YouTube May Have Met Its Match

The News Corp.-NBC online video service could be a worthy rival to Google's popular site—for viewers and content partners alike

With friends like News Corp., who needs YouTube? Not NBC Universal, apparently. Ditto for AOL, Microsoft, and a who's who of other Internet giants throwing their weight behind a News Corp.-NBC video-sharing service that could prove to be a potent alternative to Google's YouTube.
Here's why. The deal lets Yahoo! (YHOO), Microsoft (MSFT), and Time Warner's (TWX) AOL—Google's biggest rivals in search—all broadcast clips and full episodes of popular TV shows from two of the most widely watched networks on TV: NBC and News Corp.'s Fox. The parties will divvy up advertising revenue while their customers get online access to such shows as 24, The Simpsons, The Tonight Show, and My Name Is Earl.
News Corp. (NWS) Chief Operating Officer Peter Chernin described the deal as a "game changer" for Internet video and hinted more partnerships will follow. The new service will include technology that helps partners keep close tabs on who's watching what, and where—making it easy to track both audience and ad dollars. "We're excited about the potential for this alliance and we're looking forward to working with any content provider or distributor who wants to take advantage of this extraordinary opportunity," Chernin said.
No. 1 Video Site Weakened?
That "any" could include such media companies as Viacom (VIA) and Disney (DIS) and other video services such as Joost—just about any company in the business of creating or distributing video entertainment. "They are all pretty concerned about YouTube," says Forrester (FORR) analyst Josh Bernoff.
Like News Corp. and NBC, Google (GOOG) is keen to set up partnerships that will let it distribute content via YouTube. Trouble is, as the biggest online video service, YouTube has a strong hand in negotiations. Big media would love to get its programming in front of YouTube's large audience, but it's also concerned Google will get too large a share of ad revenue and too much control over content.
Viacom, owner of Comedy Central and MTV, has complained that Google won't offer fair compensation for content, through licensing deals or revenue sharing, and doesn't prevent users from uploading unlicensed, copyrighted content to YouTube. This month, Viacom went so far as to sue Google after discussions broke down over copyright controls and licensing of the network's popular shows and clips (see BusinessWeek.com, 3/14/07, "Viacom's Suit Won't Snuff Out YouTube"). Google's YouTube has limited partnerships with more than two dozen content creators, including General Electric's (GE) NBC, CBS (CBS), and the BBC, but it has been unable to close long-term, wide-reaching distribution deals with major networks.
Potential Earnings Hit
Now that entertainment companies have an alternative distribution network, those negotiations won't get any easier. After the announcement, Viacom indicated it would be willing to work with the NBC-News Corp. partnership, saying in a statement: "A new online video distribution platform that respects copyrights is a welcome addition to the industry."
What's more, the specter of Viacom and other networks providing their content to Google's main rivals, while excluding Google and YouTube, has to be worrisome for the search giant. Though unlikely to squash YouTube—which showed 54.7 million videos in January alone, easily making it the most popular video site, according to comScore Video Metrix—it does have the potential to severely limit YouTube's potential earning power.
A big revenue driver for YouTube in the future will be video ads. Research firm eMarketer estimates that nearly $3 billion will go to online video advertising by 2010, up from $775 million this year. Of that amount, roughly 75% will go to advertising on content created by media companies such as the major networks.