Streaming with the Enemy: Viacom and Google's Love-Hate Story

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YouTubeThere's no point in letting an unresolved $1 billion lawsuit get in the way of a good thing.

Even though Viacom (VIA) and Google's (GOOG) YouTube are still embroiled in a five-year legal tussle over unauthorized clips showing up on the world's leading video-sharing website, the two companies are coming together on a digital streaming deal.

Viacom's Paramount is now renting hundreds of its releases through YouTube's fledgling premium video service. Paramount flicks will also be available as piecemeal rentals through Google's new Google Play platform.

YouTube Is Still Not Dues Tube

If you didn't know that YouTube was offering digital rentals, you're not alone. The vast majority of the site's traffic comes from folks looking to catch free clips of dogs riding skateboards or music videos with dogs riding skateboards.

YouTube's first experiment with rentals went badly. It offered up five Sundance films and documentaries two years ago at $3.99 per rental. Despite YouTube's wide visibility, the five films sold just hundreds of digital rentals apiece during the service's first three days.

These days, Google's fast-growing video site has turned to more polished Hollywood fare, and striking a deal with Paramount means that YouTube now has streaming deals in place with all of the six major studios except for 20th Century Fox.

Coming Soon to a Screen Near You

YouTube still doesn't want to force its visitors into its virtual box office. A nondescript "Movies" tab at the top takes users to a page offering 24-hour passes to stream recent retail DVD releases including War Horse and Hop for as little as $2.99.

Having Paramount aboard means that folks can pay to check out roughly 500 hit movies, including Transformers and The Godfather trilogy.

Renters aren't necessarily tethered to their computers. The streams are available across a wide range of devices, and the new Google Play Movies app makes it seamless to check out the rentals on Android phones and tablets.

See You in Court

This deal probably won't get in the way of the prolonged legal battle in which Viacom is accusing YouTube of profiting from the popular practice of registered users uploading clips from Viacom shows and movies.

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However, Viacom is smart enough to realize that there's an opportunity here that could generate incremental revenue if it pays off.

We're still early in this game. Consumers have been hesitant to pay up for digital rentals, especially when they are typically available for less as overnight DVD rentals, or are easier to check out through a cable provider's "on demand" offerings. If that mindset changes, Paramount wants to make sure its properties are front and center on the platform that video junkies have leaned on the most for their free-clip fixes.

Streaming with the enemy makes perfect sense here.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of Google. Motley Fool newsletter services have recommended buying shares of Google.


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Streaming with the Enemy: Viacom and Google's Love-Hate Story

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9. Owens-Illinois (OI)

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Company profile: Owens-Illinois is the world's largest manufacturer of glass bottles, with operations in 21 countries.

Investor takeaway: For 2011, the company earned $2.37 per share versus $2.60 in 2010. However, it also took a $640 million charge for a variety of reasons in the quarter that resulted in a loss of $4.71 per share on a GAAP accounting basis. It is covered by two analysts, resulting in ratings of one "buy" and one "hold."

8. Freeport-McMoRan Copper & Gold (FCX)

Performance: up 27% (but still down 23% since the end of 2010)

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Investor takeaway: Metals mining have historically been highly volatile. Analysts give Freeport-McMoRan eight "buys" and one "hold," according to Morningstar. Two weeks ago, the company reported that fourth-quarter net profit was $640 million, down from $1.5 billion in same period of 2010, but full-year earnings hit a record $4.6 billion.

7. Bank of America (BAC)

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up 29% (but still down 47% from year-end 2010)

Company profile: Bank of America is one of the largest financial institutions in the world, with lending operations in the consumer, small business, and corporate arenas as well as asset management and investment banking divisions. It just reported net income of $85 million, or 1 cent per share, for 2011, roughly in line with analysts' expectations.

Investor takeaway: The bank faces lots of challenges before it returns to solid fiscal health, but investors apparently think they can be met, given the share-price rise. It was trading at half of book value late last year, so investors may think it hit bottom.

6. Eastman Chemical (EMN)

Performance: up 30%

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Investor takeaway: During January, the company announced the $4.7 billion acquisition of Solutia (SOA), another chemicals and plastics-making firm, which may have contributed to the price pop. Although it has a diverse international customer base, some of its biggest customers are in the cyclical auto and construction industries. S&P has it rated "buy" and its $60 price target is a 20% premium to the current price.

5. LSI Corp. (LSI)

Performance: up 30%

Company profile: LSI is a maker including of specialized circuits that support applications in enterprise storage and networking.

Investor takeaway: Although it reported a fourth-quarter loss two weeks ago, LSI gave an upbeat outlook for the current quarter, saying it expects revenue in the range of $550 million to $590 million, far ahead of analysts' $511 million, according to data from FactSet Research. S&P's review of analysts' ratings found six "buys," two "buy/holds," five "holds" and one "weak hold."

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Performance: up 77% (but it's still down 29% from the end of 2010).

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