Viacom Gobbles Up Online-Video Company Atom Entertainment

Viacom Inc.'s (VIAB) MTV Networks on Wednesday said it would buy Internet video and games company Atom Entertainment Inc. for $200 million as big media companies move to compete with online upstarts such as video leader

MTV Networks hopes to grow its main audience of young viewers with Atom's portfolio of online videos created by Internet users, short independent films and casual online games, said Chairman and Chief Executive Judy McGrath.

"This acquisition is in line with our business strategy of being a leader in the digital space and connecting with consumers on every platform and device they use," McGrath said in an interview.

Later on Wednesday, Viacom said second-quarter profit from continuing operations rose 27 percent, ahead of Wall Street expectations, largely due to advertising sales growth at MTV.

The Atom deal, expected to close in the third quarter, follows a big push at Viacom and its media rivals to deepen their stakes in the Internet.

Their challenge is to build new properties and keep their own media brands, which grew to prominence on television, attractive to a young audience that is turning more and more to the Internet for entertainment.

Once the undisputed leader in music and youth-targeted media, MTV now competes for attention with the likes of online teen hangout, acquired by media conglomerate News Corp. (NWS) last year.

MTV announced a landmark online video advertising partnership with Google Inc. (GOOG) on Sunday to create a new system to buy and sell ads for videos online. In May, the company paid $102 million to buy Xfire Inc., a company that builds online game forums.

Separately, MySpace also closed a text-search advertising deal with Google on Tuesday.

Atom Entertainment was formed about five years ago from the merger of Atom Films, known for carrying independent short films, and, which offered online games.

Atom began letting viewers upload their own online films in March this year, much like the popular Its videos will be available across MTV's 24 broadband Web channels.

"We want to figure out the smartest ways to plug Atom Films into our infrastructure," McGrath said.

Atom CEO Mika Salmi told Reuters the privately held company had been pursued by several potential buyers and had posted an operating profit since 2002, without giving details.

Shares in Viacom, which split from broadcast TV and radio group CBS Corp. (CBS) in January, have shed about 17 percent on fears that growth in its core cable TV business may cool.

Viacom's widely-held Class B shares closed 62 cents, or 1.8 percent, lower at $33.78 on the New York Stock Exchange on Wednesday. and are both owned and operated by News Corporation.