Viacom Loves Being In Second Place

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Viacom (VIA) has decided to use Yahoo! search capacity across all of its websites. According to Tech Crunch there do not seem to be any revenue guarantees for Viacom similar to those that Google (GOOG) gave to News Corp (NWS) MySpace. Media speculation is that Yahoo! will also cut a better deal on revenue sharing than Google might because it wants to gain on the more successful search engine.

The Viacom deal smacks of a revenge killing. The old media company is locked in a dispute with Google about its content being used on Google’s huge video site YouTube. So instead of going with the search leader it will use No.2. The argument Viacom may float is that Yahoo!‘s (YHOO) new Panama search and text advertising program is better than its previous offering. But there is no evidence that it works better than Google in either producing search results or targeting advertising.

Viacom has insisted that YouTube pull all of its video content from the video sharing sites pages. The media company has also sued YouTube for copyright infringement. Measurements made in February show that YouTube is the largest video site with 42.1 million unique visitors. Google Video is second with 20.8 million. The chances that Viacom can reach this kind of audience on the web without these two sites is nil.

The head of research at Oakmark Funds recently stated that Viacom is the most undervalued of the big media companies. That may be so.

But as long as Sumner Redstone and Company make their business decisions based on who their best friends are the value of Viacom’s stock is likely to stay low.

Douglas A. McIntyre can be reached at He does not won securities in companies that he writes about.