Business biggies wade warily into viral video

Can conglomerates unite to take on YouTube?

The creators of YouTube had a grassroots concept that turned into a viral goldmine. Now showbiz’s mega-congloms want to get into the act. But grassroots and viral are foreign words to showbiz behemoths.

The holy grail is youth-skewing Internet programming, and all the congloms said they were willing to work together to come up with a solution. On Tuesday, Viacom exited the discussions.

Getting several big media companies to work together on any joint venture is an uphill battle. But doing it in the fast-moving and risky Internet space appears to be nearly impossible.

Nonetheless, for the past couple of months, most of the congloms have been trying to put together a plan for a Web site that would let them control the online destiny of their videos, rather than allow the mega-powerful combination of YouTube and its new parent company Google to determine their fate.

That the talks will ever come to fruition became significantly less likely Tuesday, after Viacom exited the discussions along with its valuable collection of youth-skewing cable programs. Disney is already out, Time Warner isn’t believed to be taking part, and CBS is said to be iffy on the prospects, leaving only News Corp. and NBC Universal definitely interested in making a deal happen.

The state of talks seems to be changing on a daily basis. But even if negotiations get back on track, the earliest an agreement could come together is mid-January.

Insiders insist they’re serious about trying to build their own site, but there’s no denying that saying so is also a smart negotiating tactic. Now that it has bought YouTube for $1.65 billion, Google has been talking to big media companies about deals to license their content.

Media congloms could be in a better negotiating position if they were setting up, or can at least threaten that they will set up, a vid site of their own.

They would then have more leverage in “setting the right kinds of terms and pricing for licensing deals with other sites,” said Nicholas Butterworth, founder of Diversion Media and former CEO of the MTVi Group. “That would be a smart strategy: setting a financial model that others, like Google, would have to play by.”

Most nets and studios already sell episodes of TV shows via iTunes. But the download biz has turned out to be relatively tiny — at last count, iTunes has sold 45 million pieces of video content, generating about $63 million in revenue for the content owners.

The real killer app is turning out to be ad-supported streaming. All nets stream a handful of shows on their own sites, but they know that most Web surfers are spending their time at sites like YouTube and Break.com, where user-generated content sits side-by-side with pirated clips from TV shows, musicvideos and movies. Content owners understandably want a healthy cut of the revenue being generated by the videos they own.

But big media companies don’t have a good track record when it comes to joint ventures online. Movielink, the film download service that launched in 2002 with the backing of five major studios, hasn’t gained much traction and has been up for sale for more than a year. Pressplay and MusicNet, the music download services launched by record labels, were both busts.

“The big media companies’ organic forays into new media have been disasters,” Forrester Research analyst Josh Bernoff said.

Today, things are complicated by the congloms’ increasing investment in their own Internet ventures. News Corp., for instance, surely wants MySpace to be involved in any online video venture, but its competitors are wary of giving the social networking site a boost. Ditto Viacom with its iFilm and AtomFilm Web sites.

Meanwhile, some nets are forging partnerships of their own. CBS already distributes clips on (and gets a cut of revenue from) YouTube. MTV Networks is part of a test project with Google to syndicate videos, with ads attached, on blogs.

Most fundamental, of course, is the question of whether there’s room for a new video site to succeed on the Net, even with the backing of big media players.

“They’re probably a year too late,” said Jeff Pulver, founder and chairman of Pulver.com, a New York company that organizes a conference called Video on the Net. “The networks know they have to do something. They have good intentions, and big brand names, but at the end of the day, these joint ventures never deliver on their promise.”

Jeff Jarvis, an associate professor at the CUNY Graduate School of Journalism in New York who also runs the blog BuzzMachine.com, points out that the promotional platforms the networks have may not help much in launching a vid site. “You can’t advertise it on TV, because the person who’s watching TV is 59½ years old,” he argued. “That’s not the demographic you want to attract.”

(Josef Adalian in Hollywood contributed to this report.)