Babelgum's Big Bet on Internet TV

Italian broadband baron Silvio Scaglia enters Babelgum into the "networked television" race, with loads of cash to stake on his horse

by Jennifer L. Schenker

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Silvio Scaglia, a 48-year-old Italian billionaire, made a fortune in telecommunications, the Internet, and entertainment services. Now he's the latest broadband baron to try his hand at what media pundit Shelly Palmer, managing partner of Advanced Media Ventures Group, calls the transition from network to networked television.

The U.S. debut of Babelgum, Scaglia's free, global Internet TV and video-on-demand service, will take place June 12 at Digital Hollywood Spring in Los Angeles. The conference brings together old and new media, including high-level executives from Google (GOOG), Sony Pictures (SNE), ABC (DIS), CBS (CBS), and Viacom (VIA).

Scaglia already has poured $13.2 million of his own money into Babel Networks, Babelgum's parent network, and plans to spend another $130 million or so of his personal fortune to get the company up and running over the next few years. And while other startups, such as Joost and BitTorrent, already offer robust Internet video services, Scaglia says Babelgum will take a different approach.

Niche Market for New Content

Unlike other services, Scaglia isn't just going to try to replicate traditional television on the Internet. Instead, Babelgum is offering niche fare, including independent and short films—such as Spike Lee's Jesus Children of America, which has never been shown on broadcast TV. "There are literally tens of thousands of very good content providers in the world that don't distribute their content through TV channels," says Scaglia.

But there's more to Scaglia's plan. In the next few weeks Babelgum will launch a service that will allow professional independent producers to automatically upload their videos to its site. The producers will be paid $5 per 1,000 views and a share of advertising revenues, once Babelgum starts attracting advertising. Amateur videos such as those shown on YouTube will not be a part of Babelgum's offering.

Babelgum also plans to offer TV channels built around hobbies such as golf, tennis, and cooking. Users will be able to build their own personal channels, establish social links, and trade opinions on what they watch.

Scaglia may run some traditional TV fare—he says he is talking to big U.S. content providers—but it is not part of the core strategy. Rather than broadcasting content to a national audience, Babelgum wants to distribute global content to like-minded global audiences. Once there is a mass-market audience for channels dedicated to topics like golf or tennis, he figures the advertisers will naturally start flocking to Babelgum.

Babelgum's Rivals

The question is whether Babelgum will be able to catch up to the other Internet video offerings that are cropping up. Joost, backed by European entrepreneurs Niklas Zennstrom and Janus Friis, the founders of Skype, the Internet phone service sold to eBay (EBAY), has managed to generate lots of media buzz and raise $45 million from the likes of CBS (CBS) and Viacom (VIA). (See BusinessWeek.com, 2/21/07, "Viacom Juices Joost.") The service has already captured half a million customers, enabling it to forge partnerships with high-profile content providers and advertisers. Joost recently hired Mike Volpi as its new chief executive officer; Volpi had been tagged as an heir apparent at Cisco Systems (CSCO).