New Web Sites Aim for TV Experience

NEW YORK — Watching video online in small, fuzzy boxes is heading the
way of rabbit ears.

Some highly anticipated Web sites are being modeled on making the
experience of watching video online more like watching television.
These sites rely on software that enlarges the interface so that it
fills your computer screen -- from edge to edge.

This new wave of applications is led by Joost and includes VeohTV and
Babelgum. Though all are in beta (testing) phases, the hype has been
mounting -- leading many to claim the next big advance in online video
is imminent.

"The distribution problem is starting to get solved by many different
people, but the experience of online video is still very poor," said
Veoh founder Dmitry Shapiro. "Companies like Veoh and Joost are trying
to create a more TV-like experience for viewers."

Of course, YouTube, which Google Inc. bought for $1.76 billion last
November, is the site that braved the online video path. Though
YouTube offers the option of a full-screen mode, video is typically
watched in a smaller box that can be embedded in other sites.

These new sites, all of which are ad-supported and transmit video with
peer-to-peer technology, are seeking to move beyond YouTube by
improving video quality, attracting professionally produced content
and expanding the viewing experience -- which is to say: to be more
like TV.

Babelgum's slogan is: "TV experience, Internet substance." Veoh touts:
"VeohTV makes watching Internet as simple as watching television."
Joost simply states: "The new way of watching TV."

Each of the three work nearly the same way. You download the
application from the respective Web site. When that's finished, you
have a desktop icon that will launch the application. It then fills
your screen with an on-demand-style choice of videos arranged in near
broadcast-quality channels.

Joost -- founded by Janus Friis and Niklas Zennstrom (the founders of
the Internet telephone company Skype and the music-sharing service
Kazaa) -- says it has created enough buzz to attract 1 million beta
users.

Joost's strategy has been to sign deals with major content providers,
making copyright lawsuits unlikely. (YouTube, on the other hand, is
being sued by Viacom Inc. for more than $1 billion.) It has inked
deals with Viacom, CBS, CNN, the NHL, Sony and others.

"The early stages of video content on the Internet was a lot of
user-generated stuff, stuff like my grandmother and her cat," said
Joost chief executive officer Mike Volpi. "What we're trying to do is
evolve that experience into something that the viewer doesn't view
just out of interest, but actually builds an affinity with that
particular programming content."

Volpi notes users won't watch long-format video "on a postage
stamp-size thing." But altering viewing habits to watch more than
5-minute clips even on a full-screen application may be difficult.

A poll conducted last September by The Associated Press and Time
Warner Inc.'s AOL found that only one in five online video viewers
have watched or downloaded a full-length movie or TV show.

James McQuivey, a TV and media technology analyst for Forrester
Research, believes people will grow more accustomed to long-form
material as it becomes easier to download it.

But he cautions that Joost is "an evolutionary step, not a revolutionary one."

"If there's anything that Joost does, it moves the ball forward," said
McQuivey. "It tells people that the TV and the PC are not two separate
worlds. But as long as we're still mimicking the TV on the PC, we're
failing to appreciate the value of combining those two worlds."

Babelgum bears many similarities to Joost, but is primarily focused on
video from independent producers, rather than mainstream sources, said
co-founder and CEO Valerio Zingarelli.

Zingarelli said Babelgum also plans to embed its platform in set-top
boxes by the end of 2008, which would make its content viewable on
traditional TV sets. Apple offers such a box for video purchased on
iTunes, and more video companies are expected to follow suit.

Veoh has both a YouTube-like site at Veoh.com and VeohTV, which
Shapiro called a "video browser." Though VeohTV is pursing deals with
the major TV networks and many Hollywood studios, its approach is to
cull all the Internet's free video in one place -- "like Google for
video," said Shapiro. It also allows viewers to record video like a
DVR.

Veoh even took the pre-emptive step of recently suing Universal Music
to bar it from taking legal action against Veoh. Many content
providers would prefer its material to be shown on its own platform,
where it controls the surrounding advertising.

"For the consumer to try to figure out where to find video that
they're interested in and navigate their interfaces becomes extremely
difficult," said Shapiro.

The Internet and television are increasingly being portrayed as on a
collision course, the two destined to fuse within 10-20 years when TV
could become just another form of high-speed data. But those visions
remain relatively far in the future. Online video is still in its
infancy, Shapiro said.

"People are just starting to discover it and understand it," Shapiro said.

Joost, Babelgum and Veoh have several heavyweights to compete with,
including Microsoft's LiveStation, Apple TV and the recently unveiled
Hulu, a joint venture of NBC Universal and News Corp.

The analyst McQuivey doubts YouTube should be worried because its
interactivity has "created a social kind of viewing."

Joost, in particular, hopes to accomplish something that similarly
fosters discussion among viewers. Volpi says Joost will blend the
viewing experience with real-time water-cooler conversation.

Joost plans to become available to the public before the end of the
year (to join, readers can go to http://www.joost.com/presents/ap/),
Babelgum is planning to launch in March, and Shapiro expects to keep
VeohTV in beta no longer than a year from now.

NBC Will Not Renew ITunes Contract

NBC Universal, unable to come to an agreement with Apple on pricing,
has decided not to renew its contract to sell digital downloads of
television shows on iTunes.

The media conglomerate — which is the No. 1 supplier of digital video
to Apple's online store, accounting for about 40 percent of downloads
— notified Apple of its decision late yesterday, according to a person
familiar with the matter who asked for anonymity because negotiations
between the companies are confidential.

A spokesman for NBC Universal, part of General Electric, confirmed the
decision, but otherwise declined to comment. A spokesmen for Apple
declined to comment. The decision by NBC Universal highlights the
escalating tension between Apple and media companies, which are
unhappy that Apple will not give them more control over the pricing of
songs and videos that are sold on iTunes.

NBC Universal is also seeking better piracy controls and wants Apple
to allow it to bundle videos to increase revenue, the person familiar
with the matter said.

NBC Universal is the second major iTunes supplier recently to have a
rift with Apple over pricing and packaging matters. In July, the
Universal Music Group of Vivendi, the world's biggest music
corporation, said it would not renew its long-term contract with
iTunes. Instead, Universal Music said it would market music to Apple
at will, which would allow it to remove its songs from iTunes on short
notice.

The action by Jeff Zucker, NBC Universal's chief executive, will not
have an immediate impact on iTunes. The current two-year deal extends
through December, so a vast video catalog — some 1,500 hours of NBC
Universal's news, sports and entertainment programming — will remain
available on iTunes at least until then.

Among the most popular NBC Universal shows available for sale on
iTunes are "Battlestar Galactica," "The Office" and "Heroes." The
company has been talking to iTunes about offering Universal movies,
but has not done so to date because of piracy concerns.

The two companies could still reach an agreement on a new contract
before their current deal expires. While each side has so far refused
to budge, the talks will continue and have been free of acrimony, the
person familiar with the matter said.

But the defiant moves by NBC Universal and Universal Music could
embolden other media companies that have been less than thrilled with
Apple's policies. NBC Universal was the second company to sign an
agreement with Apple to sell content on iTunes, and its contract
stipulated that Apple receive notice of plans to cancel 90 days before
the expiration date. Otherwise, the deal would automatically renew
according to the original terms.

Assuming similar provisions in deals negotiated with media companies
like CBS, Discovery and the News Corporation, a parade of 90-day
windows will be coming due.

A move by NBC Universal to walk away or withdraw a large amount of
content would probably hobble Apple's efforts to move deeper into the
sale of video-focused consumer electronics like the iPhone and a new
class of iPods. While Apple's early efforts in this area depended on
music to fuel sales, analysts say video is what will drive much of
Apple's retail business in the future.

The iTunes service wields incredible power in the music business,
since it accounts for more than 76 percent of digital music sales. And
its influence is on the rise: Apple recently passed Amazon to become
the third-biggest seller of music over all, behind Wal-Mart and Best
Buy, according to the market research firm NPD.

But the sale of video online is still at a nascent stage. Media giants
like NBC Universal are aggressively trying to move into the business —
in part to avoid the piracy that has plagued music companies — but the
revenue they earn from online video sales does not yet have a material
impact on their financial performances.

So some media companies feel they have the upper hand: Apple, for now
at least, needs their content more than they need Apple. And there are
an array of companies — like Amazon, Wal-Mart, Microsoft and Sony —
that would love to have NBC Universal as a partner to muscle in on
Apple's turf.

Then there is NBC Universal's own Hulu.com, a venture in partnership
with the News Corporation to build a video portal to compete with
YouTube.

The risks that media companies face in removing content from
well-known Web sites involve perception and promotion. NBC Universal
could anger consumers by preventing them from easily watching shows
and movies in the most popular way — through iTunes and the iPod.
Television networks and movie studios have vigorously tried to avoid
being branded with the same anticonsumer sentiment that has worked
against the record labels.

And because iTunes is so popular, NBC Universal would lose an
increasingly important way of marketing entertainment products,
particularly fledgling television shows, to consumers.

For months, most media companies have grumbled that Apple underprices
video and audio content as a way to propel sales of a much more
significant profit center: iPods and related merchandise. (One
noteworthy abstainer from the grumbling is the Walt Disney Company,
which has Apple's chief executive, Steven P. Jobs, as a board member.)

The iTunes service has sold songs for 99 cents each since its
beginning four years ago, except for the recent introduction of songs
without copy protection. Episodes of television shows sell for $1.99,
with movies priced at $9.99.

NBC Universal and other companies say they want to increase prices by
packaging content— say an episode of "The Office" with the movie "The
40- Year-Old Virgin," because they both star the comedian Steve
Carell.

In the past, Apple has argued that a range of pricing would complicate
the iTunes experience and squelch demand.

Video Site Gets $34 Million in Funding

Dailymotion SA has secured $34 million in venture-capital funding
that will allow the French start-up to expand its video-sharing Web
site as it competes against larger rival YouTube, owned by Google Inc.

The company's new funds come from venture-capital firms Advent Venture
Partners LLP of London and AGF Private Equity of Paris, a division of
Allianz AG. Dailymotion already had raised about $9.5 million in
October from venture firms Atlas Venture and Paris-based Partech
International.

