Microsoft Pacts with Viacom on Ads and Content

Microsoft and Viacom have created a partnership to exchange content and ad services on multiple platforms for both parties.

Valued at $500 million by the companies, the multi-year deal aims in part to bring Microsoft more of the high quality video inventory that brand advertisers demand, while creating ad management efficiencies on Viacom’s properties. Yusef Mehdi, SVP of strategic partnerships in the platform services division of Microsoft, said, “It marries our mutual desires for broadband’s future of programming on the Internet.”

Going forward, ad serving on Viacom sites such as MTV, VH1, and Comedy Central will be managed through Atlas AdManager. That business previously belonged to DoubleClick. Atlas will serve graphical and video ads and provide optimization, inventory forecasting, reporting, and targeting services.

Sale of ad inventory on Viacom’s digital properties will remain primarily with Viacom, but the broadcaster will provide Microsoft with its remnant inventory, which in this situation is defined as “anything they do not sell themselves through an ad sales person,” said Mehdi. “There is still a lot of high-quality inventory on the display side.” A similar practice will be leveraged for video ads. Mehdi said Microsoft expects to take on at least a third of Viacom’s video inventory.

Responsibility for remnant inventory will be divided among Microsoft’s ad syndication systems. Microsoft Digital Advertising Solutions and DRIVEPM will take on some sales responsibility. AdECN, the exchange Microsoft acquired last June will also assume a certain amount of inventory.

Mehdi said “We are making a bid to be the best monetizer of the display platform on the Internet.” While he said Microsoft trails the competition in search, “In display, we feel like we are increasing the lead.”

Viacom will provide long and short-form television and theatrical content through a non-exclusive license. Content sources include MTV, Comedy Central, BET, and Paramount Pictures. Microsoft will have rights to distribute such shows and movie programming on its platforms including MSN and Xbox 360, though the agreement is open to future platforms.

Negotiations regarding the format of licensed content is still being determined. “We’ve agreed on a certain number of titles that will come across and are still working on the format issue,” said Mehdi. He said the two companies are in sync, and are working to find a way to deliver high definition content to the Xbox 360 platform, as well as other platforms. In the future, Microsoft and Viacom may collaborate on new content delivery schemes including IPTV.

In 2008, Microsoft and Viacom will partner to promote co-branded Web sites with exclusive content tied to certain events such as the MTV Video Music Awards and BET Awards. Mehdi said Microsoft will create destination sites around the events.

Additionally, Microsoft will buy a certain amount of advertising on Viacom broadcast channels and integrated platforms. Ads will likely be for Microsoft’s Zune and other products that “fit the Viacom demographic,” said Mehdi.

Microsoft gained a number of new publisher relationships through the acquisition of aQuantive and its Atlas AdManager platform. Since then Microsoft has added sites including Digg, Facebook, and CNBC.com to its network.

The future may bring additional collaboration of content and advertising between the companies, Microsoft and Viacom said.