Why Viacom needs Yahoo

Yahoo and Viacom are getting very close, so close that they almost smell each other’s eau de toilette. After teaming up to build a You Tube-killer, Terry Semel’s company is now going to offer exclusive search and contextual advertising across Viacom’s web properties. But if you look closely enough, this deal shows that Viacom needs Yahoo way more than the other way around.

Viacom has set a target of getting $500 million in digital revenues during 2007, and $685 million in 2008. The Yahoo deal helps them get closer to those numbers. UBS Securities in a note to their clients say that “today’s announcement as a positive step toward achieving this goal, though not incremental to our current estimates.” In other words, Viacom might have had trouble getting to that target if they adopted a do-it-alone strategy.

Having already sued Google, Viacom had no option but to embrace Yahoo. The fact that Yahoo is not making any revenue guarantees (or so it seems from the press release) shows who had a better hand in this round of web-poker. Nevertheless, Yahoo walks away smelling a little better from this deal, designed to blunt the growing influence of Google in the contextual advertising market. Yahoo gets a big client. And all Semel had to do was take a swing at Google in the press release: “while respecting copyrights and other intellectual property rights at the same time.”

The initial deal focuses on 33 websites, but could expand to an additional 140 additional Viacom properties. That would translate to about 90 million unique visitors as of February 2007. The deal doesn’t seem to include banner/graphical advertising.

Our coverage of Google vs Viacom is here.