Congloms, vid sites think big picture

Web video is one of the Internet's hottest sectors

There are still plenty of contenders out there, but media companies looking to snap up a web video partner probably won’t be doing it on the cheap. And the specter of litigation over copyright issues could narrow the field further.

Web video is one of the Internet’s hottest sectors, and thanks to YouTube’s $1.65 billion acquisition by Google, other such sites are now playing hard to get, spurning lowball offers and trying to build YouTube-size buzz.

Among those already taken:

  • Grouper, a videosharing site bought by Sony in August for $65 million;

  • Atom Entertainment, for which MTV Networks shelled out $200 million;

  • Connected Ventures, a digital media company geared to college students that last year launched a videosharing site called Vimeo. Barry Diller’s InterActive Corp. bought a controlling stake in August;

  • Jumpcut, a six-month-old San Francisco startup that Yahoo! bought last month for an undisclosed sum: Jumpcut makes it easy for consumers to upload video from cell phones and digital cameras and edit footage on the Web, without purchasing special software.

Video sites that aren’t already partnered up with a major media conglom are hoping they won’t make the mistake of selling too soon or waiting until all the best-looking suitors have left the party.

Typical is San Francisco-based GUBA, the rare site that offers legally downloadable movies and TV shows alongside user-submitted videos of things like bike jumps gone awry.

“Our mission is to build a great user experience around finding and downloading the best video,” says GUBA vice president Bart Myers. “Staying independent may be the best way to do that, but we’re always open to discussions of partnerships or acquisitions.”

But there’s at least one wrinkle that could bring the boiling mergers-and-acquisition activity down to a simmer: a lawsuit filed Oct. 16 by Universal Music Group against Sony’s Grouper, as well as, alleging copyright infringements.

So far, no other labels have joined Universal Music in pursuing videosharing sites in court, and no TV network or studio has jumped into the legal fray. But media giants will have to negotiate through copyright conflicts between their various video Web sites or face the prospect of litigation.

Already, three of the major music labels — Warner Music Group, Sony BMG and Universal Music Group took small stakes in YouTube as part of larger licensing deals, a move that should cut down on the copyright headaches for both sides.

Still, as consumers spend more time watching and making video online, media companies are eager to build andmaintain a relationship with them. And with video advertising and pay-per-view downloads becoming a reality, there’s a business imperative.

“Studios and content producers are just now realizing that there’s money to be made,” says Kevin Covert, managing director at the Santa Monica investment bank Montgomery & Co., which advised MySpace on its acquisition by News Corp., and Grouper on its acquisition by Sony. “People have iPods, and they’re downloading stuff on their computers. There’s a huge shift, from the standpoint of entertainment and advertising dollars.”

Supply and demand both seem to be high: There are still media companies that haven’t made a high-profile Web video acquisition, and scads of small companies in search of a sugar daddy.

“Time Warner and NBC Universal haven’t really done an acquisition,” says Covert, “and Yahoo probably needs to do something. You could see Microsoft making a purchase, too.”

Guba’s Myers estimates there may be as many as 200 video-related Web sites. But Jonathan Shambroom, an exec at Grouper, says, “There are maybe only 10 or so really good sites out there that haven’t been bought.” At the top of his list are Revver, Metacafe, Veoh, and Daily Motion.

“There just aren’t enough media companies to buy all these players up,” says Veoh founder Dmitry Shapiro. “Out of hundreds of players, a couple may get acquired for some small amount of money, and the rest will either fend for themselves or go away.”

“I wouldn’t want to try to start another YouTube,” says Bob Davis, former chief executive of search engine Lycos and now a partner at Highland Capital Partners. “But there are many niches where the game is still wide open, like selling advertising against video, and enabling viewers to click through to Web sites from that advertising.”

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