonable alternative to Google.


“Clearly you like to have competition,” he said. “It’s certainly good to have more than one viable party.”

Microsoft spent billions this year to acquire AQuantive Inc., an ad-technology company, and has been bidding aggressively to win ad deals at sites including Facebook, CNBC and Digg, analysts said.

The companies said the total value of the five-year Viacom deal was $500 million, with money and services going both ways.

Although it’s hard to tell how much money is changing hands in either direction, Microsoft agreed to license Viacom’s video programming as well as offer financial guarantees that it would sell a certain amount of Web advertising. Analysts said it must have aimed high to outbid rivals.


“We were very impressed with Microsoft’s willingness and desire to commit a lot of resources -- not just financial, but in engineering to build this platform and to address our needs,” Dauman said.

Microsoft, which had $21 billion in cash and short-term securities at the end of September, also outbid Google and Yahoo Inc. in landing an advertising and investment deal with Facebook Inc.

“Microsoft has more cash than anyone else and will spend offensively and defensively,” said analyst Greg Sterling of Sterling Market Intelligence. “They see Google as a real threat to their core business.”

As part of Wednesday’s deal, Microsoft will license TV shows from MTV and other Viacom cable networks, as well as movies from Viacom’s Paramount studio, for its MSN website and Xbox 360 game console. The two companies also plan to collaborate on websites and video games.

At the core, though, the deal is for advertising.

Microsoft promised to spend more on TV spots on Viacom’s cable channels. It also landed two pieces of Viacom’s business for Web ads: Microsoft will use AQuantive’s ad-serving tools to deliver all display advertising, and it will be in charge of selling the so-called remnant ads that aren’t sold directly by Viacom staff.

“This is about getting another customer for Microsoft’s ad platform,” said analyst Matt Rosoff of Directions on Microsoft, a research firm that closely studies the company. “Microsoft gets more inventory on which to sell ads.”

Redmond, Wash.-based Microsoft remains far behind Google, whose method for selling ads tied to search results has generated much more of what analysts predict will be a $28-billion online ad market in the U.S. in 2008.


But Microsoft CEO Steve Ballmer has said his company was committed to becoming a more serious challenger in that field as it continued to diversify from its core businesses of operating systems and office productivity software.

“We’ve got a very strong ad proposition, and clearly publishers and advertisers want a choice,” said Kevin Johnson, president of Microsoft’s Platforms and Services division.

Microsoft might have some advantages in cutting deals to sell content on behalf of big media companies, Rosoff said, because it has worked hard to develop technology to deter illicit copying of digital content.

When those companies think of Google, on the other hand, YouTube’s copyright problems might come to mind.

“Content owners are more likely to trust Microsoft than Google,” Rosoff said.

Analysts said Microsoft might be moving so quickly to seal deals because Google was still in the process of acquiring DoubleClick, which controls technology for delivering ads that is similar to AQuantive’s. The deal is being held up by regulators.

“Microsoft’s online services business has been a boat anchor,” Citigroup analyst Brent Thill said. “Now, it’s turning around.”