Disney and YouTube Close to Content Deal, Report Says

— -- Google is reportedly in talks with Disney to stream ESPN and ABC television programming such as "Desperate Housewives," "Lost," and "Ugly Betty" to YouTube. In a rumored twist to the negotiations YouTube is pressuring Disney not to cut a deal with rival Hulu to provide Disney-owned content to the site, according to reports from the site PaidContent.org.

The arrangment between YouTube and Disney would be the usual ad-supported model. However, PaidContent.org is reporting YouTube is flirting with the idea of negotiating a deal with Disney that would put a pay-to-play scheme into place for full episodes of ESPN and ABC content on YouTube. The report is not clear on whether pay-to-play means you pay or Google pays Disney through a pay-per-click scheme. Regardless, here's the kicker: the full-episode deal with YouTube may be dependent on Disney killing any deal with Hulu.

The notion that YouTube may want a deal with Disney that handicaps Hulu shows how much the competition is heating up between streaming Websites. YouTube has had to play a bit of catch-up with its new rivals since the explosion of "TV online" in 2007. The old YouTube, which used to be the home of bizarre and the off-the-wall videos, has started to disappear due to copyright lawsuits and bizarre restrictions imposed by agreements with recording companies. At the same time, Google is starting to expand YouTube's offerings with Hollywood movies and high-definition content. Keeping Mickey Mouse away from Hulu falls right into YouTube's new strategy of embracing a wider variety of commercial content.

For Disney, the choice is a tough one, since YouTube represents 41 percent of the U.S. online viewing market; but it's entirely possible that Hulu and similar sites could chip away at that lead over time. Hulu partners Fox and NBC have apparently offered Disney full partnership in Hulu if it licenses content to them. There's also the question of whether Disney wants its videos lost amid a sea of user-generated videos on YouTube.

However, the suggestion that Disney is even considering this deal may indicate that Hulu is losing some of its original appeal. Hulu's ties with CBS are undoubtedly strained since it recently pulled Hulu videos from CBS-owned TV.com, and CBS has never been big on licensing its content to Hulu. If Hulu loses out on ABC content as well, then the lines may be drawn between the major networks as they try to figure out the online world.