Babelgum's Contrarian Approach to Web TV

The Ireland-based startup favors independent films over studio fare and ads over subscriptions. Will the formula work?

by Jennifer L. Schenker

Take a look at how the Internet TV market is developing and you can bet that Babelgum, a free, global Internet TV and video-on-demand service, will be taking the opposite approach. While competitors such as Joost concentrate on U.S. and European markets, Babelgum is looking east, with plans to add Chinese-language original content in the first quarter of next year.

Targeting Asia—along with Europe and later the U.S.—isn't the only thing that distinguishes Babelgum. While competitors like Joost, started by European entrepreneurs Niklas Zennstrom and Janus Friis, or BitTorrent, created by U.S. peer-to-peer pioneer Bram Cohen, have snagged high-profile deals with some of the biggest names in entertainment to redistribute TV and films over the Internet, Babelgum, which is headquartered in Ireland and has offices in Italy, France, and Britain, has no deals with the majors and says it doesn't care.

Create Your Own Network

When it comes to films, the startup aims instead to showcase material that people haven't seen anywhere else. To that end, on Sept. 1, Babelgum announced an online film festival that seeks to give a platform to budding filmmakers around the world. U.S. film director Spike Lee will head the jury. (See BusinessWeek's "Spike Lee on Internet TV's Reach.")

Babelgum is already allowing professional independent producers to upload videos to its site. Producers are being promised that they will be paid $5 per 1,000 views and receive a share of advertising revenues once Babelgum starts attracting ads. Babelgum is also offering independent and short films such as Lee's Jesus Children of America, which has never been shown on broadcast TV. A main focus of Babelgum, though, will be to create TV channels built around hobbies such as golf, tennis, and cooking. Users will be able to set up their own personal channels, establish social links, and trade opinions on what they watch.

"The fundamental point is that we want to personalize the platform and the way of enjoying the content, not just deliver big-name hits around the world" says Valerio Zingarelli, who took over as Babelgum's chief executive in July. "Babelgum wants to be a new TV to watch and not just a new way to watch TV." Zingarelli replaces one of the company's co-founders, Erick Lumer, who is now focusing on product development.

First Italy, Now the World

The new CEO spent the past 10 years at global mobile operator Vodafone (VOD), most recently serving as global director of networks and service platforms, and has close links with Babelgum co-founder, billionaire Silvio Scaglia. The two met when Zingarelli was chief technology officer at Italian mobile operator Omnitel (later bought by Vodafone), where Scaglia served as chief executive officer.

Scaglia left Omnitel in 1999 and bet all of his own finances, and his future, on an ambitious project to wire Italy. He founded FastWeb, Italy's second-largest fixed-line phone operator and one of the first companies in the world to build a large-scale integrated IP network to carry voice, data, and TV. Zingarelli was an independent member of the board of FastWeb, which was sold to Swisscom (SCMN.DE), Switzerland's state-controlled telecom operator, for $4.88 billion earlier this year.

Scalgia has already poured $13.2 million of his own money into Babel Networks, Babelgum's parent company, 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. The Babelgum service, which is still in beta testing, has plans for commercial launch in March of next year.

Building Channel Communities

The number of Babelgum viewers testing the service doubled from 50,000 in July to 100,000 by the end of August and—thanks in part to publicity around the new online film festival being judged by Lee—Babelgum says it expects to have at least a half a million by March. Babelgum's business model is that everything is free of charge for consumers, with no contract and no monthly fee. All revenues are expected to come from advertising.

"We don't want people to migrate from traditional TV to watching TV on PCs. That is mission impossible today," says Zingarelli. "We want to talk to people who are already using PCs and the Internet, tell them they can also click on Babelgum and step in and out like they do with a Google (GOOG) portal." Even if viewers merely sample the offerings, the idea is that building communities around the channels of like-minded viewers such as those who like scuba diving or home repairs will create return users and attract advertising dollars.

Industry observers say it is too soon to know which Internet TV model will work. So far Joost is the one attracting most of the media ink and far more viewers—it claims already to have a million, even though the current service is an invitation-only beta testing. But don't count out Scaglia and his quirky alternative approach.

Schenker is a BusinessWeek correspondent in Paris.