April 19th, 2007

What if Redstone “Googled” Murdoch?

by

The following piece was co-authored with Robert Young.

One by one, the big media companies and the Internet giants have started to ante up for the big poker game over the future of the video content business. Google started it all with its acquisition of YouTube. Then GE’s NBC-Universal and Rupert Murdoch’s News Corp responded by joining forces to create “NewCo,” which Comcast, the country’s largest cable company, also just joined.

Sumner Redstone’s CBS followed with the announcement of their own independent distribution initiative, called the “CBS Interactive Audience Network.” Standing alongside these big media giants are all the biggest Internet portals, including Yahoo!, AOL, and MSN. What has essentially happened, in a very short period, is that most of the existing Internet and media establishment have lined up on one side of the fence in support of each other, all against GooTube!

Amidst all this reshuffling and realignment, the one player who’s probably in the most interesting position is Redstone. One reason is that Redstone controls not only CBS, but also Viacom/MTV. The other reason is the long-standing media mogul rivalry between him and Rupert Murdoch. This rivalry turned particularly bitter after Murdoch outfoxed Redstone in the bid to buy MySpace nearly two years ago. Given that MySpace has proven to be the next MTV, it’s no secret that Redstone took it all pretty personally.

Fortunately for Redstone, sometimes revenge is a meal best served cold. Since the MySpace deal, the industry-wide realignment around digital video has reshaped the playing field. Although Redstone’s Viacom has also taken the requisite anti-GooTube steps of sending massive take-down notices and going as far as filing a $1 Billion copyright infringement lawsuit, Viacom has yet to fully stand next to its big media brothers on their side of the digital video fence, as his CBS has. And given that Redstone has hedged his bet with CBS, it leaves him open to an intriguing and completely counterintuitive option for Viacom — to jump the fence and form a major strategic alliance with Google instead.

Our modest proposal is that Viacom/MTV should break ranks by striking a broad and comprehensive deal with Google to combine its vast video content libraries with the mass distribution might of YouTube and Google’s Adsense (which is the largest web content syndication network in the world and which Google is gearing up to distribute content alongside ads).

Why Google Needs Viacom
There’s a reason why the big media companies are aligning themselves around video distribution and not video content creation — distribution is all that matters. The battle for control of the digital video market is essentially a race to figure out how to efficiently allocate consumer attention, both through search and browsing/discovery.

Google search is the greatest platform for efficient allocation of attention in the history of media. But its text-based algorithms break down for video content. What Google lacks for the first time, in this new video space, is content. Unlike text content, most video content from major media companies does not exist on the open web, and even where it does, it is not easily “crawlable.” This is why Google acquired YouTube — because it needed an alternative way to aggregate and control the content. Without access to a big media company’s full body of content, Google is limited in its ability to learn what works with digital video distribution and monetization. Google is like a voraciously hungry computer — it needs input. That’s why GooTube was making such sweet revenue sharing offers with all of the major media companies. The less content Google has to work with, the less it can optimize — a salient lesson it learned from its dominance of the text-based web.

By partnering with Redstone, Google gains access to MTV, Comedy Central, and other Viacom content that is perfectly suited for experimentation around new distribution and discovery models, which could lead to breakthroughs in how to connect the right people with the right video content — and how to actually make money doing it. Viacom’s brands are strongest with the Digital Generation, who are at the vanguard of new video consumption habits, AND Viacom’s content works exceeding well in the short, humorous, viral “clip” format that has driven the explosive growth of online video.

Making MTV The New MTV
The opportunity for Redstone is to respond to the threat of MySpace becoming the new MTV by positioning MTV itself to be the new MTV. To go head-to-head with Murdoch, Redstone has to confront MySpace’s powerful social network and the News Corp/NBC “NewCo” robust distribution partnerships. What better way than to align with YouTube’s social networks and Google’s AdSense distribution network? But how would Google and Viacom make this happen, given the take-downs and the lawsuit? Simple — Viacom should do a complete about-face:

  • Viacom should withdraw the $1 billion lawsuit and convert it into a $1 billion guaranteed revenue deal with GooTube. Given the $500 million deals that GooTube was offering the big media companies, this deal would be a no-brainer for Google and — it would be a financial windfall for Viacom.
  • Viacom should work closely with GooTube to optimize the distribution of all Viacom content through YouTube and Adsense, while AT THE SAME time optimizing distribution through Viacom’s own sites — in an age of consumer control, it’s not either/or but both.

Counterintutive? Sure, but that’s why it just might work.

  • I don't see this as a good deal for VIA.B. For a measly $1B revenue guarantee, they effectively give away future distribution rights to GOOG. They'd be replacing a set of complicated relationships with several cable companies for one very complicated and risky relationship with the dominant distributor of video content and advertising. That makes Redstone a vassal not a prince. No dice. Alternative distribution channels like mobile and IPTV just won't have the juice in the next five years to be much of a substitute. In contrast, CBS' "let a thousand flowers bloom" strategy gives them a chance to be a long-term player. The way to go.

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