Web TV Pioneer Joost Gives Up Dream, Restructures

Bad Economy, Unfortunate Timing Claim Once-Promising Start-up

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NEW YORK (AdAge.com) -- One of the earliest start-ups to promise an interactive TV experience on the web gave it up today, as Joost announced it will shift from a consumer strategy to licensing its technology to cable, satellite, broadcasters and other video sites.

Mike Volpi
Mike Volpi
CEO Mike Volpi is stepping down and will become chairman; about 20 of the company's 90 employees will remain after the restructuring, according to an executive familiar with the situation. In a statement, the company said "a core team" will remain in New York and London to develop the new business and support what remains of Joost.com. Its development facility in the Netherlands, the company's original base of operations, will be shut down.

"In these tough economic times, it's been increasingly challenging to operate as an independent, ad-supported online-video platform," Mr. Volpi said. "Unfortunately, as part of this change, we will say goodbye to many of our colleagues and friends."

Matt Zelesko, senior VP-engineering for Joost and a former Comcast executive, will become CEO of the scaled-down company.

Boom-and-bust hype cycle
The restructuring ends a long boom-and-bust hype cycle for Joost that began in 2006, when it bowed as a consumer-facing online-video service that aggregated and streamed premium video. It was the first third-party web company to sign online-distribution deals with media companies such as CBS and Viacom, which also made equity investments in the company. Founders Niklas Zennstrom and Janus Friis were start-up darlings, having founded Skype and Kazaa (selling the former to eBay), and rode a steady stream of change-the-world magazine profiles.

Joost attracted investment -- $45 million to be exact -- because it appeared to be the antithesis of YouTube, suspected by the networks of enabling and then turning a blind eye to piracy. Indeed, news coverage at the time billed Joost as a "YouTube killer." But while YouTube proved popular, was acquired by Google and came to dominate web video, adoption of Joost was stunted by its peer-to-peer technology, which allowed high-quality video but required a clunky software download.

Joost spent much of 2008 rebuilding its technology to work via the web, and showed some initial traffic gains after its relaunch. Ultimately, though, it had trouble making inroads in a market in which it had little scale, and suffered from tough economics. As the earliest player in the space, Joost signed network deals on unfavorable terms that gave it little ad inventory to sell. Similar problems claimed Michael Eisner-backed Veoh, which also restructured as a technology company earlier this year.

Blindsided by Hulu
Both companies were blindsided by Hulu, backed by NBC Universal, News Corp. and, more recently, Disney. Hulu has both a far superior catalog of premium video and has gathered up much of the available ad spending in the premium-video space. While Hulu can sell inventory in premium shows, it typically passes on 70% of revenue to the content owners.

Joost spokeswoman Kerry Vance declined to say whether the company has any clients for its new technology business. Joost will meet more than a few entrenched competitors in video delivery and management, including Brightcove and Comcast's ThePlatform.

In addition to its video-delivery technology, Joost has ad-management and -targeting technology, which it had hoped to use to sell targeted video ads to its own users. Now it has to hope someone else is willing to pay for it.

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