Dailymotion, which is based in Paris and was launched in 2005, has
grown rapidly to reach some 37 million visitors a month. It is one of
a crop of Internet start-ups emerging in Europe, which has
traditionally lagged behind the U.S. in technology innovation and
availability of venture-capital funding.

Other start-ups that have attracted both users and investors recently
include Babelgum, an Italian Web-television firm, and the privately
held, Paris-based Netvibes, a Web site that allows users to create
highly personalized, advertising-free pages containing constantly
updated information and tools.

The $34 million raised by Dailymotion represents a sizable sum in
Europe, where venture-capital investments have traditionally been more
modest. Venture-capital investment in U.S.-based companies reached
$25.75 billion in 2006, while $5.62 billion was invested in
Europe-based companies in the same year, according to Venture Capital
Report, published by Ernst & Young LLP and Dow Jones & Co., publisher
of The Wall Street Journal.

Like YouTube, Dailymotion allows users to post and view videos on the
Internet. The site is stocked with everything from homemade clips of
pets to music videos and excerpts of TV shows. Dailymotion's executive
chairman, Mark Zaleski, said the new funds will "allow us to reach
operating profitability" as the start-up develops new revenue streams
such as video advertisements in addition to traditional banner ads.

Mr. Zaleski said Dailymotion is also seeking to negotiate deals with
makers of music, movies and TV shows to allow their content to appear
on the site legally instead of in pirated form. Dailymotion has signed
such deals with Universal Music Group and Warner Music Group.

Video-sharing sites have struggled to weed out illegal and copyright
material and often have found themselves at odds with media and music
companies as a result. In June, Dailymotion began using so-called
fingerprinting technology from Audible Magic Corp., of Los Gatos,
Calif., to help filter out illegally posted content.

Dailymotion's efforts to expand won't be easy, because YouTube is also
pushing into foreign markets. In June, YouTube launched local-language
versions of the site in Brazil, France, Ireland, Italy, Japan, the
Netherlands, Poland, Spain and the U.K.

Hulu's A Lulu Of A Name

WHAT'S IN A HULU? IF all goes according to plan, a slew of network
shows led by News Corp. and NBC Universal. The long-awaited name for
the upcoming joint venture--which means nothing in any particular
language--was finally announced Wednesday to an industrywide chorus of
yawns and guffaws.

"The first thing I thought of was those little plastic hula girls
people put on their dashboards," said Mike McGuire, an analyst with
Gartner Research.

"Come on," pleaded Forrester Research analyst James McQuivey. "It
sounds like they figured that all the good company names were already
taken."

Predictably, the blogosphere was no less critical. Hulu-related posts
on the popular industry blog TechCrunch were remorseful at best.

"Worst domain name for a company with more than $100 million behind
it," concluded magnusdopus. "Closest mental association is the
Hawaiian term hula. And anything Hawaiian has an 'out there'
connotation. On a scale of 1 to 10, I give it a 4. With YouTube being
a 10."

"I give this a negative infinity out of 10, with YouTube being a 10,"
added TechCrunch commenter Jason Moy. "Laughable."

Worse still, critics of the long-form video distribution
platform--variously referred to in the past as "NewSite," "New Co.,"
and "Clown Co."--received more ammunition when Hulu CEO Jason Kilar
said the site would miss its previously announced late-summer release
date.

"Now it's October?" quipped Forrester's McQuivey. "We all knew they
weren't going to make it by end of summer, but now you have to ask
where else could they come up short."

Added McQuivey: "I hope they bought every URL with a variation of the
spelling, because no one's going to know how to spell Hulu."

If only by name, Hulu does mesh with the endless stream of Web
technology and content brands coming out of Silicon Valley, conceded
some analysts who were willing to admit that the quality behind a
brand is ultimately more important than its name.

"It's hard to remember," said Gartner's McGuire, "but people must have
thought brands like Yahoo and Google sounded just as strange as
Mahalo, Twitter, and Vuguru sound today."

TiVo 2Q Earnings Down, But 6% Rev Rise

ALL THAT TIVO GAINED IN the first quarter of this year--reporting its
first profits--was lost in the second quarter.

TiVo took a hit, losing $17.7 million in its second-quarter earnings
period. Back in April, the decade-old company eked out its first-time
profit of $835,000 for the first quarter.

Worse still, the second-quarter drop was lower than the same period of
a year ago, when the digital video marketer suffered a $6.4 million
drop.

Much of TiVo's problem this quarter was due to an inventory write-off
charge of $11.2 million from its supply of standard-definition DVRs.
TiVo has now made a big move to manufacturing and selling HD DVR
boxes.

On a positive note, revenues rose 6% to $62.7 million. The
7-cents-a-share loss was a bit more than Wall Street analysts were
expecting at 5-cents-a-share decline.

For the future, TiVo has struck a deal with big cable operator Comcast
to bring TiVo service to some of its platforms, including Scientific
Atlanta set-top boxes. It is also in agreement with DirecTV to give
users who have DirecTV DVRs the ability to add on TiVo software to
those units.

Overall, TiVo-owned subscriptions totaled 1.71 million--up 136,000 on
an annual basis compared to the year ago-period. TiVo had additions in
the second quarter of 41,000, compared to 74,000 a year ago.

Subscriptions were impacted as retailers switched from the
standard-definition DVR TiVo product to the HD DVR TiVo product.

All subscriptions--those owned by TiVo or distributed by providers
such as DirecTV--were at 4.2 million as of second-quarter 2007, down
5% from a year ago. Much of that loss came at the expense of DirecTV,
which is now selling DVRs under its own brand name to users.

How to Dress Like Your Favorite TV Character

Delivery Agent offers consumers not just goods, but an experience,
according to CEO Mike Fitzsimmons. Shopisodes are an ever-growing
collection of interactive videos that allow consumers to shop for
items directly from a clip of their favorite show. As the clip is
playing, visitors can select and purchase the products that appear in
the video.

Retailers and the entertainment industry have been a combined force
for years. Designers jump at the chance to drape their latest fashions
across celebrity shoulders in an effort to reach the consumer.

Until recently, however, that viewer would be hard pressed to actually
locate that slinky little beige number worn by Lauren Conrad last week
on "The Hills," even if they stuck around to watch the credits roll.

Thanks to a growing arsenal of media rich, entertainment oriented Web
sites, now you can.
Web Shopping 3.0

A new generation of e-commerce Free Trials. eCommerce Data Solutions,
Tax Rates, Address Verification & more. sites have made it their
mission to make Hollywood shoppable for the average person the way it
has been for celebrities and movie stars for years.

The result has been a revolution in shopping online that has ushered
e-commerce into the realm of 3.0.

Through Web sites like SeenON! and it's parent company Delivery Agent,
GET Interactive and magazine style sites like Celebrity Style Guide
and Glam consumers can pick and choose from almost anything they see
in the entertainment world.

Propelled by an increase in broadband penetration and a desire to meet
the evolving demands of the online consumer, companies like Delivery
Agent link to online retailers that sell products seen on television,
in films and music videos, and in the sports world.

"You could see video clips from a show like 'The Hills' while shopping
for items from that show," said Delivery Agent Chief Executive Officer
Mike Fitzsimmons. "Delivery Agent is focused entirely on sharing
commerce to the entertainment industry, to utilize the assets to our
partners."

Their partners include such industry giants as ABC, NBC, MTV, E,
Style, Fox and Martha Stewart Living Omnimedia.

Searching Shopisodes
Fitzsimmons said his company offers consumers not just goods, but an
experience. An xample of these experiences is Delivery Agent's
Shopisodes.
Shopisodes are an ever-growing collection of interactive videos that
allow consumers to shop for items directly from a clip of their
favorite show.
As the clip is playing, visitors can select and purchase the products
that appear in the video.
Easy navigation allows viewers to select a network, which then
presents a number of options for viewing.
"I saw the 'Ugly Betty' Keds shoes, I wanted to have them, so I bought
them," said Karie Porter, a 27-year-old social worker. Porter, an
"Ugly Betty" fan, said she regularly visits entertainment based
e-commerce site, SeenON.

"Most of the time I don't plan on buying anything," she said. "In
fact, I never do, it just sort of happens. Maybe that's how they get
you."

Porter, who lives in Phoenix, Ariz., said she logs onto SeenON once or
twice a day, about as often as she checks her MySpace Latest News
about MySpace account.

By marketing Email Marketing Software - Free Demo entertainment world
apparel, jewelry, electronics, furniture, appliances, etc., this
star-studded form of e-commerce offers a powerful alternative in the
multi-billion dollar industry of online sales -- an industry which has
for years relied solely on the traditional, catalog style retail
portal.

As the name suggests, SeenON consumers are made privy to merchandise
that has been "seen on" TV -- within an hour of its air time.

"Our focus is on leveraging our partners' content to create an
emotional brand and connection between the products and entertainment
properties themselves," Fitzsimmons said.

Across the top of the site is a tool bar that lists portals such as
TV, celeb style, film, music, products, videos, blog, etc.,

The toolbar's rollover functionality reveals a number of choices for
each selection. Users can also search for products by show, movie,
actor or product type.

"We work with our partners on the info side; oftentimes those products
are expensive products, these are celebrities," Fitzsimmons said. "We
often offer a look for less option. We present the consumer with a
comprehensive buying experience that is more affordable."

A science-fiction buff could check out "Heroes" merchandise at the NBC
Universal store. The link is accessible via a visit to the front of
Delivery Agent's front door. Purists, however, can opt for the Sci Fi
Channel through the same page.
Movies, Music Videos, Too

In a similar vein, GET Interactive is a company with a mission to make
all video content shoppable. They have developed an online shopping
system Stay on budget with simple to install HP server technology.
that allows Internet users to buy the products they see in movies and
music videos.

The company also created a pilot program for the movie "Freedom
Writers," starring Hilary Swank. Customers can buy some of the items
worn by Swank, Harrison said..

Consumers can roll their computer mouse onto photos and video stills
on GET Interactive's Web site.

Clothing and jewelry companies pay GET Interactive a flat fee to sell
their advertising online.

