The Video Startup That May Never Launch

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Virtual Worlds, Real Potential – Imaginary Numbers?

This is a rumor that just won’t die: The major television networks are considering creating a new online video service joint venture to compete with YouTube.

We first heard about this when the Google-Youtube acquisition news broke, and wrote briefly about it here (see last paragraph). Today, when we were digging for more information on the possible Metacafe acquisition, more rumors popped up.

Here’s what we’ve heard: a few major networks want to create a YouTube competitor, and they have been seriously discussing this for months prior to the YouTube/Google deal. The technology is fairly straightforward, and would be based on Adobe’s Flash platform. The networks would then license their online rights to content to this new service, allowing users to legally watch full episodes of tv shows on the site. Simultaneous to the launch of this new service, the networks would launch massive litigation against Youtube/Google for copyright violations, forcing them to pull the content off of YouTube.

Consumers would then have only once destination choice when viewing television online – the new joint venture.

But discussions have stalled. First, Google has offered substantial payoffs to the networks to keep their content on YouTube. Second, complications over how to split revenues from advertising have lengthened discussions. Our understanding is that Viacom and Disney have dropped out of the discussions entirely, but that Fox, NBC and CBS are still trying to put a deal together.

The fact that CBS is still considering this is surprising, after they gushed that a recent YouTube promotion helped offline ratings of a few shows. But perhaps Quincy Smith, the president of CBS Interactive, along with his new hired gun from Yahoo, Michael Marquez, are playing on both sides of the fence.

Insiders put the likelihood of a deal being done at 50/50, and that it’s likely that if they do launch they would buy an existing company to jumpstart things. The most likely aquisition candidate? Everyone keeps saying Metacafe.

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