Viacom Drops Out of Venture to Take On YouTube

Leaves NBC Universal and Fox to Continue Talks

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This story has been updated, 2:40 pm.

NEW YORK (AdAge.com) -- Attempts by the media conglomerates to form a network-backed rival to YouTube suffered a set back yesterday after Viacom executives said they are no longer part of the project.
Viacom's decision to pull out of a video venture that would challenge YouTube is based partly on its own success at going it alone.
Viacom's decision to pull out of a video venture that would challenge YouTube is based partly on its own success at going it alone. Credit: AP

"Yes, we're out of it," one executive confirmed. "We've got a lot of agendas right now. There was no need to do it and be a founding member. We can license our stuff to it. We don't have to be a participant." A Viacom spokesman declined to comment.

Down to Fox, NBC
The charge to spearhead a rival to YouTube appears now to be left to Fox and NBC. CBS is not part of current discussions aimed at forming a rival to the Google-owned online video site, Ad Age has learned.

CBS representatives would not comment on the talks at all, though other executives said that CBS is not part of current talks because of a pending deal with Google over its CBS Radio inventory and that it dropped out of talks in recent days. Another executive close to CBS suggested that while they are not part of current discussions, they may re-enter should the initiative progress.

The talks are being led by Peter Levinsohn, the new president of Fox Interactive Media and by Beth Comstock, who is president NBC Universal digital media and market development.

Time Warner and Walt Disney Co. also confirmed yesterday they had no interest in being part of the venture.

Earlier this month, one person inside Viacom said it's difficult for the company to determine what kind of licensing deal it should negotiate with a Google-owned YouTube without first making its content as accessible as possible on its own and seeing what happens. Viacom owns video-clip destinations iFilm and Atom Entertainment and has one of the most popular online programming destinations in Comedy Central's Motherload.

"We're the prettiest girl at the dance. We have content that's driving a lot of these sites and we own almost all of it. A lot of people are interested in reaching agreements with us. They don't have to be exclusive," this person said. Viacom is still negotiating with Google over how it will be compensated for copyrighted material that lands on YouTube.
Comedy Central's Motherload, part of Viacom, is a popular destination, thanks to clips from 'The Daily Show With Jon Stewart.'
Comedy Central's Motherload, part of Viacom, is a popular destination, thanks to clips from 'The Daily Show With Jon Stewart.'

Still, even with Viacom's decision to exit, the core group is pressing on. One executive who is part of the talks explained that discussions are still ongoing over some central issues. "The business-model concept is to look at whether to license programming or be part of the asset that [delivers it]. That is the real question people are wrestling with."

This executive added: "TV is an advertising-based business model that will continue to be under pressure. We have to get our product to a platform that is more compelling and that has inventory that is ROI-driven."

Reports had suggested the group might be make a bid for a small video serving site called Metacafe, but this executive said numerous online video entities were trying to get in front of the group, and it hasn't even been decided if they will acquire a property.

Putting pressure on Google
"This whole thing is about screwing a better deal out of Google," another executive outside of the venture said.

The major entertainment companies are in talks with Google about how they will be compensated for the use of their content on YouTube. The threat of a rival might give the entertainment companies more leverage in negotiating revenue splits with Google. The outside executive also added that the threat of an anti-trust lawsuit could also be a deterrent to the venture.

The history of entertainment conglomerate-backed responses to entrepreneurial ideas that suddenly take off isn't exactly rosy. The music industry tried on-demand music venture Press Play in response to Napster, while the movie business tried Movielink, a Hollywood movie download service.

But the question traditional networks have to ask themselves is whether they gain incremental viewers by banding together rather than promoting their own sites as places to view online content. The only way it would work, said someone involved in early talks, is if each network agreed to make the commitment to promote the joint video site over its own site -- and that's a sacrifice not all are prepared to make. Indeed, while it seemed attractive to collectively launch a YouTube-killer six months ago, networks that have since put their shows online have gotten a taste of the revenue that can come from that -- and are considering going it alone.

One of the biggest challenges would be getting the various companies -- which are not only fierce competitors but also at various stages in their digital development -- to work together. "Would I want another network knowing how well my shows performed on the web?" said the executive who was privy to early discussions.

Creating improved technology
The reasons to do it would be for technology or marketing purposes, said Mike Vorhaus, managing director of Frank N. Magid Associates, and if the reason was to create a common technology for streaming, downloading and security, that makes sense. But he contends the networks don't need it for marketing purposes.

"I don't think you need to have [the networks] in a common TV download website for people to know about NBC, Fox, ABC and CBS's having video online. YouTube's success is not that it's a brand that is well known, but that it's a social network of video consumers -- you've got all these people who go there to share video," he said.

Plus, he added, his company has learned from observation in its usability studies that many people use traditional search engines to find video they're looking for. Soon it will matter less where the video resides as long as people can find it easily.

"Do a search for video on Mt. Hood hikers," he said, referring to the ongoing story about the search for missing climbers on Oregon's Mt. Hood. "Sometimes a CNN link comes up, sometimes a YouTube link. I don't get the impression that the majority of average YouTube user is pouring a beer, taking their shoes off and going to YouTube and watching 20 minutes worth of video."

Buyers remain skeptical if a joint venture would work, but say if it did and created a repository of quality video, they'd be interested in buying media through it.

The challenge is the content
"Conceptually it would make everything easier if you think of this consortium as one-stop shopping for all of this great content," said Sarah Kim Baehr, VP-media, Avenue A/ Razorfish. Often the challenge in advertising on a user-generated content site or on YouTube is the user-generated content, she said. With the networks' offering, "you know it's part of a series and the marketer has probably bought into it at some other level."

But she's skeptical the venture will become reality, given how the various competitive parties would have to work together. "They'd all have to be pretty altruistic and so focused on Google and YouTube as a rival and forego their own rivalries among each other to be successful," she said. And it would never be a replacement for YouTube, she said, but an "also" or a "nice to have" complementary site.

"Part of the entertainment value of YouTube is having all this user-generated content and that it's a meeting place," she said. "It's not about watching the whole clip but about watching the part that's worth seeing. ... It's about what are the top five videos that the gazillion people who go to YouTube are watching. What's new that's bubbled up?"

Will it be for the user?
The reason YouTube grew so quickly, said Ian Schafer, CEO of Deep Focus, which has launched campaigns on the site, is that it's a functional website. "Chad Hurley will say this until he's blue in the face -- it's designed for the user with the conveniences, functionality, sharing," Mr. Frazier said. "If the networks put something together and do it right they would make it just as minimalist and democratic as YouTube." But, of course, that's not been the primary impetus driving the networks decisions.

However, he suspects the networks' advantage in such a site is that they could best pull off a pre-roll online ad model -- albeit shorter, more irreverent ads -- without angering users.

"I don't think they have to [come up with new ad model] but they can change the concept of the pre-roll to make it work," he said. "Pre-roll won't be the enemy, especially if it's in front of professional content, where there's a quality guarantee."

"Most interesting that they would even come together to talk about it," Ms. Baehr said. "That says a lot about how the whole digital world has put everyone upside down. It changes the whole paradigm -- there's no reason for these people to be in the same room or collaborate except for this enemy."
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