Television networks have long watched the proliferation of online video with a wary eye. Internet video sites were potential pirates, poised to plunder and unduly profit from copyrighted clips, robbing television companies of audiences and advertising dollars in the process. Recently, however, the major networks are seeing something else in these Web sites—potential partners.
A distribution deal announced on Aug. 7 between Google (GOOG) and Viacom-owned MTV Networks (VIA) is the latest example of this new viewpoint. Under the agreement, Viacom will provide Google with video clips and commercials for syndication on the member Web sites of Google's massive AdSense network. Viacom, Google, and the Web site owners will then split the advertising revenue. Google will also sell Viacom videos on its site for $1.99 each.
"We see ourselves as a platform to help large media companies reach their digital objective in the Internet space," says David Eun, Google's vice-president of content partnerships. "What we want to do is to become the technology company of choice to offer content owners distribution and monetization."
JUST THE BEGINNING. For awhile, it seemed big media companies did not want Google, or any other technology company, to play such a role. Networks such as NBC and CBS (CBS) requested that sites such as YouTube remove their copyrighted content (see BusinessWeek.com, 04/10/06, "You Tube: Way Beyond Home Videos"). Others jealously guarded content on their own Web sites, refusing to license or post it to other sites. "The media has looked at the Internet with some caution, saying, 'are they our friend or foe?'" says Benjamin Schachter, an analyst at UBS. "This is an important strategic step in the right direction."
And probably just a beginning. Analysts, advertisers, and video sites see a future when content providers—from major networks down to computer users with funny home videos—will give online companies the ability to both distribute their videos online and sell targeted advertising appended to licensed clips. "I see it as a progression, which might mirror the progression of graphical ads on sites over the past few years," says John Cate, national media director at Carat Fusion, one of the five largest advertising buyers in the world. "To start, there will be stand-alone video portals that will monetize their users. Then video will reach throughout the long tail [to Web site owners]…I expect to eventually see the decentralization of videos away from YouTube and similar portals to becoming part of hundreds of thousands of sites."
Many major sites want to cash in. Online video advertising is expected to reach $385 million this year and balloon to as much as $1.5 billion by 2009, according to statistics from market research firm eMarketer. The company projects online advertising will reach $26.6 billion overall by 2009.
SPLITTING THE PROFITS. Currently, Google is only distributing the MTV videos and ads. Thus, it is receiving less than a third of the advertising dollars, according to a report in The New York Times quoting an executive involved with the deal. It has to split that amount with its AdSense users who are posting the content on their pages.
In the future, Google hopes to sell advertising itself and thus keep more of the profits. "You can imagine a future where we are selling the ads and distributing the content," Google's Eun says.
Some sites are already selling video ads. Time-Warner's (TWX) AOL, for example, has sold ad space before the videos that run on its portal for more than a year. On its new video site, launched last week, ads run before nearly all of its content. Some of them AOL sold, others came bundled with content from partners, says Fred McIntyre, vice-president of AOL Video.
"KIND OF UNSTOPPABLE." McIntyre sees a future where more and more content providers will become open to showing their content online and splitting the advertising profits with Internet companies. "Everybody remembers what happened to music," he says, referring to the rampant sharing of unlicensed MP3s. "The Internet has demonstrated that it is kind of unstoppable in that regard, and we have to take a very different approach."
Part of that approach has been for both big media and online companies to embrace non-exclusivity. Both AOL and Google, for example, have content deals with MTV. It makes sense from a business perspective because MTV wants as many people as possible to see its ads and drive traffic to its site. Meanwhile, the online companies are willing to take the ad revenue anywhere they can get it.
Many companies have been pursuing Google/Viacom type deals in hopes of bringing more advertising dollars to their networks. Guba, a smaller video portal, is working on similar deals. "We are looking to partner with premium content providers such as MTV," says CEO Thomas McInerney, adding that deal announcements could be forthcoming within the quarter. "In fact, I was a little frustrated that Google beat us to the punch." Already, the site has content distribution deals with Warner Bros. (TWX) and other Hollywood companies to allow users to download paid content (see BusinessWeek.com, 06/26/06, "Guba Debuts Online Video Store").
YAHOO IS WATCHING. Initially, McInerney says that Guba is looking for content that comes bundled with ads, similar to what MTV is offering Google. However, it eventually could want to sell ads itself. Yahoo (YHOO) is also looking into similar deals. "Yahoo has video-enabled advertising on our own site," says Jason Zajac, Yahoo's general manager of social media, adding that the company does not put pre-rolled ads before user-generated videos.
He said the company will be watching Google's test to see how it turns out and is working on some deals of its own. "There are some things that we haven't disclosed that will be very interesting and timely when it comes down."
Another advertiser that wants to get into this space is Brightcove, a firm that links up content producers with video software that can come bundled with advertising. The software allows videos to be embedded on a variety of sites. "We are in a very dynamic environment," says Adam Gerber, the company's vice-president of ad products and strategy. "Old business models are quickly being proven to be obsolete."
The eventual business model could rely on such services and others that offer targeted advertising that can change according to the user seeing the clip, based on data collected about his or her IP address when Web surfing. "The technology is there," says Rafat Ali, publisher and editor of PaidContent.org, a news site covering digital media. "Google and MTV is the first phase…I would say within a year we could see more targeted advertising. Things are moving really fast."