Old Model Versus a Speedster
When YouTube emerged as one of the Internet’s most popular Web sites last year, many TV executives dismissed it as a flash in the pan — and a largely illegal one at that. But after Google agreed to pay $1.65 billion for YouTube in October, they adopted a radically different stance: suddenly they wanted to take it on.
Now, a handful of giant media companies, like NBC Universal, the News Corporation, Viacom and possibly CBS, are close to announcing a new Web site that will feature some of their best-known television programming and other clips in an attempt to build a business for distributing video on the Internet to rival YouTube. The new business could be announced as soon as this week.
Whether or not the new venture goes ahead — and such a collaboration among these companies would be nearly unprecedented — the flurry of activity around its creation underscores the complex and high-stakes dance that media companies are having with new online outlets for their wares, and the potent combination of Google and YouTube in particular.
Executives from the companies have been in intense negotiations over the ownership and management structure of the new entity — which is as yet unnamed — and the talks could continue until the end of the year or fall apart entirely.
“They really want to do it,” one executive briefed on the talks said of the partners involved. However, this executive predicted, doubting the ability of the competitors to play well together: “Ten minutes after they do it they’ll want to kill themselves.”
None of the companies involved would comment for the record, and several executives familiar with the discussions, citing their sensitivity, spoke on condition of anonymity. The site would be supported by advertising and feature shows and clips from each of the participating companies, and encourage viewers to contribute their own videos and other material.
Such a site would face huge obstacles. All the partners in the venture are wary of anything that looks like an industry consortium — especially one that risks looking flat-footed or backward in the face of nimbler technology upstarts.
Despite the outpouring of homespun video clips loaded onto and viewed from YouTube, many media executives and advertisers believe that traditional media fare — like clips from Comedy Central or the Conan O’Brien show — will attract the bulk of advertising revenue as the market develops.
“The revenue will be concentrated on the 10 percent of content that you and I would have heard of,” said Jordan Rohan, an analyst who follows Google for RBC Capital Markets said. “If Google/Youtube doesn’t have the first 10 percent, then I’m not sure they’d have an advertising model.”
But each partner in the proposed YouTube competitor brings its own agendas and potential conflicts. For instance, the News Corporation also owns both the Fox television network and the popular MySpace social networking Web site.
Several people involved in the proposed venture said that the News Corporation’s desire to protect its MySpace asset from losing its audience to YouTube was a big driver behind the group. However, any ties to MySpace could present a point of friction with Viacom, whose MTV competes with it online.
Any role to be played by CBS would also potentially be complicated. The company is having separate negotiations with Google relating to a service it is introducing aimed at selling radio advertising. According to one executive briefed on the matter, Google could buy a large amount of radio inventory in CBS Radio, the nation’s second-biggest radio group, amounting to hundreds of millions of dollars of guaranteed revenue for CBS.
In forging closer ties to Google, CBS might see less merit in joining with its big media rivals in the new venture. Also, some of the other partners in the venture do not believe CBS’ video assets are as critical to making the site a success.
The idea for the consortium sprang from the conviction by executives at NBC and the News Corporation in particular that new avenues of revenue had to be opened up beyond the dominant sources that include network and cable television outlets and DVD sales. Its chief architects were Peter A. Chernin, the president of the News Corporation and David M. Zaslav, who oversaw NBC Universal’s cable networks and was last month named chief executive of Discovery Communications.
Behind the idea was the understanding that the most popular modes of distributing video via the Internet were not bringing the TV networks much income. For instance, the iTunes music and video success pioneered by Apple Computer has led to several million downloads of videos but has not been highly lucrative for the media companies after paying various rights holders.
And when YouTube suddenly emerged as the most popular site for viewing video of any kind on the Internet — people now watch 100 million clips a day on it — TV executives were alarmed that they were receiving nothing from what was essentially a new kind of network. Although clips on YouTube and most video clip sites are limited to a few minutes, new technologies could soon make it possible to view hourlong dramas or movies through them.
“Content owners needed more bites of the apple,” one executive involved said.
When YouTube was acquired by Google, some media executives openly questioned the legality of YouTube while entering negotiations to license their content to the site. When the idea of the big media consortium was initially conceived, there was some discussion of those companies removing all their content entirely from YouTube. But that drastic action is no longer under consideration, both because it might turn YouTube fans against the networks, and perhaps because it would have raised antitrust issues.
As it stands now, YouTube deletes any network program clips that are posted on its site when it receives a written request to do so, and Google has been in negotiations to persuade the media companies that its advanced advertising technology would make it worthwhile for them to keep their videos on the YouTube network once business models for video fully develop.
So far, YouTube has forged some early licensing arrangements with CBS and the music companies Warner Music Group, SonyBMG and Universal Music Group.
Among its efforts to develop business models, YouTube is incorporating advertising spots into videos only after the clip rather than before, and Google believes its technology for matching relevant ads to Internet searches and other Web content can be applied to video.
One issue still being worked out is whether the new business would not only feature the participants’ shows online but would serve as a sort of agency to license them as a group to other online distributors like YouTube, MSN or Yahoo.
YouTube often removes clips from “The Daily Show With Jon Stewart,” above, on Comedy Central and “The Office” on NBC, starring Steve Carell.
NBC Universal and Fox wanted Viacom in the deal urgently because that company had troves of content aimed at young audiences, from the music and reality shows of VH1 and MTV, to the popular comedy shows on Comedy Central like “The Daily Show With Jon Stewart.” (Content from the children’s entertainment channel Nickelodeon is not to be included in the deal.) Viacom also owns the Paramount movie studio.
In a twist on the Google media company maneuvers, Viacom has a separate nascent venture with Google, in which Google distributes video clips from MTV and other channels across the Internet to any Web site that might like to carry them with advertising.
All along the executives at Fox and NBC who were driving the deal anticipated countermoves by Google — and indeed the executive involved in the talks said Google has hinted of offers to the participants, some of which might generate a fast infusion of several hundred million dollars.
Mr. Rohan estimated Google would be willing to pay from $100 million to $150 million to each of the media companies to license their content, although it was unclear whether it would pay less knowing that those companies might start a rival.
Google has been known to guarantee revenue to partners in search ventures, and Mr. Rohan said it might do the same for CBS and other radio companies in order to get its radio business off the ground. But one executive briefed on the YouTube talks said the company is resistant to paying license fees for inclusion on the site. A Google spokesman declined to comment.
Google has consistently portrayed itself as a friend and partner to media companies. But its acquisition of YouTube was tricky because of the potential legal issues the company could face from those same partners for copyrights violations.
“I think people have been trying to figure out: ‘Do we take a check from Google, or do we create our own game?’ ” said another executive who has been in the negotiations said. “But that Google check comes only once. The other option is to create something that is capable of becoming a big asset and controlling our own game.”