Battle of the Network Stars

The battle lines are being drawn for what might be the biggest conflict in the media convergence war.

Today's announcement that NBC Universal and News Corp. are partnering to offer most of their video content on a new, as yet unnamed online video site has the Internet buzzing about what's next.

"Ultimately, we believe that this is just the beginning," said Peter Chernin, president and COO of News Corp. during an afternoon conference call that also included NBC Universal CEO Jeff Zucker. "We expect this site -- or we hope it to be -- the biggest video destination on the Web," Chernin added.

Chernin and Zucker say they hope other content providers will join with them in offering video on the site.

The NBC/Fox site, scheduled to debut this summer, won't be the only place where their videos will be seen. The deal also includes distribution relationships with some of the biggest Web portals -- AOL, MSN and Yahoo! among them.

Those distribution partnerships give the two media giants control of both the presentation and advertising revenue that their popular television shows and films might generate online.

It also gives NBC and News Corp. access to enough eyeballs to rival Google's YouTube. According to comScore Video Metrix, YouTube was the top site for online video in January, with more than 48 million "unique streamers" -- or people who watched an online video. Fox ranks at No. 2, with more than 41 million streamers thanks to its popular MySpace site, and NBC came in 10th with almost 6 million videos viewers.

According to media analysts, it is those two things -- content and ads -- that traditional media companies must find a way to control as consumers turn from their television sets to their computer monitors to get a daily diet of video. Without them, their business models just don't work anymore.

"The consumer is already into online video," said Jason Helfstein, analyst at CIBC World Markets. "And it's not just online video, but the consumer has basically decided they want to see the joke of the show, they want to see the funny scene, without seeing the whole show. And they feel like they shouldn't have to pay $2 to download the entire episode if all they want to see is the 30-second skit."

Today's deal, along with previously announced efforts from Disney (the corporate parent of ABCNEWS.com), CBS and Viacom, give shape to a market that just two years ago did not exist.

Analysts say traditional media are setting the stage for a major battle with the highly trafficked YouTube site.

The Google-owned site has tens of millions of user-posted video clips, some original content and some cut from copyrighted shows.

Just a few weeks ago, Viacom sued YouTube, bringing a $1 billion lawsuit that alleges a "brazen disregard of intellectual property laws."

Viacom wants the video site to take down more than 150,000 clips of its shows like "The Daily Show With John Stewart" and "South Park" so surfers will have to visit its online home to get the clips they crave.

YouTube says it's just the middle man, offering a platform for whatever its millions of users want to post.

"We take copyright issues very seriously," reads the YouTube fact sheet. "We prohibit users from uploading infringing material and we cooperate with copyright holders to identify and promptly remove infringing content."

Analysts say that by building their own online streaming video sites and cutting distribution deals with major Web portals, the media giants give themselves leverage to fight or negotiate with YouTube.

And there are hints that the new company might be offering an olive branch to YouTube.

"We are open for business with anyone, and would like to be in business with everyone," Zucker said. "If you believe in ubiquitous distribution, then this announcement is incredibly exciting and, as Peter said, we've had that conversation [with Google/YouTube] this morning and look forward to sitting down with them and anyone else."

No matter what the outcome, online video is here to stay.

"This is the new frontier," said Helfstein.

"This is what we're spending a lot more time analyzing as opposed to analyzing cable ratings, because the reality is that as better content becomes available online -- some generated by the big media companies, a lot of it user-generated content -- it's gonna take people's time. And that's less time people are spending watching traditional media."

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