NEW YORK/SAN FRANCISCO – Viacom Inc.'s MTV Networks (VIAB) has agreed to distribute clips from its cable networks over Google Inc.'s (GOOG) advertising network, in a test of what could become a new economic model for Web-based video delivery, the companies said on Sunday.
The project, a year in the making, marks the first time Google will distribute ad-supported videos across its AdSense network from a major programming provider. The ad-supported video distribution project will begin testing later in August.
Google's AdSense network currently handles primarily text and graphical-oriented brand advertising. The MTV trial, if successful, would highlight the progress Google is making in evolving beyond its reliance on delivering Web-based text ads from which it derives most of its revenue and profit.
Viacom's exclusive deal with Google also marks the first time MTV will syndicate its shows across the Web beyond the company's own Web sites. The change parallels what it has done on cable and satellite TV services for the past 25 years.
"The basis of content on the Internet is shifting from text to video. This is the first way to distribute our content widely across the Internet," Michael Wolf, president of MTV Networks, said in an interview.
Shows including Nickelodeon's "SpongeBob SquarePants" and MTV's "Laguna Beach" would be offered to Web sites who are in Google's AdSense network, supported by advertising.
Web site owners can embed an MTV-branded video box directly on their Web sites, which will feature ads sold by MTV's sales force.
MTV will also take the largest share of ad revenue, which will be shared with Google's affiliate network sites and Google, Wolf said. He said Google has "built specialized technology" for this test.
The move to embrace ad-supported Web video delivery comes amid a spike in interest in watching videos online made possible as more consumers subscribe to high-speed Internet services.
YouTube, a pioneer that has become the early market leader, serves up more than 100 million short-form videos a day. Most are video excerpts from popular television shows, music videos, or user-generated comic sketches. Google, and rivals Yahoo (YHOO), AOL, News Corp. (NWS) and Microsoft, are racing to catch YouTube.
Viacom is also racing to plant deeper stakes in Internet businesses as its young viewers, who set the tone for changes in media consumption, are as apt to be as entertained by Web-based TV as they are by video games or their cell phones.
MTV earlier this year launched a joint venture Web business with Microsoft Corp. (MSFT) to retain viewers as the frothy double-digit percentage gains it once enjoyed in cable network advertising has begun to taper.
Its cable network business generates about 70 percent of its revenue. Advertising accounts for about 40 percent of total company revenue, with much of the rest coming from licensing and subscriptions, according to Bernstein Research estimates.
Despite owning some of the most powerful global media brands, investors have grown concerned that MTV Networks may have trouble sustaining growth in audiences and ad rates.
The company, which will post second-quarter financial results on Wednesday, is expected to report revenue and operating profit gains of just under 10 percent — below the double-digit percentage gains in profit the company promised for 2006 when it split from CBS Corp. (CBS) in January.
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