Fool on the Street: Viacom Snubs Web TV

If you want your MTV, parent company Viacom (NYSE: VIA  ) is there for you. But if you want your Web TV, go see Apple (Nasdaq: AAPL  ) . Viacom wants nothing to do with you. Not yet, at least.

Who wants Web TV?
It's not that Viacom dislikes the Web -- CEO Philippe Dauman would just rather hog the remote. Here's how he explained it to attendees at a recent Deutsche Bank conference on media and telecommunications:

... We're very careful not to provide our content in a way that is competitive with the 24-hour channel offering that we have ... The "Joost" platform has a lot of content on it that hasn't appeared on air in many years. We now have a way to expose Beavis and Butt-head to audiences that haven't seen it in many parts of the world. I don't know if that's good for humanity or not.

Oh, come on, Philippe. What have you got against The Great Cornholio?

Actually, he has a point. Viacom derives nearly all of its profit from licensing and distribution payments from Comcast (Nasdaq: CMCSA  ) , Time Warner (NYSE: TWX  ) , General Electric (NYSE: GE  ) , and other network operators. Competing with them is bad for business.

And it's not like Web TV is a big business yet. Netflix's (Nasdaq: NFLX  ) "Watch Now" library includes more films I'd rather avoid than see, though it's been fun to spend recent lunch hours with Lee Marvin and the rest of The Dirty Dozen.

Dauman knows that, which is why he's boosting Joost, which was created by the same guys who brought you Skype. Joost is similar technology in that it promises high-quality, free TV programming, using the Internet to deliver video.

Content is king, and it travels first-class
What's the allure for Viacom? Advertising. Beavis and Butt-head have been off the air since the '90s. They're dead as an advertising platform. Unless, of course, they earn an audience through Joost.

But Dauman is thinking even bigger, citing PepsiCo (NYSE: PEP  ) in his presentation at the Deutsche Bank conference:

They are [a] charter advertiser on our mobile deal with Sprint Mobile, where we are selling advertising for the first time on mobile ... We have a "Laguna Beach" virtual world where one of the prizes in that virtual world is to get a can of Pepsi. So it's really cool on that virtual site to be walking around with a can of Pepsi. That's a fantastic promotion for them, and they love it.

But will consumers' thirst for all things digital translate into a real thirst for sugar water? Everyone seems to think so. An online campaign -- even in virtual worlds -- contributes to online ad spending, which Jupiter Research predicts will exceed $19.9 billion in 2007 and rise to $35.4 billion by 2012.

The business of channel surfing
And yet the Web may be a bit player in Dauman's ultimate strategy: to create as much content as possible and cross-market it everywhere.

Sure, that sounds obvious, but don't underestimate the commitment it requires. MTV has suffered from lower ratings lately. So has BET, Viacom's channel aimed at African-American viewers.

But Dauman is investing in each, hoping to profit from a handful of hits that can produce licensing and advertising revenue for years to come. BET, in particular, has his attention:

BET [has] had very little original programming. So we've approved a three-year plan to dramatically increase the proportion of original programming on BET across many genres. We have 16 new shows launching this year. Most of them in the third and fourth quarter.

Smart move. Creating original programming will up ratings, create long-term value, and present licensing opportunities.

A Foolish finale
Dauman doesn't have it easy. A courtroom brawl with Gootube seems inevitable. And, with Tony Soprano gone and American Idol slipping in the ratings, TV isn't exactly the hang-on-the-edge-of-your-seat experience that it once was.

Fortunately, none of that should hurt Viacom. Not much, at least. Dauman is right. Between MTV, Comedy Central, BET, and Paramount Studios, Viacom has more than enough star power and plenty of distribution power ... for now.

What remains to be seen is whether Dauman can deliver more than classic recyclables like Beavis and Butt-head. He'd better. Today's investors are betting on it.

Netflix and Time Warner are Stock Advisor recommendations. Get 30 days of free access to the entire portfolio, which is beating the market by more than 37%, right now.

Fool contributor Tim Beyers, who is ranked 4,978 out of more than 30,600 rated investors in our Motley Fool CAPS investor-intelligence database, is watching the first season of "24" on Netflix, but he didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy wonders when VH1 will do a "Behind the Music" profile of MTV.


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