A deal by the media conglomerate to license shows to the online video service is a "shot across the YouTube bow"
On the Web, popularity isn't everything. It also pays to have close friends??articularly the kind who own professionally produced content and have long-standing relationships with advertisers. Niklas Zennstr??m and Janus Friis learned this the hard way a few years ago when their first high-profile company, file-sharing service Kazaa, was embroiled in lawsuits filed by the record labels.
Now the pair is playing nice with copyright owners, and it seems to be paying off for their new online video service, Joost, which launched a beta version of its offering in January. On Feb. 20, media conglomerate Viacom (VIA) announced plans to license full shows to Joost, including popular programs, such as The Real World, from its MTV Networks, Comedy Central, and Paramount Pictures brands. Viacom Chief Executive Philippe Dauman cited respect for copyright as key to the deal, saying in a statement that Joost "is built on a compelling and sustainable business model that respects both content creators and consumers."
The Viacom deal came just weeks after negotiations between the media giant and Google's (GOOG) leading video-sharing site YouTube broke down over compensation and copyright issues. Viacom responded by publicly demanding the removal of more than 100,000 YouTube clips, including those from its often-uploaded Comedy Central series The Colbert Report and The Daily Show (see BusinessWeek.com, 2/2/07, "Viacom's High-Stakes Duel with Google").
Those shows were not included in the Joost deal. However, Viacom plans to announce more shows around March, closer to Joost's official launch. Joost will become widely available during the second quarter of this year, says Yvette Alberdingk Thijm, the Joost executive behind the Viacom deal.
For Viacom, the move underscores the myriad of options other than YouTube that copyright owners with coveted content have when it comes to online distribution. "This one is a shot across the YouTube bow," says Forrester Research (FORR) analyst James McQuivey.
"Vote of Confidence"
It also highlights the kind of partner Viacom, and likely other content creators, would prefer: one willing to stream shows, rather than offer more easily alterable downloads, and share more advertising revenue. The financial details of the deals were not disclosed; however, analysts speculate that Viacom could receive at least two-thirds of the advertising revenue.
Joost will undoubtedly receive a boost in popularity from the partnership. In the highly competitive and crowded online video space, offering something different and unique is considered key to survival (see BusinessWeek.com, 2/1/07, "Video Sharing: Thinning the Pack"). Joost is trying to distinguish itself from the countless sites showing user's home videos and Webcam diaries, as the Web destination for high-quality, professionally produced, network television content.
The partnership with Viacom makes that claim more convincing and undoubtedly makes it easier to close deals with other content owners. "I think this is a huge vote of confidence from the entertainment industry," says Thijm, adding that the company will announce more content deals in coming weeks.
It also makes it easier for Joost to make money. While viewers have flocked to user-generated content sites such as YouTube, advertisers have been reticent to jump onto the backs of such videos. One fear they harbor is being associated with unlicensed content that could get them embroiled in a lawsuit. Another is a lack of control over the kind of content with which their message is associated. Network content is a known entity that isn't subject to the same uncertainty.
In the long run, that ability to appeal to advertisers is what will really make a video site stand out from the crowd, says Jupiter Research media analyst Todd Chanko. "The real deciding factor will be who on the Web can aggregate the most content that people not only want to see but that advertisers are going to pay for," says Chanko.
Joost's Viacom deal, and others in the pipeline, gives it an edge over sites without such partnerships. However, such deals alone will not make it a sudden leader in the space or a major YouTube competitor. One reason for that: Viacom's relationship is not exclusive. The company offers clips on its own branded sites and on other video-sharing services. So do other content creators with Joost deals such as Time Warner's (TWX) Warner Bros.
A Brawl, for Sure
When it comes to online video platforms, most content creators will want to play the field, offering their content to whichever sites have a revenue-sharing model and a new audience to reach. Brightcove, a startup focused on providing professional network content on its own site and on partner sites that use its technology, has similar deals with content providers. For example, it works with Viacom's teen-oriented content, "The N" network, says Adam Berrey, Brightcove's vice-president of marketing and strategy. "Major media companies are not looking at exclusive deals," says Berrey. "They are looking at doing deals that meet their revenue objectives."
The premium ads will go to services that can offer what Internet users want most: professionally produced shows, on demand, viewable on their television screens. If Joost succeeds as the place to watch network shows on the Web, it will need to outdo services that offer similar on-demand content through the television screen, says Forrester's McQuivey. "There are a few thousand players who want to be the place to see online video," he says. "No one has the perfect solution because no one has all the content delivered to the device you really want to watch it on, your television, and no one has all the content you want on the device you want to search for it on."
One way Joost can do this is by offering better tools to find new content and shows and then offering that content in a format that can easily be seen on a home theater, perhaps through an IPTV device. If Joost does this, however, others will soon follow suit. "It is really going to be a brawl," says McQuivey.