"We want to create an opt-in branding experience for consumers so that
they can choose to seek out the brand they care about and it's
embedded in the content they care about," said Rick Harrison, GET
Interactive's CEO.

The site is fully interactive, including a blog which allows consumers
to share information about sought after products they've seen on their
favorite shows, movies and celebrities.

New iPod?

Technology news Web sites have speculated that Apple could launch a
new video iPod with a large touch screen similar to the iPhone, and a
redesigned iPod nano in time for the end-of-year holiday shopping
season.

Apple has distributed invitations to a September 5 event in San
Francisco, but did not reveal what it would be about.

"The product announcement is likely to include a full line-up of
revamped iPods with significantly greater functionality at current
price points, including the much-anticipated full-screen video iPod,"
Goldman said in a note, urging investors to buy Apple shares.

Goldman said September 5 would bring "the almost certain launch of a
new family of iPods" ahead of the holiday season, which accounts for
the biggest chunk of sales for that part of Apple's business.

The Hulu Scoop: NBCU/News Corp. Brand Video Site, Open Private Beta

THE HIGHLY ANTICIPATED JOINT VENTURE between News Corp. and NBC
Universal that will stream full episodes of hit series such as "The
Simpsons" and "My Name is Earl" finally has a name: Hulu.com. A beta
version of the site went live this morning, inviting people to sign up
to a private beta test of the new service. "Why Hulu?" writes the
venture's CEO Jason Kilar on the site. "Objectively, Hulu is short,
easy to spell, easy to pronounce, and rhymes with itself.
Subjectively, Hulu strikes us as an inherently fun name, one that
captures the spirit of the service we're building."

Kilar -- named CEO of the stand-alone company NewSite that runs Hulu
-- went on to write that the site's "never-ending mission ... is to
help you find and enjoy the world's premier content when, where and
how you want it."

News Corp. and NBCU have been coy about the video destination's
moniker since the announcement of the venture came in March. Hulu -
which some have said looks to be a "YouTube killer" since it will
offer full episodes of network and cable hits, plus movies, as opposed
to a heavy emphasis on user-generated low-quality videos - recently
received a financial infusion via a reported $100 million investment
by private equity firm Providence Equity Partners which gave that
group a 10% stake.

Visitors to Hulu.com can now sign up to receive an invitation to use
the site once the content actually is available for viewing (only the
names of shows that will be available sits on the home page so far.)
Kilar indicated the site - which will be free and ad-supported -- will
go live in October, a month after executives at the partner media
companies had indicated it would.

NBC shows that will be available besides "My Name is Earl" include
"Las Vegas" and the coming "Bionic Woman. From News Corp., coming
series besides "The Simpsons" include Fox's "American Dad" and
"Bones," as well as the freshman series "K-Ville," -plus two series
from its FX cable channel, "Dirt" and "The Riches." There is no
indication of which films might be available from either Universal
Pictures or Twentieth Century Fox.

NBC Universal executive Kevin McGurn is heading up sales efforts for
the ad-supported site, MediaPost has learned. That was confirmed by a
July post by blogger Donna Bogatin, who conducted an interview with
him. McGurn has headed sales for a previous NBCU broadband venture,
NBBC. When the site was announced News Corp. and NBCU said a run of
advertisers had already signed up, including General Motors and Cisco.

The site's content - thousands of hours of full-length programming are
promised -- will be distributed via sites AOL, MSN, MySpace, Yahoo,
CNET and Comcast. Site operators say it will reach 98% of the U.S.
Internet audience.

"This is a game changer for Internet video," Peter Chernin, News Corp.
president-COO, said in March when the site was announced. "We'll have
access to just about the entire U.S. Internet audience at launch. And
for the first time, consumers will get what they want --
professionally produced video delivered on the sites where they live.
We're excited about the potential for this alliance and we're looking
forward to working with any content provider or distributor who wants
to take advantage of this extraordinary opportunity."

Among the films News Corp. and NBCU said would be available include
"Borat," "Little Miss Sunshine," "Devil Wears Prada" and "Bourne
Supremacy," as well as various movie trailers.

Its launch distribution partners will provide the biggest potential
reach of any player on the Internet. Moreover, the new site will
actively seek agreements with a variety of additional distribution
partners.

"This new venture is further proof that the Internet is now a
full-fledged entertainment medium, and we are delighted to serve as a
major online distribution partner for the quality content produced by
these media powerhouses, as well as a provider of strategic services
to the new venture," Randy Falco, AOL Chairman-CEO, said in March.

Kilar, Hulu's CEO, previously worked at Amazon.com before joining to
launch the venture in July.

TV is dying, says Google expert

One of the founding fathers of the internet has predicted the end of
traditional television.

Vint Cerf, who helped to build the internet while working as a
researcher in America, said that television was approaching its "iPod
moment". In the same way that people now download their favourite
music onto their iPod, he said that viewers would soon be downloading
most of their favourite programmes onto their computers. "85 per cent
of all video we watch is pre-recorded, so you can set your system to
download it all the time," said Mr Cerf, who is now the vice-president
of the Google, the world's largest search engine. "You're still going
to need live television for certain things - like news, sporting
events and emergencies - but increasingly it is going to be almost
like the iPod, where you download content to look at later."

Although television on demand has not yet become a mainstream activity
in the UK, the BBC, ITV and Channel 4 have all invested vast sums of
money in technology which enables viewers to watch their favourite
shows on their computers. But some critics, including some internet
service providers, have warned that the internet will collapse under
the strain of millions of people downloading programmes at the same
time. Over the next four years, it is thought that the number of
videos watched over the internet will quadruple, with people moving
from short clips to hour-long programmes. Broadband companies claim
that the service will cause "traffic jams", which will cost millions
of pounds to sort out and that customers will ultimately end up paying
the bill.

But Mr Cerf dismissed the warnings as "scare tactics", saying that
critics had predicted 20 years ago that the net would collapse when
people all around the world started to use it en masse. "In the
intervening 30 years it's increased a million times over... We're far
from exhausting the capacity," he said. "It's an understandable worry
when they see huge amounts of information being moved around online."

Setting out his vision for the future of the internet, he said he
wanted it to reach as many people as possible. "I want more internet,"
he said. "I want every one of the six billion people on the planet to
be able to connect to the internet - I think they will add things to
it that will really benefit us."

'OMG Advertising!' YouTubers React To In-Video Ads

"OMG ADVERTISING!!" IS WHAT SPLITFORCES, one YouTube commenter, had to
say about the InVideo ads unveiled on the site last week. Scattered up
and down YouTube's comment threads, early reactions to the new format
varied from mean and critical to favorable and constructive.

A commenter named fardousha warned: "If ads invade youtube, i will
desert it," adding: "What attracted me in the first place is ads free
quality time. Long story short, it ain't a good idea."

"I really like the InVideo ad," remarked gsully224. "It is MUCH better
than a preroll ad, and more innovative and interactive."

Seconded gatorspit: "I think they did a good job with this, much
better then tacking [an ad] on the front like most video sites do."

The top video-sharing site online with a lively commenter community,
any change to YouTube's structure or design invites instant criticism
and discussion. To no one's surprise, YouTube's decision to finally
allow ads to invade the walls of its video player triggered a torrent
of user commentary last week.

YouTube's InVideo ads are semi-transparent overlays, which run at the
bottom of its video player, and stream for 10 seconds about 15 seconds
after a video begins. Many of the Flash animations are interactive, as
users can click through to an advertiser's linked URL or streaming
video spot.

Of the 20 or so advertisers that YouTube said are testing its InVideo
units, ads have already appeared on the site for New Line Cinema, BMW,
Fox and Warner.

As YouTube's rivals--and some of its users--have noted, YouTube is not
the first Web video company to experiment with Flash overlays.

"You ripped off VideoEgg!" commented bdc2005, in reference to the
video technology company, which has championed pre-roll video ad
alternatives since its launch in 2005.

Brightcove and Adbrite are at least two other companies with
experience in the area of overlays.

Like the response from YouTube's community, industry reaction to the
InVideo ads has been mixed.

According to Brightcove CEO Jeremy Allaire, advertisers are not
particularly fond of the overlay format.

"To our disappointment, there has been extremely limited uptake by the
advertising community around these formats," Allaire said in an email,
citing advertisers' continued preference for pre-roll ads as one
reason for the failure of overlays.

T.S. Kelly, head of research at Media Contacts, the interactive arm of
media-buying firm MPG, said he passed on the InVideo tests with
YouTube because the format is "unproven."

"I really wasn't too excited about it," Kelly said of YouTube's
initiative. "I'm excited about new opportunities around online video,
but I'm not really sure that this is going to move the needle for our
clients."

For Adam Shlachter, partner and group director at Mediaedge:cia's MEC
Interaction, the InVideo ads are fine, but he and his clients are more
interested in an ads' targetability.

"They could work depending on what a client is trying to achieve,"
said Shlachter. "But, I want to know how they plan on targeting the
ads. That's where things get interesting."

Going in the face of convention wisdom, Brightcove's Allaire insisted
that advertisers have not felt a consumer backlash from pre-rolls.

"For premium brands and content, the basic pre-roll and companion
banners are yielding extremely attractive CPMs and there is little
evidence that :15 ads have any negative impact on end-user viewership
behavior," Allaire explained in his email. "In fact, our own metrics
show that sites that run without any ads, and then introduce :15
pre-rolls and banners achieve identical usage and performance (e.g. no
drop-off in users because of ads) on their content."

If only due to the sheer novelty of the event, many YouTube users have
been actively seeking out the new ads.

Unable to find the spots, a commenter named adrigent complained: "If
we don't see the ad, how can we decide whether its annoying or just
nice??"

U.S. online video ad expenditures are expected to total $775 million
in 2007--up 89% from last year, according to market research firm
eMarketer. That number represents about 4% of the projected 2007 U.S.
online ad spend of $19.5 billion.

Separately, YouTube late last week rolled out several new community
features to further promote user engagement.

In an effort to encourage more "constructive" comments, while
deterring spam and abusive comments, YouTube is now helping its
community to moderate comments with a positive (+) or negative (-)
vote.

