All Things Digital

Looking five, six, seven, 10 years ahead, advertising will become 15%, 20%, 25% of Microsoft’s business. As much as people have bones to pick with advertising, people much prefer an advertising-funded experience to one they pay for.”

–Microsoft CEO Steve Ballmer

Viacom has a new online advertising partner and–big surprise–it’s not Google. It’s Microsoft.

The entertainment broadcaster has signed a far-reaching, five-year strategic partnership with the world’s largest software company valued at approximately $500 million. Under its terms, Microsoft will buy ads across Viacom’s broadcast and online networks and license content from its MTV, Comedy Central, BET and Paramount Pictures properties for use on the MSN Web site and the Xbox 360.

In return, Viacom will adopt Microsoft’s Atlas AdManager digital-advertising technology and grant Redmond the exclusive right to sell remnant display-advertising inventory on its U.S. sites.

Quite the partnership, and one that may further in evolve in the years ahead. “This broad-based relationship will lead to conversations in other business areas,” Viacom CEO Philippe Dauman told Reuters. “What impressed me was the extent to which Microsoft is making the commitment–technological, financial and otherwise–to be a winner in this space.”

“Financial and otherwise,” indeed. As Om Malik notes, Viacom seems to have gotten itself quite a deal from Microsoft. “Viacom doesn’t have to spend anything and at the same time it is getting advertising dollars and more distribution for their content,” he writes. “I get a feeling that, going forward, this is going to become a template deal for all large media companies with content assets. For them it’s a green light to pillage Microsoft’s overflowing coffers. Deals like this will increase the pressure on Google to do similar ones with other content providers, mostly to thwart Microsoft’s advertising ambitions.”

John Heileman, contributing editor at New York magazine, begins the conversation with Viacom CEO Philippe Dauman by discussing the plan unveiled today to post Comedy Central’s “Daily Show With Jon Stewart” on the Web. As owner of Comedy Central, Viacom is seeking to spread the cable channel’s content on many platforms, thus creating a “richer” experience for viewers, according to Dauman.

Dauman also comments on the recently announced guidelines protecting online copyrights, which Viacom has signed, saying he believes it’s an effort to address the concerns of consumers and content providers alike. But Heileman slyly interjects that Google did not sign on to the guidelines, issuing instead its own “video identification” tools to be used on YouTube. Dauman notes that although the timing of the new system is “interesting,” he’s not so sure it will definitively settle the matter (or the lawsuit Viacom has filed against YouTube for copyright infringement).

Speaking of money: Dauman tells the crowd that Viacom expects to boost online revenues from $250 million to $500 million this year. How, exactly? By developing a multitude of sites related to Viacom properties and driving traffic to them. (For a more detailed description of this business plan, see Eric Savitz’s Tech Trader Daily post.)

One thing all that new dough won’t be spent on is a play for Facebook, Dauman says. Facing competition from Microsoft, Google and Yahoo, he notes such a bid is “beyond our capacity.”

We do a good job of educating users about copyright law.”

–-YouTube CEO Chad Hurley, D5 Conference, 2007

I was very interested to hear Chad and Steve talking about educating consumers about copyright earlier today. Perhaps I’ve given them a graduate degree in copyright law.”

–Viacom CEO Philippe Dauman, D5 Conference, 2007

Google’s apparently finished “educating users about copyright law” and has moved on to the far more important business of making sure not to run afoul of it. After a year of delays and excuses, the company this morning uncrated an antipiracy system for its YouTube video-sharing site.

YouTube Video Identification, as Google colorfully identifies it, matches videos uploaded to YouTube against a repository of legitimate master videos provided by their owners. In the event of a violation, the system notifies the copyright holder, who can then request the video’s removal, its promotion or its ad-supported syndication. Yes, ad-supported syndication. “Like many of these other policies and tools, Video Identification goes above and beyond our legal responsibilities,” YouTube Project Manager David King explained. “It will help copyright holders identify their works on YouTube and choose what they want done with their videos: whether to block, promote, or even—if a copyright holder chooses to license their content to appear on the site—monetize their videos. In implementing this technology, we are committed to supporting new forms of original creativity, protecting fair use and providing a seamless user experience—all while we help rights owners easily manage their content.”

Ah. A “Don’t vaporize, monetize!” program (see “New From Google Labs: Google Big Friggin’ Video Ad”). Surely, just the sort of thing Viacom was hoping for when it filed that $1 billion copyright infringement suit/“mistake” against YouTube earlier this year. Well, it’s a step in the right direction, anyway. Said Viacom general counsel Mike Fricklas, “We’re delighted that Google appears to be stepping up to its responsibility and ending the practice of profiting from infringement.”

Time Warner spokesman Ed Adler offered similar sentiments. “We’re encouraged that they recognize the need to recognize copyright,” he told the Los Angeles Times. “I’m told by our general counsel that there’s still some work to be done before we would say it’s totally sufficient to protect copyright, but we’re encouraged so far.”

But not for long. Because Google’s system doesn’t prevent copyrighted content from being posted to YouTube, does it? But it may well prevent media companies from suing over it.

Looks like Google has updated its arrogance algorithm again. After dismissing Viacom’s $1 billion copyright infringement lawsuit over video clips on YouTube as a “mistake” at our D5 conference in May, Google CEO Eric Schmidt has taken another shot at the media conglomerate and its CEO Philippe “Dough Man” Dauman. Chatting with reporters at a hotel bar at the 25th annual Allen & Co. moguls meeting early this morning, Schmidt slagged Viacom as compulsively litigious. “Viacom is a company built from lawsuits, look at their history,” he said. “Look who they hired as CEO: Philippe Dauman, who was the general counsel for Viacom for 20 years.”