After months of speculation, News Corp. and NBC Universal announced this week that they would create an online distribution system together for TV content. And by partnering with portals AOL, MSN, Yahoo and MySpace, the yet-unnamed distribution venture would reach 94% of the U.S. Internet audience.
The joint venture is being called a YouTube killer, but the companies involved said they spoke to the Google CEO the morning of the announcement, and that he's not averse to the idea.
"They are considering this," sad Peter Chernin, News Corp.'s president-chief operating officer, of speaking to Mr. Schmidt.
Added Jeff Zucker, CEO of NBC Universal: "We're open for business with anyone. If you believe in ubiquitous distribution, then this is incredibly exciting."
Both TV executives touted the scale their independent venture would bring to the online video space, with Mr. Zucker adding that the "scale of this distribution network makes us quite different than anything that ever existed in the history of the internet."
Charter advertisers on the site include General Motors Corp., Esurance, Intel, Cadbury Schweppes and Cisco.
And, indeed, scale is important, which is why the web portals' involvement is so key -- it's an admission of how difficult building an online audience from scratch can be in the hyper-fragmented space. "If you don't have enough streams going, it doesn't matter if [Procter & Gamble] wants to do deals for your content," said Adam Sohn, a director in Microsoft's Online Services Group. "The value we put back in is distribution to grow it to internet scale from day one."
Control of online ad spending
According to recent eMarketer stats, the big four online players -- Google, Yahoo, MSN and AOL -- command two-thirds of all online ad spending, and will continue to dominate for years. Avenue A/ Razorfish's recently published 2007 Digital Outlook Report corroborates the importance of online scale, and notes that while the traditional media companies continue to bolster their online offerings, they only accounted for 10% of the agency's online spending in 2006.
"For us, it was a natural," since General Motors and its media agency have good relationships with all of the media outlets, said Curt Hecht, chief digital officer at Publicis Groupe's dedicated buyer and planner unit for the auto giant. The new online video site will allow GM to leverage the programmers' great content and the scale offered by the digital outlets. "This was a no-brainer," Mr. Hecht said. "These are all companies we like and do a significant amount of business with."
GM Planworks got a call from NBC around 5 p.m. March 21 about the opportunity and closed the deal in just a few hours through a call with the automaker's media czar Betsy Lazar and four e-mail exchanges, Mr. Hecht said.
Another advertiser, Esurance, got the call from NBC around the same time and made the quick decision, with its media agency, MPG's Media Contacts, to jump on it. (Media Contacts has two other clients, one of them Royal Carribean, that also signed on yesterday morning.)
Ed Montes, Media Contacts exec VP-managing director, U.S. operations, said he can't think of a previous example where an advertiser could get that kind of scale next to professionally created online video content.
Absent from the venture
Notably absent from the venture are other TV networks, including Disney, Viacom and CBS Corp. CBS, in a statement, said: "As with all existing and potential partners, we will continue to discuss opportunities with NBC and Fox to determine if we can work together in the future, and we wish them well." Disney and Viacom didn't offer explanations of their nonparticipation.
But the venture will likely need to sign on more content partners to be as wildly successful as the executives hope it will be. It is also unclear whether the venture will build its own destination site or acquire one that a third party, such as an online video syndication company such as Brightcove or a technology company like Sling Media, is building.
While past multicorporation joint ventures have faltered, the executives involved in this one say the current case is different. "The simplicity, apart from the scale, is we're not reinventing wheel, building new technology or business models," said MSN's Mr. Sohn. "We're taking a library of content and distributing it. ... We know how to do internet scale services and so does Yahoo and AOL."
For marketers, the commitment is likely to be a small piece of their media mix, with initial figures ranging between a couple hundred thousand to $1 million. For the media companies, the commitment is substantially more -- about $100 million was put into the venture.
But the opportunities to experiment with new online video ad models will be valuable, NBC and News Corp. say.
"We have to begin to experiment and find the most effective way to maximize monetization and, more importantly, provide viewers with great experiences. It's great to be able to control your own destiny," Mr. Chernin said.