FreeWheel, a Palo Alto-based start-up founded by former DoubleClick execs, has developed a new ad-serving technology that promises to allow media firms to distribute their video everywhere with advertising attached.
CBS and Warner Bros. have adopted the technology, and sources inside Viacom and NBC say they're testing it. Distributors such as Joost, Sling and Veoh have also adopted the system, and deals with bigger distributors such as YouTube and MySpace may not be far behind.
FreeWheel takes on an obvious problem, but one that's incredibly complicated to solve: how to serve ads into video distributed across the web, on sites that use different video players, while paying revenue splits to copyright owners, distributors and video portals.
"The reason content owners resist distributing widely is because they don't have control over who sells ads and who gets paid," said Freewheel co-CEO Doug Knopper. Former DoubleClick execs Mr. Knopper, Jon Heller and Diane Yu founded the company in April 2007; 40 engineers from DoubleClick, Adobe, Yahoo and Visible World spent nearly a year building the technology.
The main hurdles were getting the system to work in the myriad video players on the web and persuading distributors to accept FreeWheel's code, which allows it to operate. "Technically, it was difficult to build, and there were a lot of business issues that needed to be confronted," Mr. Knopper said.
The company finally started signing up customers in January 2008. One of the first was Joost, which is betting the system will help them sign up once-reluctant content-owners by giving them full control over who sells their ad inventory and how they get paid.
"We've got hundreds of content providers. We give them the choice if they want to sell ads on their properties or if they want us to do it," said Joost Exec VP-Marketing David Clark. "We have to track the economic relationships with publishers and they all have to be paid out."
Since the company was founded -- and funded to the tune of $10.5 million from Battery Ventures -- the media world has started to see the web not as a huge piracy battle to be fought but as a distribution opportunity.
NBC came under scathing criticism for locking up its Olympics video on NBCOlympics.com, a move that cost the network viewers and revenue and encouraged piracy. In the end, NBC said it earned just $60 million from its online Olympics coverage, and was forced to spend a great deal to enforce its copyright around the world.
Mr. Knopper said if NBC had distributed video widely, it could have increased revenue 10 times, while greatly decreasing the cost of enforcement. That's the notion behind CBS Interactive's Audience Network, which distributes CBS video to dozens of sites.
But FreeWheel allows content owners to take that one step further. Currently, in order to distribute video with advertising, networks restrict their content to sites that will accept their proprietary players, one reason YouTube hasn't been able to cut more content deals with the studios. Since FreeWheel follows the video regardless of what player a distributor uses, the video can go anywhere.
FreeWheel takes a 5% to 10% cut of whatever cost-per-thousand rate is being paid for by the advertiser. Mr. Knopper said as video ads shift online, FreeWheel could be earning $500 million in revenue within five years.
It begs the question why none of the current ad-serving giants, such as DoubleClick, aQuantive and 24/7 Real Media, has moved into the space. One theory: They've been tied up for the past couple of years being acquired and then integrated into Google, Microsoft and WPP, respectively.