Users can now discover the top-ranked videos, and view the last five
videos that any user rated. The list is posted in a user's "channel."
People can also now see a video's rating history under "more stats."

Pluggd Plugs Into $6 Million For Contextual Video Service

PLUGGD, A SEATTLE-BASED DEVELOPER OF a platform for online video
search and highly targeted contextual advertising, has secured $6
million in Series A financing from Intel Capital, which led the round,
along with DFJ Frontier, Band of Angels, Labrador Ventures and others.

Pluggd is one of a long line of companies looking to become the Google
AdSense of streaming video. Others keen on combining contextual
advertising with streaming video include Adap.tv, Digitalsmiths, Get
Interactive, Adjustables, AdBrite and blinkx's AdHoc. And of course,
earlier this week, Google's YouTube introduced its own InVideo
platform, with targeting currently based only on user demographics and
video genre only.

Pluggd plans to use the new financing to accelerate product
development, boost hiring, and build partnerships with traditional
media companies and online content providers.

By searching inside video streams, Pluggd said its platform frees
advertisers from relying solely on pre-roll and post-roll--instead,
they can dynamically place clickable overlay ad banners at any point
in a video that is most contextually relevant.

"Since we have the ability to look within the audio and video content
and understand the content itself, we can match up advertisers using
that information," Pluggd CEO Alex Castro told OMMA magazine last
November. "If you're watching a videocast about travel in Europe, and
one segment is about Dubrovnik, we could match up an advertiser who
does tours on the Croatian coast."

As part of the new funding, Band of Angels' Ian Sobieski and DFJ
Frontier's Scott Lenet will join Pluggd's board of directors, and
Intel Capital's Gustavo Aray will become a board observer.

Needless to say, they all had nothing but raves for the new technology.

"Pluggd's ability to let users search within a video stream is
something no one else can offer," said Lenet. "The increased user
engagement from this technology effectively boosts inventory for
content owners."

"We think Pluggd's solutions for targeting high-value ads into online
video are ingenious," added Sobieski.

Speaking for Intel Capital, Vice President Angela Biever said:
"Internet audio and video is rich in potential growth, but currently
lacking a useful search service. Pluggd addresses that need directly."

Video Ads Go in Line, in Time

Written by Gary Stein
For advertisers and their agencies, the notion of video on the Web has
long been an exciting but uneasy topic. In the early days, video was
exciting and new, but nearly impossible to deliver. File formats
conflicted with pretty much every site, and download speeds
practically ensured that no one would ever see more that a jumpy
bunch of half-drawn frames. But the technology on both the serving
and the receiving end got better quickly. Advertisers can now be
pretty sure the videos they put up can be viewed.

That leaves the problem of whether they would be seen. For a long
time, the reality has been that people weren't going online to look at
stuff. They were going online to do stuff. This is why this industry
is called "interactive marketing". Certainly the interactive part has
something to do with technology. But mostly, "interactive marketing"
means marketing where there's an ongoing, evolving, deepening
give-and-take between a consumer and a brand.

Watching a video isn't necessarily a give-and-take experience, which
is central to advertisers' struggle. That is, technology got better,
consumers got interested, and video began to take off. Consumers were
watching videos online. Advertisers soon followed and quickly muddied
the experience with pre- and post-roll ads and ads within the video
itself.

If you tried either pre- or post-roll, you're probably familiar with
the problems. Pre-roll ads, unless they're highly relevant to the
video the consumer chose to watch, annoy people. So much so, that
people tend to bail on the whole video rather than sit through the
ad. Post-roll is even worse. Again, unless this ad is highly
relevant, no one is sticking around to see it.

The third solution, to put the ad into the video itself, seems
anathema to the medium. Interrupting content to show an ad was
precisely the way most interactive gurus denigrated traditional
advertising. To show ads in the middle of content, in a way that's
out of the user's control, was just wrong, wrong, wrong.

But within the last several months, we seem to have gotten it at last:
place the ads within the video player frame. YouTube announced last
week that it will begin offering a very clever ad execution that
places a small strip at the bottom of certain videos, offering a
message and a chance to click for more content. VideoEgg has been
offering much the same thing for a long time now. The ad is a bit
more consistent in the VideoEgg examples, but the idea is totally on
target.

As YouTube's implementation of the inline ad takes hold of the market,
we'll see how successful this approach can be. It offers a lot of
promise. First, they're on target with consumer expectations of not
only the medium but of advertising's place in it. There seems to be a
cardinal rule that exists online: no one should ever see an ad unless
she has specifically requested to see that ad.

Sure, you can argue people don't request to see banners, but you can
also argue banners are really invitations to see the real ad (whether
that ad is a video, a rich media experience, or just a landing page).
The inline ad, however, follows that cardinal rule. It invites you to
engage further, but that's all. In fact, it goes away, never to be
heard from again, if you don't touch it.

Second, inline ads don't disrupt and barely distract. With both the
YouTube and VideoEgg executions, the ads never take people away from
the content they're watching permanently. Instead, they offer a
separate bit of content that can be consumed distinctly; the original
video is paused. Think about your own browsing habits: most likely
you're constantly hopping back and forth between multiple pieces of
content. The path consumers are asked to take through these ads is
deeply familiar.

Lastly, inline ads don't need to be limited to video. The line between
a video and a rich media experience is blurring daily, and inline
video units can take advantage of this new space. The click on an
inline video ad unit can take the viewer to a rich experience with
interactivity, games, and who knows what else. Which will be the
first brand to sell something in this space?

Whatever the immediate results are from these initial forays into
inline video advertising, we can look forward to a new video
advertising option. Shoot, in advertising in general. More and more
content will be delivered digitally in the coming years. You can
already watch YouTube via the AppleTV player, in your living room.
This online format -- one that takes the notion of interactivity to
heart -- may have life outside of Web sites.

10 Online Video Ad Competitors Compared

Found on mashable.com

While YouTube's announcement that they will start including ads in video comes as little surprise, there are already dozens of companies vying for a piece of the video advertising industry, which is expected to grow to $2.9 billion by 2010 according to eMarketer. Here is a look at 10 of the top players in the market, ranging from startups to some of the Web's biggest companies.

BrightRoll offers both pre-roll (meaning ads before a video plays) and mid-roll (ads that take place between segments of a video) advertising and places ads based on contextual, behavioral and demographic targeting. To determine content, BrightRoll looks at information like tags and keyword profiles, while using data for its publishers from ComScore to create demographic-based campaigns. The company claims to be the fastest growing video advertising company with more than 800 million ads served.

YouTube's approach to video advertising closely mirrors that of VideoEgg, who powers video uploads for major publishers like Bebo and AOL. VideoEgg uses what they call a "ticker" that shows a promotional banner within the video that can be clicked if a user wants to learn more about the product or service being advertised. In the example below, an ad is shown for the film SuperBad that when clicked shows a trailer for the movie. Ads are sold through the eggnetwork, a collection of VideoEgg's largest publishers serving more than 15 million videos per day. The format is less-intrusive than pre-roll advertising since it doesn't delay the actual video from running and is optional for the user.

AOL's online advertising network, Advertising.com, now offers pre-roll video as well as in-banner video (video ads that display in conventional banner ad sizes such as 728×90). In-banner ads seem to be growing more common on content-heavy sites replacing traditional graphic-based banner ads. Most in-banner ads require a user to click them in order to play, but some more invasive ads start automatically. In the example below, a video ad is displayed in an article on investment site TheStreet.com.
http://video.advertising.com

Roo is a resource for web sites looking for video content, video producers distributing content, and advertisers that want to advertise via video. This works by Roo licensing video content and selling advertising across their network of sites that host it. Unlike several of its competitors, Roo gives web publishers control over the advertising, allowing you to sell your own ads in addition to those sold by Roo. Through its content channels (such as sports, music, etc.), Roo targets pre-roll advertising based on user interests and demographics.

ClipSyndicate is a video network comprising of web publishers, video content producers, and advertisers. Like Roo, ClipSyndicate licenses video content from a variety of sources and distributes it via a network of web sites. Web publishers then have the option to pay a fee to host videos and sell their own ads, or can do opt for a revenue share on the ads that ClipSyndicate sells for them. At this time, ClipSyndicate ads consist primarily of 15-second pre-roll video ads.

The massively funded BrightCove operates the BrightCove Syndication Marketplace which connects video producers, content web sites, and advertisers. The company offers several different advertising formats, including combined video commercial and banner ad, video overlay (a small ad that appears while the video is playing; similar to VideoEgg), or player takeover, where the sponsor's ad occupies the entire video player and can either be clicked or skipped.

Broadband Enterprises is another online video network consisting of producers, publishers, and advertisers. The company claims more than 450 publishers including Fox News and Warner Brothers that deliver over 400 million monthly video streams. It appears the majority of the ads Broadband Enterprises sell are of the pre-roll variety.

The largest remaining independent ad network, ValueClick's video ad program is currently in beta. ValueClick's "In-stream" product displays pre and post-roll video ads, while also offering in-banner ads to place ads in traditional banner slots. In the example below, a post-roll ad for TaxBrain is shown, while the web site also makes use of ValueClick's traditional banner network by placing a 728×90 TaxBrain ad at the top of the page.

AdBrite, which operates a marketplace for a wide variety of online advertising including text, banners, and in-line ads (those ads that turn words on a page into ads) recently launched InVideo, its own video player and ad network. The ads show up in "split screen" format so you can continue watching your video as the ad is displayed. InVideo also allows you to place your own watermark into the videos, a nice feature for branding your video content.

Adap.tv places a variety of ads through the video watching experience. While allowing you to have pre and post-roll video ads, adap.tv also attempts to analyze the content of the video to provide relevant text ads while the video is playing. In the example below, the video hosts are talking about the movie "The Prestige" and a text ad promoting the DVD is shown. ScanScout offers a similar technology.

The online video space continues to see a huge amount of venture capital pour in as the race is officially on to grab the market. While it's unlikely anyone will catch the 800 gorilla of Gootube in terms of reach, "win-win" networks like VideoEgg and BrightCove are already attracting the publishers and advertisers necessary to create a viable marketplace and will help keep the industry competitive in the years to come.

