Privately-owned Snapchat (NYSE:SNAP) is teaming up with media giant Viacom (NASDAQ: VIAB) to sell advertisements for the application's native content that reaches its 100 million active daily users. While Viacom has been in the news lately for its executive succession drama, this agreement signals the company is serious about expanding its profits despite lackluster cable earnings as well partner with growing, youth-focused brands.
In the deal, Viacom will use its existing ad sales team to sell ad spots on Snapchat's native "Discover" content as well as the Viacom-owned Snapchat channels. The app features new curated "stories" each day that focus on specific locales across the globe or major festivities-most recently Mardi Gras in New Orleans or the Grammy Awards. Viacom will aim to sell advertisements that users see between the content, so big ad buyers like General Motors (NYSE: GM) or Coca-Cola (NYSE: KO) could place short spots that cater to a largely teenage audience. Because the app is so interactive and captivating for users, Viacom has an easy job in terms of selling the platform to advertisers: they can address the hard-to-reach (and lucrative) teenage demographic as well as further build brand image by advertising within specific stories.
The partnership with Viacom seems logical considering that, despite 7 billion video views each day, Snapchat has no in-house ad sales team. Since Viacom owns many cable channels, its ability to attract high profile advertisers is proven and will allow Snapchat spots to be packaged with larger ad buys on traditional cable channels. Additionally, Viacom will not only sell spots for its own Snapchat stories-MTV and Comedy Central both have U.S. and international channels on the app-but also for Snapchat's original content. The deal does not extend to advertising for other media companies' Snapchat content, but the partnership gives Snapchat exclusive social media access to Viacom-sponsored events like MTV's popular award shows.
Though Snapchat will share ad sale revenue with Viacom in the current deal, many see the move as the final push for the app to become mainstream as opposed to its current niche status. In 2007, Facebook (NASDAQ: FB) partnered with Microsoft (NASDAQ: MSFT) to sell ads on its site, but upon the deal's expiration refused to renew with Microsoft and instead launched an in-house advertising team. Snapchat could go a similar route and develop its own sales team under the guidance of Viacom's established sales arm, thus using the partnership as a sort-of short term investment.
Additionally, in 2015Snapchat raised over $500 million in a round of funding which valued the startup at $16 billion. With its push for original content, curated stories, and additional features, the partnership with Viacom could signal its move towards the mainstream in attracting a more adult audience. For Viacom, the move could incentivize young viewers to move back to the television with Snapchat original content that complements traditional television programming.
Both companies stand to gain from this agreement, especially as each holds something the other doesn't. For Snapchat, they have captive youth audiences that Viacom is struggling to retain in today's evolving media world. And for Viacom, they have an established sales arm that can finally bring big-ticket advertisers to what is (for now) considered a niche social media application.