MSNBC vice president of primetime programming Bill Wolff said he began to realize just how powerful viral-video Web sites were in August, after a clip of Connie Chung singing an off-key version of “Thanks for the Memories” was downloaded more than a half-million times on YouTube.com and other Web sites where visitors shared clips.
“If Connie had any idea that was going to happen, we would've done it sooner,” said Wolff, referring to Weekends with Maury & Connie, which MSNBC cancelled after it averaged just 232,000 viewers a week.
CEO Eric Schmidt and the founders of Internet search giant Google demonstrated their confidence in the potential of viral videos created by amateur Web surfers with their eye-popping decision last week to shell out $1.65 billion in stock to acquire YouTube.
A ROYAL WEB WEDDING
The deal marries “two kings” of the Internet — the king of search and the king of grassroots video — as YouTube co-founder Chad Hurley put it in a wacky video he shot with co-founder Steve Chen, which was posted on their Web site last week. Hurley and Chen will be majestically rich as a result of the buyout, which comes less than a year after YouTube officially launched.
But buying YouTube doesn't mean that Google stays at the top of the fast-moving heap of competitors in online video. Lurking in the background, for instance, is The Venice Project, an infant venture promising radical new ways of combining social networks and television on the Internet, using peer-to-peer computer technology. The founders: Janus Friis and Niklas Zennstrom, who created the music-sharing service KaZaa and the almost-free Internet phone service Skype — which they sold last year to eBay for $2.6 billion (see related story, page 6).
Google itself attempted to seize a chunk of the Internet video business last year with the launch of Google Video (video.google.com). But that site has been dominated by rivals such as News Corp.'s social networking site MySpace.com and Yahoo, which got into video seven years ago with the $5.7 billion acquisition of Broadcast.com (see “Web Life Will Go on After YouTube,” page 36).
MySpace itself actually streams or downloads more video to Web users than YouTube, according to comScore Media Metrix. In July, MySpace.com served up 37.4 million videos to Internet users, according to the online measurement company. That dwarfed Google (7.5 million), along with Web sites owned by major media and technology companies such as Time Warner Inc. (25.6 million), Microsoft (16.2 million) and Viacom (14.0 million). YouTube had 30.5 million.
YouTube, for now, is the king of sites devoted solely to the quickly growing pile of videos showing up on the Web. Its users upload more than 65,000 day; and visitors watch 100 million streams each day.
One of YouTube's strengths, compared to rivals, is its ability to allow users to easily share videos with friends and family, by sending e-mail messages containing links or to build their own channels containing their favorite videos, some observers said.
“This [merger] was done in many ways so the social networking capabilities that are part of YouTube can be applied to Google, which is pretty lacking in that particular space,” said Forrester Research analyst Josh Bernoff.
Google CEO Schmidt said last week that the company will continue to operate Google Video. YouTube and its 60-person staff will operate independently of Google, and continue to work out of YouTube's San Bruno, Calif., headquarters, Schmidt added.
And while Schmidt said Google will allow YouTube to continue to perform like a startup, Google's imprint could already be seen on YouTube.com last week, as the Web site began to display Google text ads on the right-hand side of its pages.
With YouTube in the hands of Google, some other large Internet and media companies are hunting for the next YouTube-type acquisition, if the price is right.
News Corp., which acquired MySpace.com last year for $586 million in cash, tried to make a last-minute bid for YouTube. And Time Warner Inc. CEO Richard Parsons was quoted by reporters attending the international video programming convention MIPCOM in Cannes, France, last week, saying that $1 billion was too high of a price tag to pay for YouTube.
Meanwhile, Google rival Yahoo — whose sites still deliver the most overall videos to Web surfers, according to ComScore — has reportedly bid $1 billion for social-networking site Facebook.com, a rival in some ways to MySpace.
Keith Richman, founder and CEO of viral video Web site Break.com, said his company has also received buyout offers from firms that he declined to name.
“We get calls all the time from suitors. Google-YouTube only makes us stronger,” Richman said.
Richman said Break.com, based in Los Angeles, got started before YouTube and has actually generated close to $1 million in ad revenue this year. YouTube is just beginning to figure out its business model.
Break.com, Richman said, plans to remain an independent company in the near-term, and focus on expanding its business by licensing its content to TV networks and other platforms. The company also supplies video clips to Amp'd Mobile phone customers.
One of YouTube's greatest challenges is handling copyright issues. The company allows any Internet user to upload videos, including copyrighted videos. But YouTube executives said they will remove the content if they receive a request from the copyright owner.
“The main question is what they are going to do about the copyright problem,” said Forrester's Bernoff. “If you sue YouTube, you could put it out of business. If you sue Google, you could get a lot of cash.”
YouTube attempted to defuse potential copyright concerns hours before it trumpeted the Google merger by announcing a content and advertising agreement with CBS. The deal allows CBS to demand that YouTube pull any copyrighted material from the site that it doesn't want to remain on there.
And if CBS allows YouTube to continue to host copyrighted material that has been uploaded by its users, CBS will share the ad revenue that is generated from Web traffic.
MSNBC's Wolff said copyright issues are a concern for the network, especially when the network shoots exclusive interviews that could potentially drive substantial traffic to its own Web site. But overall, viral video sites such as YouTube.com help MSNBC, since video clips of its anchors allow the network to reach a new audience.
Because YouTube displays exactly how many people have viewed each video clip, programmers can gauge the success of individual segments.
“We really do use it [YouTube] to partly take the temperature of the consumer and see what are they interested in,” Wolff added, referring to clips from MSNBC anchors Keith Olberman and Joe Scarborough on YouTube.
Google's investment in video could also come asunder if a new player — like Friis's and Zennstrom's The Venice Project — creates an easier-to-use service that escapes intellectual property enforcement. Or a big player, like MySpace.com, could make it easier for its 100 million members to share not just video, but audio and other content. And Rupert Murdoch, the CEO of News Corp., said last month at the Goldman Sachs Communcacopia conference that he's confident MySpace can get past 1 billion members, worldwide, in relatively short order.
Getting YouTube content onto the “boob tube” also could be problematic. The untapped potential for YouTube.com and other Internet video sites is enabling TV viewers to access the videos with a few clicks of a remote control.
One broadband content supplier who asked not to be identified said displaying all the content that is available on the Internet on television screens in American living rooms could become problematic, considering indecency regulations enforced by the Federal Communications Commission.
“I could imagine something like 'YouTube's best 10 this week.' But beyond snippets I'm not sure how feasible it is to have all that stuff up,” the person said.