Stop YouTube Ads with TubeStop

From lifehacker.com.

Windows/Mac/Linux (Firefox): Firefox extension TubeStop disables
autoplay on YouTube videos and blocks obtrusive overlay
advertisements. Deactivating autoplay will come in handy for anyone
who's followed a YouTube link and accidentally blared a video through
the workplace, while the incidental overlay ad "blocking" very quickly
dispenses with a new feature that a lot of avid YouTube fans aren't
happy with. TubeStop works by replacing the on-site YouTube player
with the embedded player you'd see on another site (which currently
doesn't host ads and doesn't autoplay). TubeStop is free to download,
works wherever Firefox does.

Would you like video with that?

From the GoogleNews blog:

One of our goals at Google News is to offer as many different
perspectives on the news as possible. That means bringing content from
multiple sources together in a way we hope you find to be organized
and relevant. Now we're adding video to the mix: we're showing related
news videos along with our news articles to give you a broader
spectrum of info available. You'll see the prefix "Video" next to
story titles, and clicking on these video links will open a video
player directly on the page so you can watch the video right there.

Today, viewing news videos or other content types on the web can be a
frustrating experience. You often get videos that don't play, sites
that require different video player downloads, or have misleading
descriptions of the content. That's why we're working with YouTube so
you can easily view online videos without any downloads required and
regardless of what browser you're using.

For our initial launch, we have included several top news sources such
as CBS, Reuters, and a number of local Hearst TV stations. Over the
next few months, we'll continue to add new sources as fast as we can.
Right now we're just offering this addition in the U.S., the UK, and
Ireland; we hope to make it available in other languages and editions
soon.

YuMe Launches New Video Ad Formats

Video startup YuMe Networks released a set of new products Monday
aimed at providing sponsors a range of options in the wide open online
advertising space.

"Our opinion is it's highly doubtful that just one ad format is going
to be right for video," said Jayant Kadambi, CEO of Redwood City-based
YuMe. "Watching a two minute trailer on mobile you're not going to
want the same ad as watching it on television."

With ad dollars moving online and the popularity of online video
skyrocketing, marketers are increasingly interested in the space.
Online video ad spending is expected to rise from an estimated $775
million this year to $4.3 billion in 2011. (See "The Web-Video Ad
Puzzle.")

Typical Internet video ads run as "pre-roll" clips, akin to television
commercials, but many viewers consider them an annoying interruption
that they must endure in order to watch their selected clips. As a
result, a growing number of companies are developing new ways of
advertising in, on and around online videos.

A wide range of companies are experimenting with ads such as logos
that don't necessarily interrupt the video unless a user clicks on it.
These are known as overlays, bugs, or tickers. One such new YuMe
product is an "interactive overlay," which places branded items, such
as a small car driving on the bottom of the video that can be clicked
to go to a web site.

Other new YuMe products include a customizable video ad, which can
change the pricing on-the-fly and also change the retail partner—for
example from Best Buy to Circuit City—depending on the viewer's
geography, demographics, and whether the ad is served on a PC, mobile,
or TV.

The wide range of options allow for ads to be delivered across a
variety of platforms—television, computer, or mobile device—which all
have vastly different screen sizes.

Finding a way to more smoothly integrate ads into videos is one
objective of marketers. One new YuMe product overlays a "watermark" of
a brand over video content. For example, on a trailer for the movie
Spiderman, you could have a Blockbuster logo with information on
renting or buying.

Another new YuMe option is a branded player—known as a "skin"—which
wraps branding around video content. Other companies including video
site Heavy.com and WPP's Ogilvy Interactive have also used skins.

To take advantage of the viral, user-generated content craze, another
new YuMe product allows users to customize an ad. In one demo, a user
can create a greeting card from Hallmark and customize it directly in
the video player.

Other new video ad formats include San Francisco-based VideoEgg's
"crawl," which resembles the news ticker on the bottom of the video.

YuMe, backed by Kholsa Ventures, Accel Partners, and BV Capital,
streams over 100 million videos per month, Mr. Kadambi said.

The company focuses on the so-called "middle" part of the online video
market, targeting the clean professionally-produced content—though not
necessarily the most expensive television broadcast content. YuME
allows advertisers to choose specific "channels"—such as sports or
entertainment—of content to place their ads on.

Brightcove to support Adobe Flash H.264 upgrade

Press Release issued by BrightCove

We're delighted to announce Brightcove support for the latest version
of Flash video. Moviestar, announced today, is the fruit of Adobe
efforts to bring the HD-capable H.264 video standard to Flash.
Moviestar matches Flash's ubiquity and rich user experience capability
with high video fidelity. This is a combination we've all been waiting
for since Flash 6, with blocky, instant-on video, first hit.

You can preview the new player at Adobe Labs.

Paramount's decision to throw its weight behind HD DVD this holiday
season, rather than Blu Ray, is getting the top tech headlines today.
But we'll look back years from now and see that Moviestar was a much
more significant milestone.

This is a watershed announcement for the online video industry, and
really media and TV as a whole. Quality just improved. TV-like
experiences will be possible on the web. Perhaps just as important,
consumers, independent producers, and media companies of all sizes
will be able to shoot (in some cases), edit, archive and distribute in
one format. This will radically alter production workflows and
associated investments for everyone.

Brightcove remains committed to Microsoft's Silverlight initiative –
which similarly combines rich user experience with high fidelity
video, and eventually DRM. Innovation from Microsoft and now Adobe is
clearly benefiting everyone in the ecosystem. This is good news.

We expect to roll out Moviestar support later this year in our backend
tools. It promises to be a pretty smooth upgrade path for both viewers
and thousands of professional video publishers who use Brightcove each
day. Brightcove user experiences are already enabled for H.264 support
(thanks for backward compatibility, Adobe). And our private-labeled
consumer media features, which now support 3GP, should get a boost as
well. Brightcove partners won't have to do anything to their existing
players to gain this capability. We recommend archiving digital
masters in H.264 files to get ready for an upgrade later this year.

An in depth technical overview of the big news is available here.

Microsoft, Limelight strike online media deal

NEW YORK (Reuters) - Limelight Networks Inc (LLNW.O) and Microsoft
Corp (MSFT.O) said on Thursday that they had entered into a technology
agreement in which the Web content delivery company will help improve
the reliability of the software maker's online services, such as
video, music and games.
ADVERTISEMENT

Limelight will provide media streaming and content delivery services
to Microsoft under a multiyear deal. The two companies also agreed to
cross-license their technologies.

Financial terms of the deal were not disclosed.

Limelight competes with Akamai Technologies Inc (AKAM.O) to help
companies deliver graphics, video and music to online users more
reliably by finding less congested routes over the Internet. Its
customers include DreamWorks (DWA.N), Facebook, and News Corp's
(NWSa.N) MySpace

VideoEgg And Lots Of Others Call B.S. On YouTube

VideoEgg's overlay advertising system has been in the market for a
year and is driving "significant" revenue for the company. it's so
successful, in fact, that they recently launched a Facebook
advertising network based on the same technology.

The idea is to use a Flash overlay advertisement with some basic
information and graphics that takes up a small part of the viewable
video area. Users click the ad and get a more in depth video ad. It's
less intrusive than a pre or post roll ad, and has far better
performance than ads placed around a video. It's likely to become the
standard way ads are placed on video, even potentially on normal
television as the thirty second ad spot continues to decline.

Given VideoEgg's success with the unit it's no surprise that YouTube
has adopted the same format with their advertising. But it is
surprising that YouTube failed to give even a passing mention to the
company that invented the unit. VideoEgg also claims to have a patent
application on this - something YouTube will certainly have to deal
with down the road.

Nick Carr points out that much of the early press on YouTube was
written by people who failed to do their homework. Carr trashes a CNET
article that he says was basically an ad for YouTube. CNET
subsequently changed the title of their article but there is still no
mention of VideoEgg's invention of the unit

Meanwhile, VideoEgg seems to be handling the situation well and taking
advantage of the publicity. They added the graphic above to their home
page, and are talking to press about their product. Suddenly, everyone
is interested.

Flash and H.264: Together At Last

Adobe's latest version of the Flash Player puts two powerful video
codecs in a single, integrated platform.

Mark Randall, chief strategist in the Dynamic Media organization at
Adobe Systems, was obviously excited about the pre-announcement
conference call to announce the inclusion of H.264 playback in a new
version of the Flash player, code-named "Moviestar."

"I'm excited about this announcement," said Randall. "I've spent my
career trying to continuously put better quality pixels on computer
screens and this announcement could have more impact than all my
previous work combined."

Adobe's Flash 8 Video, powered by the On2 VP6 codec, is a very good
codec, and Adobe has a license option on On2's newer codec, VP7, which
is arguably better than H.264 in that it provides equal quality with
lower processing requirements. But, as Randall and others have pointed
out, VP7 was announced during the production phase of the newest
version of Flash CS3, so its day will have to wait until the next
version of the content creation software.

H.264 support, on the other hand, has been built into Flash CS3, so
it's possible to encode content into H.264 as part of the standard
Flash workflow. It's not been of particular benefit to the Flash
community, however, as no Flash Player was capable of playing back
H.264 content (the current Flash Player 9 is, however, capable of
playing back VP7 content created in other software tools and saved
with the FLV extension).

H.264 is a standards-based codec that is used by Apple for many of its
QuickTime-encoded movie trailers and special events, and the codec has
seen growing adoption as part of both Blu-ray and HD-DVD, the
high-definition replacements for traditional DVD video playback. Adobe
also intends to adopt H.264 as part of its upcoming Adobe Media
Player, which is slated for release in the first quarter of 2008.

"H.264 is already a broadly adopted industry standard," said John
Loiacono, senior vice president of Creative Solutions at Adobe, in a
press release. "Its inclusion in Adobe Flash Player, the Creative
Suite product line, and the upcoming Adobe Media Player will
accelerate customer workflows, enabling the creation and repurpose of
high-quality web video content without extra development costs."

