Marketing gold could be found in Web video

NEW YORK -- You don't need a pan and a stream in California to join the next gold rush. A video camera, computer and high-speed Internet connection will do.

A vast array of professional and semiprofessional producers are starting to use those tools to create ad-friendly entertainment and news videos expressly for the Web. The goal is to dramatically change people's video-viewing habits — and cash in on a potentially enormous business opportunity.

"It's like the early days of cable," says former Viacom executive Herb Scannell, now CEO of Internet video investment and support firm Next New Networks. "We're inventing new business models, new talent and new programming models."

Internet users already can find countless fresh choices in the middle ground between reruns of slick network TV programming, such as the shows on Hulu.com, and amateur clips such as the kind popularized by YouTube.

Popular genres for original Web productions include dramatic series (Lonelygirl15and Prom Queen), topical comedy (BarelyPolitical.com, 236.com and comic Will Ferrell's Funny Or Die), news analysis (TalkingPointsMemo) and specialized interests (for example, ThreadBanger offers the latest about sewing and knitting).

Producers have powerful incentive to test the market: Ad spending for Internet videos will rise 455% by 2011 to $4.3 billion, says research firm eMarketer.

"It's growing faster than any other advertising category," says George Kliavkoff, NBC Universal's chief digital officer. "There's just a sea change." That's one reason his company and other major TV network owners are starting to dip their toes into original Web production. Over the past few weeks:

•Disney dis formed its first Web-only production house, Stage 9, which forged a deal with Toyota to sponsor its first made-for-Web series, the sitcom Squeegees.

Disney's ESPN also said it will dramatically step up its Internet-only sports programming.

•NBC ge created its first network for original online video. Visitors can get an in-depth look at new cars from clips produced by DriverTV; NBC paid $6 million for a 35% stake in the firm.

•And CBS, cbs which defined mainstream news in the radio and TV eras, launched MobLogic.tv, a website with daily clips that it says provides "a reality check on mainstream news, (Internet) 2.0 style."

The modest size of these investments reflects the companies' uncertainty about where they fit in.

"The challenge we have with this space is: How do you market these original Web shows so that they become something people want to see and not something that they just come across?" says Albert Cheng, executive vice president for digital media at the Disney-ABC Television Group. "We are experimenting."

Independent entrepreneurs

While the giants dabble, independent entrepreneurs are taking advantage of the freedom the Internet offers to reach millions of people without having to go through gatekeepers such as TV networks and cable operators. They don't even need powerful allies to help raise cash, sell ads, get online and market. New-generation studios including Worldwide Biggies, Black20 and 60Frames are eagerly seeking deals to support promising talent.

Most salivate at the prospect of creating a hit entertainment series — a string of episodes that typically run 10 minutes apiece or less — similar to Lonelygirl15, KateModern and Prom Queen.

It's relatively easy to make a profit: They employ little-known actors, simple camera shots and few, if any, special effects. "The cost is just hundreds of dollars a minute," Scannell says. "If you're getting $10 (for every 1,000 viewers that see an ad), and you have 1 million views, then you're break-even. If you get $20, then you're in the black."

Those that work closely with sponsors can do much better than that. For example, LG15 Studios cut a deal with Neutrogena that made the cosmetics and cleanser company and its products key elements in the story line for Lonelygirl15

"We were thrilled that there's this medium that's interactive, and if you can get creative and good writers and good brands and put all these pieces together, then you can do something that engages the audience and allows us to do this as our day job, which is insane right now," says Greg Goodfried, co-creator and executive producer.

Their most recent production, KateModern, showed that the concept was no fluke.

"It just finished with 26 million views, and it was sold in sponsorship ahead of time," says Quincy Smith, president of CBS Interactive. "Do it once, and it's interesting. Do it twice, and now you're starting to see something evolve."

There's a lot of activity as well in non-fiction Web video, especially from newspaper and magazine companies grappling with slowing ad sales. "Video is a central component to the future of these industries because they have to grow their business somewhere, and right now, online video is the most valuable real estate in the media industry," says Jeremy Allaire, CEO of Brightcove, an Internet video services firm.

