Online video space braces for new players, stiff competition

NBC Universal, Rupert Murdoch’s News Corp launching aggressive venture to eat into YouTube’s market

For now, the biggest news in the exploding realm of online video is not much more than a news release. Still, the recent announcement from News Corporation and NBC Universal, of a new online video venture shows a big change in how traditional media companies are trying to confront their digital futures without looking like dinosaurs dodging comets.

At the same time, the companies’ tactics are a striking attempt to shift the old-fashioned way that most audiences have obtained their media into the wide-open digital maw.

Last year, Google’s acquisition of YouTube, the Internet’s most-visited video web site, was a clear signal for media companies. Ever since, they have been scrambling to find ways to make money and to keep as much control as possible over their output.

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YouTube has very little revenue right now, but its huge popularity and implied money-making potential was reflected in the $1.65 billion that Google paid for it. (And as far as proven Internet concepts go, media companies are not smitten by the economics of Apple’s iTunes, either, even though many networks including NBC and Fox, owned by the News Corporation, are selling shows on it.)

Inevitably, the media giants have asked themselves these questions: Why should we let savvy intermediaries like Google or Apple hog the relationships with consumers or advertisers? And why should we let them create valuable new businesses? NBC Universal and the News Corporation spent months trying to recruit players like Viacom and Walt Disney to fight back, but they have set out alone, leaving an open invitation for others to join their merry band. They’ve agreed to pool all their video content on the Web to create what is effectively a syndication service that will distribute it to other established Web sites and through a new online site they plan to unveil this summer.

Neither the company’s name nor its management team is in place and clearly this gambit faces big hurdles when you consider both the track record of media JVs and big media companies’ ability to create breakout Internet plays. Most of the joint venture’s offerings will be TV shows supported by advertising, though some content will be user-created clips and movies for paid download. It’s notable that the planned service intends to offer only TV shows that are already available via Web sites like NBC.com and Fox.com, and movies that can be downloaded elsewhere. Indeed, the Web is full of places to find TV shows and they can be viewed with no ads or distracting promotions.

And while video is clearly the next big thing online, it is uncertain how much appetite there is for TV shows and movies on the computer screen.

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Media companies are also talking to YouTube about displaying their content. When the talk turns to revenue, the proposed split by YouTube, according to one media executive involved in such negotiations, is roughly 70 per cent to the content owner and 30 per cent to YouTube. (The executive requested anonymity because the talks are confidential.) The only problem is that, for now, the two-year-old YouTube is far and away the most popular site for video online. And rival start-ups like Joost, from the guys who created Skype, are coming up fast. Clearly, the last breathless press release on the subject has yet to be written.

–RICHARD SIKLOS