That ability to repurpose or reuse content is of interest to content
creators whose video and audio content is slated to be used on
high-definition DVDs and the web. Adobe has pledged to support H.264
profiles at both low- and high-bitrates, including profiles up to
1080p. And with the inclusion of hardware acceleration to offload some
of the processing requirements from the client CPU to their graphics
card, content creators won't have to limit their web-delivered content
to a quality significantly different from the user experience
delivered by BluRay or HD-DVD on a larger screen. "Our hardware
acceleration testing has been very broad," said Randall. "We don't
want consumers to have to go out and purchase the latest, high-end
$500 video card just to be able to accelerate playback, so we've been
working on an extensive list of cards that will support
hardware-accelerated Flash content playback, which includes scaling to
the screen."

In addition to the H.264 video codec, the new Flash Player will also
support AAC+ or AAC High Efficiency audio encoding. This codec,
allowing for high-complexity and better high-frequency response, has
been around for several years but has not seen widespread adoption, in
large part due to the fact that iTunes and the iPod are geared toward
the traditional AAC low-complexity codec in order to maintain
compatibility across all iPods, including first-generation devices
unable to decode AAC+ for proper playback

Google's YouTube To Sell 'Overlay' Ads On Select Videos

NEW YORK -(Dow Jones)- YouTube, the popular video-sharing site owned
by Google Inc. (GOOG), plans on Wednesday to start offering
advertising within certain partners' videos using an "overlay" method
it expects will be a boon to advertisers and content creators without
irritating wary consumers.

The overlay ads are the first of several "innovative" ad types YouTube
intends to introduce, the company said. Online video is an exploding
area of Internet use, but one where successful ad models are only
beginning to emerge. The moves by YouTube - the Internet's
most-visited video destination with 189 million users worldwide in
July, according to comScore, and distributor of some three billion
minutes of video each month - will be closely watched. If successful,
the ads could boost Google's already fast-growing revenue while
reducing tensions with media companies over compensation for
copyrighted content appearing on YouTube.

YouTube's new ads involve a semitransparent, animated overlay that
appears at the bottom of videos during the first 20 seconds of play
and then disappears after 10 seconds. Consumers can close the overlay
before it goes away or click on it to launch an ad, currently a video
of any length or a flash-animation ad that can link to a Web page. The
click-to-play ad pauses the video in a kind of voluntary commercial
break, and the video resumes when the ad ends.

In one example provided by YouTube, a Warner Music Group Corp. (WMG)
video for pop-punk band Madina Lake's song "House of Cards" includes
an overlay ad for " The Simpsons Movie" from News Corp.'s (NWS) 20th
Century Fox that shows a rolling pink doughnut with Homer Simpson in
pursuit. Clicking on the overlay launches a trailer for the film.
Also, car maker BMW AG is testing two different ads, one featuring a
television ad for its 3-Series Convertible and another as part of a
cheeky "Relearn to Drive" campaign for its performance driving school.

YouTube said the ads are engaging to consumers without being intrusive
and avoid annoying them by letting them control how involved they want
to become. The format also encourages advertisers to create
high-quality ads that win over consumers.

The approach could prove much more effective than other ad types, such
as pre- rolls, which are video ads shown prior to video clips. Eileen
Naughton, director of media platforms at Google, said early tests show
that less than 10% of viewers close the overlay, five to 10 times more
people click on the overlay than on a standard display ad, and three
quarters of viewers watch the click-to- play ad to the end. That
contrasts with pre-roll ads, which are shut off by as many as 70% of
viewers, she said.

"Ads have real value as information when a user is interested and
searching for something or engaging with something they're interested
in," Naughton said.

YouTube promises advertisers several ways to target their ads to
consumers who are more likely to be interested in what they're
selling, including by choosing YouTube channels on which to advertise,
video genre or content, user demographics and geographic locations,
and time of day.

YouTube has been testing the ads for several weeks with a handful of
content partners, who receive a share of the revenue that's similar to
what Google gives partners in its keyword-based text advertising
network, estimated at a sizable 70% to 80%.

Advertisers will pay a flat rate of $20 per thousand consumer
viewings. In addition to the overlay and click-to-play ad, they get an
ad unit beside the video player. The price is similar to that of other
in-video ad units, such as pre-rolls, said Rinku Mahbubani,
interactive media supervisor at GSD&M, a unit of Omnicom Group Inc.
(OMC) that designed the BMW ads.

While Mahbubani hasn't seen reports on the success of the ads yet, "we
definitely think it's the way the future of video advertising is going
to go," she said. "You're going to get people who are truly interested
in your brand clicking through." And because there is no limit on the
length of the click-to- play ad, marketers can "go beyond the creative
limits of the 30-second spot," she said.

"We expect that there are going to be all kinds of engaging (ad)
models here," said YouTube Group Product Manager Shashi Seth. "This
opens up a whole pallet of possibilities" for advertisers

YouTube Ad Plan Shuns Pre-Rolls

On selected YouTube clips, animation will fill the bottom fifth of the
screen with 10-second advertiser messages.

NEW YORK Google, fond of its image as an unconventional company, is
bucking standard pre-roll video spots in its introduction of ads to
YouTube.

Instead, Google is casting its lot with "overlay" ads: transparent,
Flash-animated placements that appear on the bottom of the screen
while videos play. Users can click on the ads to pause the clips and
watch commercials without leaving YouTube.

While 15- and 30-second pre-roll spots, most often repurposed TV
commercials, make up the overwhelming majority of video ads, YouTube
said consumers find them irritating and distracting. A 15-second spot
placed before YouTube videos resulted in a 75 percent abandonment
rate, said Shashi Seth, a YouTube group product manager. The overlay
style generated just a 10 percent drop-off, he said.

"We found that with pre-roll and any video advertising that interrupts
the viewing experience itself, the abandonment rate was so high we
didn't feel comfortable launching with it," he said.

Now, on selected YouTube clips, animation will fill the bottom fifth
of the screen with 10-second advertiser messages. Users can close the
ad; clicking on the spot brings up a smaller window with a longer
video or other advertiser message. In its test, Google said the ads
got click rates of 1-2 percent, with 75 percent of clickers watching
the message all the way through.

In shunning pre-rolls for targeted ad invitations, Google is borrowing
a page from several startups, including VideoEgg and ScanScout, which
have tried overlay video ad features.

Google has signed up 3,000 professional content providers (such as
CBS) and 70 independent YouTube creators for the overlays; it will
split revenue with those producers, Seth said. Google has no plans to
place advertising on user-generate clips, he added.

It is launching with six advertisers, including New Line Cinema and
Warner Music, at a cost-per-thousand viewer rate of $20. In one
execution running in a music clip, 20th Century Fox promotes The
Simpsons Movie with an animation of Homer chasing a doughnut across
the screen. Clicking on the spot brings up the movie's trailer in a
small video player.

"It's not just handing your 15 or 30 to a publisher," said Ian
Schafer, CEO of Deep Focus, a New York digital agency. "It's actually
creating an ad unit, which shouldn't be that big of an issue, but it
is. It requires a little bit of creativity."

The program envisions using Google's expertise in ad targeting to
tackle another common complaint of pre-roll spots: users often view
the same ads several times per visit. Now, Google will allow
advertisers to target ads on four criteria: sex and age; geography;
time of day; and video genre.

In fact, thanks to YouTube's high volume of video views per day, users
will rarely see ads, Seth said. "We're hoping it will be infrequent
enough they won't notice," he said.

Nate Elliott, a research analyst at Jupiter Research, criticized the
approach, saying Google would do better mixing overlays with pre-roll
clips, while adding frequency and time limits.

"These don't necessarily improve the user experience at all, and they
take away a lot of value for the advertisers," he said. "That's not a
good trade-off."

DreamWorks Animation, Paramount choose HD DVD

LOS ANGELES (Reuters) - Viacom Inc's (VIAb.N) Paramount Pictures and
DreamWorks Animation SKG Inc (DWA.N) said on Monday they will release
their next-generation DVD titles exclusively on HD DVD ahead of what
they say could be the biggest holiday season ever for DVDs.
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Paramount had sold titles in both the new high-definition formats --
HD DVD and Blu-Ray -- but settled exclusively on HD DVD after deciding
it offered better quality, lower-priced players and lower
manufacturing costs, Kelley Avery, president of Paramount Home
Entertainment, told Reuters.

"This has been the biggest summer on record for movies, it will be the
biggest fourth quarter for popular movies for consumers," Avery said.
"At the same time, we have HD DVD players that are truly affordable."

HD DVD and Blu-Ray are waging a battle to dominate the next generation
of DVD players that promise better pictures, sound and in some cases
more content in the multibillion-dollar home-entertainment arena.

So far, most of the major Hollywood studios are selling Blu-Ray
titles, which have outsold HD DVD by 2-to-1 in the United States.

"The decision seems oddly timed given Blu-ray's tremendous momentum
both with consumers and retail," Blu-Ray's U.S. promotions chairman,
Andy Parsons, said in a statement.

But some HD DVD supporters hope to broaden their appeal to consumers
based on cost. The lowest-priced, stand-alone HD DVD player sells for
$299, compared with $499 for the lowest-cost Blu-Ray option.

Parsons said the price difference between the new formats was falling.

Paramount's first releases under the exclusive HD DVD program include
"Blades of Glory" on August 28, and summer blockbusters "Transformers"
and "Shrek the Third," due for release this autumn.

"SHREK" PREFERS HD DVD

DreamWorks Animation, maker of the blockbuster "Shrek" animated movie
franchise, had not committed exclusively to either high-definition
format but was swayed to HD DVD by the lower-cost player, DreamWorks
Animation Chief Executive Jeffrey Katzenberg said.

"They have a high-quality consumer experience that is now being
offered at a price point that we believe is going to connect with the
consumer," Katzenberg told Reuters.

Katzenberg said timing also played a part, with the holiday season
"sure to be the biggest quarter in the history of the home-video
market" and consumers facing the 2009 switch to a high-definition
broadcast signal.

"This seems to us to be the right product at the right price at the
right time," Katzenberg said. He added that sales for high-definition
discs were much too small to declare either format dominant.

DreamWorks Animation titles are distributed on home video and DVD by Paramount.

