Viacom's MTV Unit Buys Atom Entertainment for Its Film, Gaming Web Sites

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By Frank Ahrens
Washington Post Staff Writer
Thursday, August 10, 2006

Viacom Inc.'s MTV Networks has purchased Atom Entertainment Inc., parent of Atom Films, a Web site that presents thousands of short films from independent and novice directors.

For its $200 million, Viacom also gets Atom's gaming businesses -- Shockwave and Addicting Games, which allow users to download free games -- and Addicting Clips, for very-short-form video.

Among young Internet-savvy audiences, video games and Web-based video clips, such as those found on YouTube and Google Video, continue to grow in popularity. And major media companies such as Viacom and News Corp. count on revenue from the sales of short versions of their content on mobile devices.

"This acquisition is right on the money with our digital strategy," Viacom chief executive Tom Freston said in a news release. "It adds great scale with users, improves our growing casual gaming position and brings a world-class digital video library and a fantastic management team."

Atom, formed in 2001, was one of the Internet's first important distributors of short films, providing an outlet for aspiring writers, actors and directors that had not previously been available outside the film festival circuit or MTV. "Being John Malkovich" director Spike Jonze got his start directing music videos.

The site features more than 1,500 film and animation titles, ranging from a few to several minutes in length. Unlike YouTube, for which only a Web camera is required -- cogent ideas are optional -- the shorts on Atom Films are typically scripted, acted and shot with professional quality.

With the expansion of high-speed Internet at home and at work, which makes watching video on computers much more satisfying than with a balky dial-up connection, Atom has shown continued user growth in recent years and is now largely an advertising-supported site. Viacom already is an advertiser -- ads for MTV's "Beavis and Butt-head" DVDs appeared on AtomFilms yesterday.

The site also sells subscriptions and says it has been profitable since 2002. There is little capital cost associated with the site, which consists almost entirely of user-generated content.

Atom's game division may be the juicier acquisition in the eyes of Viacom Chairman Sumner M. Redstone, who has long held a personal investment in Midway Games Inc., maker of Mortal Kombat, and last year bought control of the company with 90 percent of its shares.

Last week, Chicago-based Midway reported widening losses in its second quarter, owing to declining sales, and said its 2006 losses would be worse than expected. Redstone's steadfast endorsement of the gaming company puzzles many analysts.

For Viacom, which split into Viacom and CBS Corp. in 2005, the Atom acquisition may provide some buzz. Viacom, which is home to cable channels such as MTV, Comedy Central and Nickelodeon, as well as movie studios Paramount Pictures and DreamWorks SKG, was promoted as the fast-growth piece of the split-off. CBS, meanwhile, got the slow-growth properties, including the CBS network, its television and radio stations and the outdoor-advertising division.

Since the split, CBS has continued to produce hit television shows, such as the "CSI" series, and has moved aggressively onto the Internet, webcasting all of this year's NCAA men's college basketball tournament games free. Though it continues to grow, Viacom has been relatively quiet until recently, when it announced a content-distribution deal with Google Inc.

Viacom reported strong second-quarter earnings yesterday, bolstered by the 2005 acquisition of DreamWorks, as Paramount continues to struggle. CBS reported its second-quarter earnings last week, showing flat revenue and declines in operating income, as the company is dragged down by a soft radio-advertising market.

Viacom is valued at $24 billion, $3 billion more than CBS. Viacom stock closed down 69 cents, to $33.75 yesterday. It has fallen more than $10 a share since January. CBS, meanwhile, which closed unchanged at $26.25 yesterday, has climbed steadily since March.


© 2006 The Washington Post Company

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