News Corp., NBC to counter YouTube

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News Corp. and NBC Universal are uniting in a new online video venture as the rival media giants seek to curb Google Inc.-owned YouTube's foray in the entertainment sphere.

The companies, which announced their plans yesterday, have wooed several of Google's largest competitors -- Yahoo Inc., AOL, MySpace and Microsoft Corp. -- to sign on to the project, expected to debut by the summer. The yet-to-be-named venture will use popular movies and television shows from Fox and NBC to lure viewers from YouTube, where users share video clips of movies and TV as well as the content they create themselves.

"This is a game changer for Internet video," said Peter Chernin, president and chief operating officer of Fox parent company News Corp. "We'll have access to just about the entire U.S. Internet audience at launch."

Users of the site will have unlimited access to full-length episodes and clips of hit shows, including NBC's "Heroes" and "My Name is Earl" and Fox's "24" and "The Simpsons." Movies from Universal Pictures and 20th Century Fox studios will be available for download at a cost.

Analysts say the ambitious project faces an uphill battle in shaking the wildly popular YouTube, which attracted 133 million visitors in January, according to ComScore Networks Inc. of Reston.

"I wouldn't say this is revolutionary by any means," said Todd Dagres, general partner of Spark Capital, a Boston firm that invests in media and technology ventures. "Today I can turn on the TV and I can turn on my [digital recorder] and I can either watch or record 'Heroes.' So now, instead of watching 'Heroes' on my 50-inch plasma screen, I'll be able to watch 'Heroes' on my computer."

Mr. Dagres said the venture does not pose much of a threat to YouTube, which draws most of its popularity from independently produced videos.

"What is revolutionary is the democratization of content, where people who are not part of the studio system are able to create content and people are able to consume it without the gatekeepers," he said. Moreover, he said, unlike YouTube's short, "snackable" clips, full-length TV shows and movies would not only be costly to stream online, but it also would be tough to hold a user's attention.

Not surprisingly, NBC and News Corp. executives see things differently.

"We expect this site -- or we hope it to be -- the biggest video destination on the Web," Mr. Chernin told reporters on a conference call yesterday.

In creating an online entertainment hub, News Corp. and NBC are not only looking for greater distribution control but also the advertising dollars that come with it.

"We view this announcement as a natural step towards claiming a larger piece of the online advertising market," Merrill Lynch analyst Jessica Reif Cohen said in a research note to clients. "The site's sales force will sell advertising across its various distribution partners' sites, providing more significant reach than advertisers have previously been able to obtain online."

The new company will sell advertising online as well as on the air, according to the NBC/News Corp. announcement. The site's initial advertisers include Cadbury Schweppes, Cisco, Esurance, Intel and General Motors.

But Mr. Dagres questioned whether NBC and News Corp. recognize the cost of streaming full-length, high-quality video online.

"I assume what they're going to do is have TV-style advertising embedded in this content," Mr. Dagres said. "I can tell you right now TV advertising does not work on the Internet."

NBC and News Corp. said they are actively seeking distribution partners. The companies reportedly attempted to woo Viacom Inc. into signing on as a content partner, but the CBS parent company is said to be developing its own online video project and is focusing on a recently filed lawsuit against YouTube. The suit seeks $1 billion in damages for letting users upload copyrighted material.

No details on the new venture's estimated cost have been released, but the companies said they will both "devote a significant marketing and promotional budget to the new site's launch."