The exclusive agreement does not include movies directed by Steven
Spielberg for DreamWorks SKG, a Paramount unit. It does include all
other movies distributed by Paramount, DreamWorks, Paramount Vantage,
Nickelodeon Movies and MTV Films.

HD DVD was developed by Toshiba Corp and backed by Microsoft Corp
(MSFT.O) and is supported by Warner Bros, Universal Studios, New Line
Cinema, HBO and the Weinstein Co.

Blu-Ray discs use Sony Corp (6758.T)-backed technology and are
supported by most of the major U.S. movie studios.

Both formats came on the market last year. Blu-Ray outsold HD DVD
2-to-1 in the United States in the first half of 2007. An estimated
3.7 million high-definition discs have been sold, overall, including
2.2 million in Blu-Ray and 1.5 million in HD DVD through July,
according to Home Media Research.

Flash Player to support H.264 video

The third beta version of the Flash Player will support the industry
standard H264 video compression used in BlueRay and HD-DVD players.
This will make web video easier than ever - also for the content
producers.
H.264 is a highly efficient compression codec that aims to solve most
problems with existing video codecs. Often referred to as MPEG4, the
codec is able to scale from mobile phones to HD and beyond. It is a
well documented ISO standard and completely vendor independent. It can
be used for both downloadable or streamed video and it is already in
wide use as the format for digital TV transmissions (DVB-T, ISDB-T DVM
and more). What's so great about this then? The most important will be
the need for video content producers to encode to only one format. The
resulting file can then be played back using the Flash Player,
Quicktime, Windows Media and other video players supporting the codec.

Google / YouTube recently started the conversion of all content to
H.264 making it possible to play all their videos on mobile phones
such as the Apple iPhone and a wide range of other devices. The Flash
Player update also adds some support for the mobile video file format
3gp (based on H.264) and the professional AAC audio codec. This is a
great move from Adobe that will save some headaches with content
providers, but it will also somewhat reduce the Flash Player's
importance in the video field.

The last few years, Flash video has been THE solution since next to
everyone has the Flash Player installed. The drawback of this solution
was that content providers got into a vendor lock-in since the FLV
video files could only be played back using Flash Player. Now, we'll
get a file format that all the major software video players can use.
This makes it easier than ever to change what video player solution
your site uses and ensures access to a huge selection of video
encoding tools (If you use popular tools such as Sorenson Squeeze,
Final Cut or Adobe Premiere, you are already able to encode H264/MPG4
files). Another great advantage is that content providers can now use
dedicated hardware for compressing video, something that will
seriously speed up the encoding process. The new player will be
available on labs.adobe.com this afternoon

Adobe's 'MovieStar'

Adobe today announced the latest version of its near ubiquitous Web
video software, Adobe Flash Player 9. It's codenamed Moviestar,
because it includes H.264 standard video support – the same standard
deployed in Blu-Ray and HD-DVD high definition video players. In other
words, the quality of video has been substantially improved from the
previous version of Flash Player 9. Also added to the mix is High
Efficiency AAC (HE-AAC) audio support and "hardware accelerated,
multi-core enhanced full screen video playback".

Adobe claims that these advancements will extend their leadership
position in web video "by enabling the delivery of HD television
quality and premium audio content".

The new Flash Player will be available later today as a beta at Adobe
Labs - and the final release is slated to be available in the fall
(September - November). The last big update to Flash Player was the
launch of Flash 9 in June 2006.
Adobe: This is Tipping Point for H.264

I spoke to Mark Randall, Chief Strategist for Dynamic Media at Adobe,
about the news. He told me there were three main points to the
Moviestar release:

1) The H.264 support means superior video quality; it is also an open standard.

2) High Efficiency Advanced Audio is, says Mark Randall, a "successor
to MP3". He said it is a higher quality audio, but at a lower bit
rate.

3) It means "hardware acceleration" for Web video.

Randall also said that this represents a tipping point for the H.264
standard, because now Flash Player is supporting it as well Blu-Ray -
two big industry players.
Richer Platform for Online Video Producers

As well as the consumer benefits, this also gives online video
companies a platform to deliver richer Flash experiences on the
desktop, Web and H.264 ready consumer devices. As well as the new
Flash Player, H.264 playback will be supported by the Adobe Integrated
Runtime (AIR - a platform to create rich Internet applications to the
desktop) and applications developed with Adobe AIR software, including
Adobe Media Player in late April.

Higher quality online video is great news for consumers and producers
alike - especially in a near ubiquitous media player like Flash
Player, which is used on YouTube, MySpace and other major platforms.

Google's AdSense to Distribute Videos

LOS ANGELES (AP) -- Short Internet videos from the creator of the
animated TV show ''Family Guy'' and Raven-Symone, star of the Disney
Channel show ''That's So Raven,'' will be distributed over Google
Inc.'s AdSense network, it was announced Thursday.

Media Rights Capital, the financing company that backed last year's
film ''Babel,'' is supporting the two projects. Terms of the deal were
not disclosed.

The programs will appear in a video box that a user would click on to
start. The box will be packaged with banner advertising and video ads
that will appear either before or after the programming.

The videos will be distributed to numerous Web sites served by
AdSense, which places targeted advertising across the Internet.
AdSense signed a similar distribution deal last year with Viacom
Inc.'s MTV Networks.

Media Rights Capital will work with Google to target Web sites most
appropriate for its content, the company said.

''We feel this partnership answers the question of how best to reach
viewers online, because the Web is fragmented into millions and
millions of viewing destinations,'' said Asif Satchu, co-chief
executive of Media Rights Capital.

Seth MacFarlane, creator of ''Family Guy,'' will produce short videos
featuring new characters, while Raven-Symone will be in a ''how-to''
show, the company said.

The company said the distribution deal was preferable to aggregating
content on one site. Distributing content through AdSense means the
videos reach a broader audience, which would include new sites as they
pop up.

Now, the Clicking Is to Watch the Ads, Not Skip Them

Found on NYtimes.com

FOR generations, advertising interrupted the entertainment that
Americans wanted to read, hear or watch. Now, in a turnabout,
advertising is increasingly being presented as entertainment — and
surprisingly, the idea of all ads, all the time, is gaining some
favor.

One reason is the proliferation of broadband Internet connections,
which make it easier for computer users to watch or download video
clips. That is enabling media companies, agencies and advertisers to
create Web sites devoted to commercials and other forms of advertising
for amusement, rather than hard-core huckstering.

Oddly, the trend runs counter to another powerful impulse among
consumers: the growing desire to avoid advertising. TV viewers, for
instance, are spending billions of dollars a year for TiVo and other
digital video recorders that help them zip through or zap commercials,
and click-through rates for banner Web ads are declining.

The difference between "watching a commercial on a Web site and in
your living room," said Michael Jacobs, executive vice president and
executive creative director at MRM Worldwide in New York, is that
online is "an opt-in audience; you're choosing to be there."

"It's the nature of the Web to offer a destination you know you can go
to and know what you're going to see," said Mr. Jacobs, whose agency
is part of the McCann Worldgroup division of the Interpublic Group of
Companies.

"There's certainly an audience for entertainment as part of the
offering," he added. "The numbers seem to support it."

For example, veryfunnyads.com, a broadband Web site operated by the
TBS cable network, has delivered more than 63 million video clip views
since its introduction last August.

"It's a very straightforward premise: You're going to have a funny
experience, and you're going to have it every 30 seconds," said Ken
Schwab, senior vice president for programming at the TBS and TNT
networks, parts of the Turner Broadcasting System division of Time
Warner.

The funny-ad Web site is part of a rebranding campaign for the TBS
network, which carries the theme "Very funny." The goal is to
cultivate an identity for TBS as a home for sitcoms and humorous
movies.

"A lot of people talk about zipping through commercials because the
average break doesn't hold the promise of being entertaining," Mr.
Schwab said. By contrast, he said, "we have a very clear consumer
proposition, on the site and in our shows."

The concept of veryfunnyads.com has been expanded onto TBS, Mr. Schwab
said, as the network will "call out" some commercials as "very funny
ads" in hopes of keeping viewers from changing channels.

"I'm in the industry, and I'll fast-forward through the ads most of
the time," said David Droga, creative chairman at the Droga5 agency in
New York. "But I'll stop for the good ones."

"You put choice on the table, you change the whole game," Mr. Droga
said, adding: "Everything is about control. If an ad is interesting to
you, you'll have the conversation with the brand. If it's not, it's a
waste of time."

In about a month, Mr. Droga plans to test his theory with the trial
introduction by Droga5 and its partner, the Publicis Groupe, of a Web
site named honeyshed.com.

Mr. Droga described the concept as "MTV meets QVC," offering consumers
in the intended audience of ages 18 to 30 product information in the
form of entertaining video clips rather than traditional commercials.
The clips are to run two to three minutes apiece, he added, and be
presented by hosts considered authorities in categories like cars,
clothing or computers.

"The only reason we have any chance of being successful is
transparency," Mr. Droga said — that is, "if people know they're being
sold to, you can celebrate the sell."

The USA Network unit of NBC Universal, part of General Electric, also
intends to climb aboard the pitch wagon celebrating advertising as
entertainment with an online effort centered on brand-centric content.

Plans call for a Web site next year that would include commercials and
movie trailers as well as features like social networking and tools
that would let visitors make ads of their own. The site is tentatively
named didja.com, as in "Didja see that?"

"It's all about relevance," said Chris McCumber, senior vice president
for marketing and brand strategy at USA Network. "Consumers want to be
entertained on their own time, on their own terms."

"If a spot is not relevant, you're going to want to tune it out," he
added. "This will be a platform for consumers to experience their
favorite commercials or find out more information about a product."

•

The proliferation of portals dedicated to advertising as entertainment
could mean the trend is already peaking, just as cover articles in
magazines about a stock market boom are often followed by plunging
indexes.

"I don't think it is so much about putting entertaining commercials on
the Web as it is about brands providing immersive experiences for
consumers of which entertainment is a component," said Mr. Jacobs of
MRM, whose agency recently won praise for musical Webisodes for Intel,
directed by the humorist Christopher Guest, which are appearing on Web
sites like youtube.com and itgetseasier.com.

