What if Redstone ‘Googled’ Murdoch?

14 Comments

(Editor’s Note: The following piece was co-authored with Scott Karp, editor of Publishing 2.0.)

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 creationdistribution 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.
  • 14 Comments

    Eddie LeBreton

    First a minor point: I don’t think you can have an argument about distribution networks without including Joost in the conversation, especially in this context because of their Viacom affiliation. They’ve yet to make a lot of noise, but you can not argue with the management track record, so they should ALWAYS be in the conversation.

    Now a major point: Until now, I’ve thought that CBS had the best model, as they plan to place their content on nearly every monetize-able platform. To them it doesn’t matter who wins.

    BUT, then what value does CBS add for the content producers that actually create their programming? If the networks are not concerned about content creation (as you say), what’s to stop the producers of CSI or Survivor from signing deals directly with Joost or GooTube or Yahoo or whoever? What value would CBS add by buying the content from the production companies and reselling it to the content delivery networks via advertising income? Is a CBS “badge of quality” worth the reduced income to producers? Probably not. Can CBS create a defensible strategy out of this content “branding” when they have no control over distribution. I doubt it. Clearly these economics will shift once all video content is delivered online. Perhaps HD distribution via cable networks will keep them in the running for a little longer, but that will only last until fiber roll-outs allow for an HD Joost or GooTube. Unfortunately, I think we’ll see more deals like ESPN 360, which blocks ISPs from accessing their service unless they pay a fee, to supplement their lost distribution revenue. And this leads to the even tricker subject of Net Neutrality, which will only be fixed in Washington. Perhaps that is the defensible strategy: come under the CBS umbrella and we’ll manage your payments from the ISPs (really the distribution networks that matter most).

    But I’m rambling now. But in the end, while the CBS initiative looked like a good deal initially, it’s now appears to be more akin to paralysis by analysis.

    Jeremy Pepper

    You bring up MTV and Comedy Central do resonate, but the real crown jewels in the Viacom crown are Nick and Nick Jr.

    And, by building loyalty through those channels and sites, Viacom is building a brand loyalty to the current generation of media consumers.

    Chris

    I disagree totally with the statement that “distribution is all that matters”. In the world of Web 2.0, it doesn’t matter at all. Much of YouTube’s traffic comes from embeds in other people’s blogs. YouTube becomes only a hosting platform for video in this context and doesn’t bring anything more to the table that Viacom can do by offering embeds from its own website. And Viacom can still leverage Google to their benefit without a deal like you described because Google is still – and I would argue will continue to be – an agnostic search engine. If this distribution you are speaking of is listing in the search engine, I think they already have that.

    Jacomo

    It is all about who owns and operates the Last Mile, the Content Data Farms and can provide QoS and deliver latency free very high speed data (IP) services.
    As a regional service provider, all I see is Video/Audio and P2P services bringing the Best Effort Internet to its knees along with many Core backbones.
    What this means near term is those who own the Content, operate the big data centers, connect the Data centers (via Fiber) to each other and the Last Mile Service providers (who own the customers),will rule this Content/Applications business.
    Google is (not so silently) building just such a Nationwide distribution network and is only missing one piece and that is Fiber connection agreements with the Local Service Providers nationwide.
    This will eventually allow our customers Audio/Video/VoiceIP/Gaming and Hosted applications via a latency free symmetrical network.

    Jacomo

    Prashanth Pappu

    Viacom doesn’t have to do a u-turn and become friends again with Google because it wants to stick to Mr. Murdoch. It could probably do both by aligning with joost etc.

    Google hardly has a footprint in the video content delivery business but for the user generated videos on youtube. So, what exactly is google bringing to the table anyway? Whatever the objectives are, I for one (purely for entertainment reasons) want to see Google completely outfoxed in the video content delivery business.

    Alaskan Carnivore

    re: “big media companies are aligning themselves around video distribution and not video content creation — distribution is all that matters”

    Bingo!

    Which makes me wonder why http://Myspace.com/fox still will not let you watch any Fox TV shows if you have a Vista machine. Still! Nada, nojoy. And no fix in site..?

    What about all the kids out there with brand new Best Buy Vista laptops who are plugging them in and hitting a brick wall when they want to watch latest episode of Bones. ugh…

    Maybe Linux and Apple are to actually be the tier1 FoxSpace distribution partners? Or maybe someone is playing a little game of chicken??

    Shad Q

    Where is user generated content in all of this mess? Is there anyone out there attempting to protect and properly distribute the creative video content that is produced by average users?

    Mike

    Sloppy analysis. Redstone/Viacom spun off CBS (along with MTV) as an independent company roughly a year ago.

    Abhi

    One has also been thinking about Google’s foray into Internet Radio. Given the RIAA hike in Internet Radio Royalties, only a Google with its ad-serving capabilities (now including DoubleClick) can bail out guys like Live365 or Pandora … buy simply buying them out.

    Of course, I am a huge Google fan.

    smith

    That profits matter. That may have been the case for several years after the dot-com explosion, but venture capitalists are hungry for deals now. And, in light of recent high-priced acquisitions (for example, Skype), it makes more sense for startups to lose money and go for growth–not build a stable, profitable business

    Eric

    Another great article. But with Google having by far the strongest video search technology (I can only assume) and Viacom having only the same advantage as any other traditional media conglomerate (creation? some distribution?), wouldn’t Google come out way better than Viacom in any deal between them? If that’s the case — video search technology being the/a big winner — then Viacom has to decide to swallow its pride and side with their traditional enemies in order to do well in the new media world. OTOH, overall a good bargaining for the company.

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