Old media fights back with online video site
A little more than a week ago, old media pushed back against Google's efforts to dominate the emerging market for online video when Viacom slapped the Internet group and its YouTube subsidiary with a $1bn lawsuit for copyright theft.
Yesterday, NBC Universal and News Corp, a couple of traditional media heavyweights, went a step further, unveiling a new Internet partnership that they believe will shape up as a viable Google alternative. Although it does not yet have a name, the new site will feature the companies' film and television programmes - most of them free for viewers and supported by advertisers.
NBC and News Corp executives said the venture was not intended as a "YouTube killer" and that they were open to signing up Google as a partner - provided it met their terms. "We had a conversation with Eric Schmidt this morning, and they are considering this," said Peter Chernin, the News Corp president, referring to the Google chief executive.
Yet more revealing may have been Mr Chernin's stated ambition that the site become "the biggest video destination on the web". That implies a direct challenge to YouTube, which streams more than 100m videos a day - many of them to young viewers who are coveted by advertisers but increasingly difficult to reach. "There is obviously a need from both consumers and advertisers for a place that has copyright protected content, and this creates it," said Jeff Zucker, NBC Universal's chief executive.
At stake is a surging market for video advertising on the Internet. Spending on the category in the US is expected to grow 89 per cent this year to $775m, according to eMarketer, a consultancy, and to reach $2.9bn by 2010.
While those figures pale in comparison to the $70bn spent each year on television, advertisers are increasingly demanding that media companies offer online inventory as part of a broader package to reach young consumers. In just four hours on Wednesday, NBC managed to sign up five advertisers, who committed more than $1.6m. "And we didn't even have a rate card," Mr Zucker said.
Of course, if the site fails, then the partners will have to return to negotiations with Google, and with a weaker hand. In spite of months of talks, NBC and others have so far rebuffed Google, unhappy about the licensing fees it was offering for their content and its failure to offer stronger copyright protections.
One thing riding in the new venture's favour is that the companies have signed up AOL, Microsoft, MySpace (part of News Corp and under Mr Chernin's control) and Yahoo as distribution partners, which should help them to reach a broad audience. "This is critical," said James McQuivey, an analyst at Forrester Research. "Building it doesn't mean that they will come, and who better to spread the word than Google's mortal enemies?" Those companies will take a small share of advertising revenue from any videos viewed on their sites. They have also agreed to install robust copyright and filtering technology - a key concern at NBC and News Corp, and one that Google has so far resisted. "The degree to which the distribution partners have stepped up to ensure copyright is really one of the hallmarks of this deal," Mr Zucker said.
Nonetheless, the venture still faces considerable obstacles. Historically, media partnerships have not fared well. Just a few years ago, major record companies banded together to establish an alternative to Napster, the online file-sharing site. That effort ultimately failed. More recently, Sony and Bertelsmann have sparred over management control at Sony-BMG.
In addition to getting along with one another, a key test for NBC and News Corp executives will be whether they can convince other media companies to join them. In spite of an extensive courtship, Viacom, CBS, Sony and othermedia companies ultimately decided against coming aboard as equity partners.
Nonetheless, NBC and News Corp, are determined to reach out to as many partners as possible. Said Mr Chernin: "We're open for business with anyone."
Additional reporting by Aline van Duyn
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