Microsoft, Viacom in $500 Million Ad Deal

Microsoft and cable giant Viacom announced Wednesday they’ve inked a deal aimed at providing content to Microsoft’s Web sites, as well as making Microsoft into Viacom’s preferred Web site display ad service provider, and letting the software company sell unsold display advertising for Viacom Web properties.

“Microsoft’s Atlas division will become the ad server for Viacom’s U.S. Web sites and Microsoft will have the exclusive right to sell remnant display advertising inventory on Viacom’s U.S. Web sites,” a statement by the two companies said.

The Redmond software titan won the Atlas AdManager graphical ad serving technology when it acquired aQuantive for $6 billion last summer.

Under the terms of this week’s deal, Microsoft will get non-exclusive access to long and short-form TV and theatrical content for use on Microsoft properties such as MSN and Xbox 360. Among the content sources being licensed are MTV, Comedy Central, BET and Paramount Pictures.

The companies said that the five-year deal is worth roughly $500 million, although they declined to disclose details of the monetary portions of the agreement.

Despite the talk of a half a billion dollars changing hands, however, don’t expect the deal to make much of a contribution to Microsoft’s bottom line any time soon, cautions one long-time observer of the company’s foray into online advertising.

“I don’t think we’re going to see a ton of progress [towards profitability] this year [2008] because they’re still investing,” Matt Rosoff, lead analyst for consumer technologies at researcher Directions on Microsoft, told

“This deal is about Microsoft getting a big-name reference customer for its Atlas ad serving platform,” Rosoff said.

Why is that important?

“They’re in an important battle with Double-Click,” said Rosoff.

Indeed, although Microsoft has many irons in the fire when it comes to online advertising, this deal addresses a key strategic area. In order to continue to expand its money-making opportunities in online advertising, and thus continue to grow as a company, Microsoft has to do more than just sell ads on its own sites. “You need to link big publishers with big advertisers,” Rosoff said.

That was one of the reasons for the aQuantive purchase in the first place – and this deal represents a significant first step along that path.

In another part of the deal, Microsoft will buy advertising on Viacom broadcast and online networks over the life of the contract. The companies will also collaborate on promoting and sponsoring awards shows on both MTV and BET Networks.

Additionally, Microsoft gets the right to sell unsold Viacom display ad space, largely through DRIVEpm, another of the properties it acquired when it bought aQuantive. DRIVEpm provides services that match advertiser campaigns up with publisher ad inventory.

Microsoft will sell and serve unsold Viacom display advertising inventory via Microsoft Digital Advertising Solutions and DRIVEpm, with the two firms sharing the revenue.

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