National newspapers including USA TODAY, The New York Times, The Wall Street Journal and Financial Times, as well as regional publications such as The Houston Chronicle and The Gainesville Sun tap journalists for video reports, interviews and analysis. So do magazines, including Entertainment Weekly, Billboard, Better Homes and Gardens and Rolling Stone.

Beginning with the recent Super Tuesday presidential primaries, Newsweek — in partnership with corporate siblings The Washington Post and Slate.com — stepped up the competition by enlisting editors and analysts for live, CNN-like, Web-exclusive campaign coverage and commentary.

'There's a business there'

"It was sold to Dodge in three days," says TV news veteran Tammy Haddad, executive producer of the coverage. "There's a business there, and a very minor amount of money was spent. All of the reporters were already in place."

Although many Web productions are profitable, producers say the big payoff will come in a few years as audiences and advertisers become more comfortable watching video online.

People collectively spent 959 million minutes a day watching Internet shows and clips in January, research firm ComScore says.

While that sounds impressive, Leichtman Research Group President Bruce Leichtman notes, "People still spend more time watching Extreme Makeover and Moment of Truth combined (on days when the shows air) than they do with all online video."

That's changing, though, especially among the young adult viewers craved by advertisers. About 42% of 18- to 34-year-olds watch Web videos at least weekly, up from 28% in 2007, Leichtman found in a recent survey.

The vast majority of the viewing time goes to user-generated videos and network TV fare, including clips people lift from news and comedy shows.

But those markets present challenges for advertisers.

They can't effectively buy spots in advance on user-generated material, because "You can't really tell what clips are going to be hot next," says PodShow CEO Ron Bloom, whose firm aggregates Web videos to facilitate ad sales. "And it's typically pornographic, stolen or stupid."

Meanwhile, the major broadcast and cable networks may not have enough openings for ads on their rerun TV shows. "If you're trying to spend $1 million on an online buy, you have to reach tens of millions of people," says Jayant Kadambi, CEO of YuMe, a broadband video ad sales firm. "You just can't do that on NBC.com."

To keep ad dollars from flowing elsewhere, the major networks are busily creating Web attractions, including original videos.

For the most part, though, their productions have been designed to enhance viewer interest in popular TV shows. For example ABC's Lost: Missing Pieces, CBS' Big Brother House Calls, Fox's Prison Break Visitation and NBC's Heroes 360.

"It's a good way to continue to have a relationship with these fans" and advertisers, Cheng says.

That also was a safe thing to do before the recent strike by Hollywood screenwriters was resolved. A key issue in the dispute was how much writers would be paid for work that appears online.

Now that there's a contract, conversations about digital initiatives "have exploded," says Vivi Zigler, executive vice president at NBC Digital Entertainment and New Media. "It's a matter of 'should we,' not 'could we.' That's important."

Disney took the boldest step in late February by creating Stage 9 Digital Media. But the new media studio still dreams about seeing one of its series on TV.

"We call that the holy grail," says Barry Jossen, general manager of Stage 9. "The new media business, from the sponsors' point of view, is definitely experimental. So the kinds of commitments they are making are modest. It's a break-even business."

He's undaunted by NBC's experience in February — during the writers' strike — when it became the first major TV network to air an entertainment show originally made for the Web. Although the series Quarterlife was a hit on the Internet, NBC moved it to cable channel Bravo after the first episode attracted a mere 3.1 million viewers.

"Just because their one and only shot didn't work out as pristinely as they would have hoped or dreamed doesn't mean that's the only opportunity like that," Jossen says. "We have to keep trying."

Cutting deals

While Disney focuses on producing its own Web videos, CBS and NBC are buying and investing in independent producers.

CBS has led the way here cutting deals with firms including high school sports site MaxPreps, business-satire-oriented Wallstrip, celebrity news provider Dotspotter and Joost, which offers a hodgepodge of new and old videos.

That's one reason the smart money is betting that the networks eventually will control the biggest mines when gold rush fever finally subsides.

"The theory of the Internet is that you can get anything you want," says investor Richard Wolpert. "But you still have to be exposed to the fact that it exists. That is still a very valuable asset. It feels like this is the year when everything is happening. But on a historic perspective, it's a 20-year process, and we're in the middle of it now."