The responses to a survey this week on the Adweek Web site
(adweek.com) suggest that advertising as entertainment is still a work
in progress.

As of yesterday afternoon, 13 percent of respondents agreed the
portals were "great fits for the current pop culture," while 43
percent called them "too limited and doomed to fail." The remaining
respondents, 44 percent, agreed with a statement that they are
"complete wild cards; let's wait and see."

MySpace Hires Industry Expert as Video Ad Sales Head

Tom Bosco has been named VP of video ad sales at MySpace, reports ClickZ.

Bosco takes the title at MySpaceTV, but his responsibilities span the
breadth of the social network. MySpaceTV launched earlier this summer
and has already become the second most popular domain on the internet.

Video is an increasingly important focus for MySpace as it adds
content, not only from the Fox television network, but also a variety
of content partners.

Bosco previously worked on the launches of MSN Video and Yahoo Video.
It also served on the Interactive Advertising Bureau's committee to
set standards for online video ads.

Online Video Gets Boost From Blockbuster Buy

JUST LAST WEEK BLOCKBUSTER ACQUIRED the MovieLink download service.
The reported purchase price was somewhere in the $20 million range,
which when all is said and done might be one of the biggest steals of
the year.

MovieLink is a service founded 5 years ago by the movie studies that
offers consumers downloadable movie rentals and/or purchases. It was
the studios' attempt to do what the major airlines did when they
launched Orbitz in 2001. Prior to the creation of Orbitz, the airlines
watched as Travelocity and Expedia were quickly scaling their business
and becoming both a competitor and a vendor. Their solution was to
join the fray and they did so successfully with the creation of
Orbitz.

Several hotel brands attempted to follow Orbitz' lead and launched
Travelweb.com in 2002. Unfortunately, with many millions invested, in
both infrastructure and marketing, little traction was ever achieved,
the site URL was sold off to Priceline and the venture disbanded.
MovieLink has ultimately met a similar fate to Travelweb's rather than
following in the steps of Orbitz.

MovieLink was launched in 2002 and received an estimated $100 million
in investment from its ownership group of Warner Bros, MGM, Sony
Pictures, Universal Studios and Paramount Pictures. The launch of the
business was ahead of its time in 2002, and still is today. Because
the service only achieved limited traction it was being starved of the
continuous investment it needed, while exhausting the patience of its
owners, I believe.

Online movie distribution is an area that I think yields much
potential. The future of the movie distribution business will quite
possibly involve the release of a film not only in theaters, but on
cable, online, via your iPod or your cell phone, all at the same time.
The movie distribution system will undoubtedly evolve and change from
what it is today. The main factors of this change will be independent
studios and billionaires like Mark Cuban who are funding projects with
multi-platform launch (think HDNet Movies). All it takes is an
independent director to take a chance on distributing a compelling
film and putting it on YouTube to have it watched and spread virally
by millions across the globe. This will be the ultimate catalyst for
change.

While I think it's a matter of when and not if, the when may not be
for many years. And whenever that time comes, the impact will be felt
across the advertising industry as well. Can you envision the release
of a new movie for free over the Internet that features commercial
breaks or is sponsored by a sole advertiser much like some TV programs
(i.e. "24" on Fox and "The Closer" on TNT)?

I think this is a strong possibility. We are already seeing a
grandiose shift in how distribution/content companies from the new Dow
Jones/News Corp to Comcast are leveraging their platforms. While a
free WSJ.com seems all but certain a year from now, a less certain but
not entirely impossible free or highly discounted cable service from
Comcast that relies on advertising in lieu of subscription revenue is
something that has to be considered.

This is why the MovieLink acquisition is so interesting. Blockbuster
has been gaining share and has finally become the competitor to
Netflix many thought it should have been years ago. For only $20
million, Blockbuster has now aligned itself even closer with the movie
studios, and is in a great position when it comes to distribution and
potential commercial sponsorships of movies online.

Heavy's Husky Targets Young Men With Skins

IN THE NEVER-ENDING PURSUIT OF additional inventory, video
entertainment site Heavy.com has launched an ad network named Husky.
To set itself apart from other ad networks flooding the market, Husky
is targeting Heavy's core demographic of young men and specializing
initially in "skins"--a branded ad format that wraps around a site's
video player, and arguably interferes less with a consumer's viewing
experience than pre-roll advertising.

Heavy is in discussions with about 25 medium-sized publishers, which
would give its network an aggregate audience of 50-60 million unique
monthly visitors, according to company co-CEO Simon Assaad. (That
doesn't include Heavy-owned sites, including a sports site due this
fall to be dubbed Burly Sports.)

"We are starting to build out channels," Assaad explained. "Like in
the area of action sports: It's hard for advertisers to find a large
volume of those guys anywhere. So, if we can put together a bunch of
those sites with one to two hundred thousand visitors each, that would
make a great audience."

One the Husky's first major sponsors is New Line, which is using the
network to promote films this fall. Other advertisers include Coors,
Nissan, Panasonic, Diesel, Axe, Sony and Nike. CPM Rates for the skins
are between $10 and $20, according to Assaad.

The Husky Network wraps any video player--YouTube, Revver or Google,
just to name three--with a branded ad. Husky also hopes to lure
advertisers with the ability to access specific psychographics,
including vertical networks covering such areas as music, gossip-
entertainment and action sports.

Despite Heavy's confidence in video skins, Assaad insisted the skins
are just the beginning.

"We'll be experimenting with all different types of ad formats," he
said. "But we've been testing skins for three years, and we know
they're very effective."

At the beginning of the year, Heavy received $20 million in capital
funding, largely from Polaris Venture Partners, to expand beyond
bloopers into sports and other areas.

Facebook's Widget Middleman

Business Week:

Facebook was clearly onto something when it started letting outside
software developers create applications that can be added to users'
profiles: The social network has seen a surge in site traffic and
registered users in the months since the announcement. And users are
reveling in the newfound availability of programs that let them do
everything from rate music to build a family tree to count the days
until President George W. Bush leaves office.

What's less clear is whether and how many of these outside developers
will make money from their inventive applications. Matt Sanchez wants
to change that. On Aug. 13, the 25-year-old chief executive of online
video service VideoEgg announced his company will sell ads for any
outside developer creating interactive, shareable programs—known as
widgets—for Facebook. For small widget makers, many of whom run
several-person startups without an ad sales team, let alone VideoEgg's
20-plus person sales force, the potential partnership is an
opportunity to turn their fun creations into profitable businesses.
Funding Widgets with Ads

Sanchez sees connecting widget makers with advertisers as the next,
inevitable, step for Facebook. Once an online hangout exclusively for
college students, Facebook opened its site last year to the Web
surfing community at large and in May, announced its open-access
policy (see BusinessWeek.com, 7/23/07, "The Next Small Thing").

Since then, the company has been evolving from a social network second
to News Corp.'s (NWS) MySpace into something akin to a Web portal à la
Yahoo! (YHOO) or, even, an online operating system. "The platform
represents a really important shift to where social networks are
going—moving more to this operating-system model where people develop
rich applications and tools for the site," says Sanchez.

The only thing keeping Facebook from becoming to the Web what
Microsoft Windows is to the personal computer, says Sanchez, was a way
for the majority of third-party developers to build profitable
businesses off of Facebook. "A key piece of the ecosystem that needed
to emerge was an ability for application developers to make money,"
says Sanchez.
Facebook Encourages Piggy-Backers

VideoEgg is already working with about 50 application developers
including Rock You!, Flixster, and Scrabulous, which allow users to
share photos and music, show off their favorite movies, and play
Scrabble, respectively.

Ads are shown on "canvas" pages—the Web page that loads when a user is
installing a new application on their personal page. Some early ads
include movie ads that play trailers of films such as Beowulf and The
Bourne Ultimatum when a user mouses over a video screen embedded in
the ad. Facebook does not allow third parties to place ads on users'
personal pages. VideoEgg shares the advertising revenue, giving 60% to
the developers.

For its part, Facebook is fine with developers using its platform to
spread, and make money from, their programs. At the company's recent
F8 press conference, executives stressed that they would not ask for a
share of the advertising revenue. The Facebook team sees its payment
in the ability of third-party applications to draw in more users and
encourage established users to spend more time on the site. The more
time users spend on the site, the more likely they will see Facebook's
own ads.

Plenty of Ad Money to Go Around

Since adopting its open-access policy, Facebook has grown to 35
million active users, up from 8.9 million users in September, 2006
(see BusinessWeek.com, 8/6/07, "Fogeys Flock to Facebook").

Through a partnership with Microsoft (MSFT), Facebook places
interactive, poster-like ads on the left and sometimes on the bottom
of users' personal pages. The site also sells its own flyer-like ads
that can be posted to particular networks, and it places sponsored
info in its "news feed" section, which updates users on the recent
activity of others in their network. News-feed ads are capped at one
per day, says Facebook spokesman Matt Hicks. The company also develops
Facebook pages for particular brands and campaigns. But it's not in
the business of placing ads on behalf of outside developers. That's
where VideoEgg comes in.

Facebook isn't worried about third-party developers cannibalizing
demand for its own advertising. There is plenty of money to go around.
According to an Aug. 9 report by eMarketer analyst Debra Aho
Williamson, advertisers will spend $900 million on social networks
this year. By 2011, that number will reach more than $2.5 billion.
Facebook and MySpace, the leading social networks, will grab more than
70% of that market, according to Williamson. "Social networking is
proving to be a true revenue driver," said Williamson.
Will Users Balk?

While Facebook may be embracing advertising—even when it doesn't
directly get a cut—it's not clear that its users will respond
favorably to an influx of ads. After all, groups of vocal users have
fought changes as seemingly benign as automatically updating friends
about their recent activity (see BusinessWeek.com, 9/8/06, "Facebook
Learns from Its Fumble"). Such users may not want to listen to more
words from their sponsor during their online social time.

Sanchez, for one, isn't worried. He believes that most users
understand that the trade-off for a great free service is ads. "It's
part of the implicit contract there," says Sanchez. "The ads just have
some level of entertainment and engagement value."