Commentary: Can Redstone Beat 'Em And Join 'Em?

Viacom is suing YouTube as CBS scrambles to ink a deal with the video site

What's wrong with this picture? On Mar. 13, Viacom (VIA ) sets off a legal depth charge and sues YouTube for $1 billion. The Google (GOOG )-owned unit is "stealing value," the complaint alleges, by airing snippets of shows like its Comedy Central hit South Park without paying for the right. (Google disagrees, saying it is protected under so-called safe harbor provisions in the 1998 Digital Millennium Copyright Act.) Meanwhile, in the other part of Sumner M. Redstone's media empire, we have CBS (CBS ) literally cuddling up to YouTube. CEO Leslie Moonves actually hugged YouTube's Chad Hurley at a Las Vegas convention in January as the pair gigglingly viewed a "mash-up" of Big Brother and CSI: Miami.

Getting media moguls to agree is about as easy as picking a hit television show, so why should Moonves and his Viacom counterpart, Philippe P. Dauman, concur on YouTube? Yes, both want to get paid for content posted on the site, and the Viacom lawsuit is clearly a way of bringing Google/ YouTube to the table. But if CBS and Viacom have radically different approaches to the world's most popular video service, it's largely because CBS believes it needs YouTube (at least for now) and Viacom believes it doesn't (unless it gets paid). We'll explain.

Even though both companies make most of their money from television, they're actually in very different businesses. CBS largely depends on weekly shows in the ad-starved world of network TV. Plus, its programs tend to skew older. So luring eyeballs to the network means everything. A little tease on YouTube can't hurt, which is why the guys from the Tiffany Network have set up pages for Two and a Half Men, Jericho, and other shows. YouTube famously gave NBC's Saturday Night Live a boost last year with a short called Lazy Sunday that was seen by 5 million folks within days. If you're Moonves, you want some of that. Moreover, while CBS declined to talk about this, Moonves' minions are working hard to ink a revenue-sharing deal with YouTube.

Over at Viacom, television is a volume business. Cable is a seven-day-a-week, cram-it-down-your-throat affair. If South Park is great on Monday, it's even better on Tuesday, and maybe three times better on Thursday. In other words, when viewers know their favorite show is on several times a week, they don't need the promotional pop of a YouTube to get them to tune in. What's more, Viacom programming, whether bits from Comedy Central's The Colbert Report or MTV's Punk'd, is short, hence perfect for the clips YouTube trades in. Comedy Central and MTV are only now getting video traction on their own Web sites; in fact, reported record traffic and video streams in February. Viacom doesn't want YouTube to draw away viewers.

CBS and Viacom both want the same thing: a deal that allows them to leverage YouTube's mass appeal while getting paid. But hammering one out could prove maddeningly difficult. It's no secret that Google/YouTube, despite months of negotiations with a number of parties, has yet to sign a revenue-sharing contract with any major U.S. film or TV studio. A few months back, Google suggested paying Viacom $500 million a year over five years for its content, but people involved in the talks say the search colossus retracted the offer. Former CBS Chief Jeff Sagansky explains why it's so hard to get a deal done: "No one knows what an ad is worth on one of these sites where people click on an ad and head off somewhere else," he says. "Good luck finding a price they can agree on." Until someone figures this out, the legal fireworks will continue. After all, Sumner Redstone is the man behind the curtain.

By Ronald Grover, with Tom Lowry and Robert D. Hof

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