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Online video bubble alert

Battery Ventures VC talks about online video and advertising Numerous speakers at this week's Advertising 2.0 conference in New York commented on the gap between the amount of video people watch on the Web and the money advertisers spend on online video. The gap represents a huge opportunity to some, with billions of dollars shifting from traditional media outlets to the Web. But the five venture capitalists and investors who spoke Thursday suggested that the short-term outlook wasn't so rosy. As Roger Lee, a general partner at Battery Ventures, put it, the online video field is "dramatically overfunded." Lee said that there are more than 200 companies in the online video market and more than 200 in social media. "Probably 90% of them will disappear in the coming year," he predicted. Other panelists saw overfunding among online ad networks and mobile content plays, too.

Spark Capital VC talks about online video and advertising One reason for the spending gap, said Dennis Miller, a general partner at Spark Capital, is that "advertisers are lazy." He added, "They talk a big game about getting involved in the brave new world.... [but] they've spent the last 50 years buying [advertising time on] three TV networks and playing golf." They're reluctant to buy time on sites featuring user-generated content for fear of running ads next to something inappropriate, Miller said, yet they don't hesitate to run commercials during the Jerry Springer Show or the Ultimate Fighting Championship. "We're in the very early days, it's very challenging still, but a lot of the onus is on the advertising community to step up, take some chances and stop with the double standard." (Spark's investments include EQAL and Veoh.)

Greylock Partners VC talks about online video and advertising James Slavet, a partner at Greylock Partners, said much of the viewership online has been for videos produced by professionals and semi-professionals (think broadcast TV for the former, lonelygirl15 for the latter). This content is "relatively easy for advertisers to embrace, compared to viral, user-generated stuff," so it's likely to drive a lot of growth in online advertising, Slavet said. But advertisers also have to adapt to content getting chopped into smaller pieces and redistributed unpredictably by viewers. So, too, do content companies -- Slavet said Viacom's lawsuit against YouTube "makes no sense at all," and that the company needs to "embrace users as a distribution channel." (Graylock's investments include Facebook, LinkedIn and Digg.)

So 1999: music companies sue Spanish p2p firm

Mp2p_manolito_logo Promusicae, the Spanish trade association for the major record companies (e.g., the Madrid version of the RIAA), filed suit in Spain this week against p2p developer Pablo Soto, creator of the Blubster, Piolet and Manolito music file-sharing networks. Soto's networks represented the second generation of p2p, which eliminated the central controls that got the original Napster into legal trouble. He later added a layer of anonymity to sharing, making it harder to identify those who were swapping songs illegally. I can't read Spanish, so I can't even pretend to analyze the legal claims made by the labels. But their press release accuses Soto of developing software with the intent of profiting parasitically from other people's works. It also argues the the networks were created specifically to share songs online:

All the promotional slogans on Soto’s websites urge users to swap music recordings. Their wording, always in English, encouraged the user to “enter into the world of free music downloads, to download music while you chat with your friends” or said that “million users in the whole world can share their music files and help the online community to grow.”

In addition, it notes that Soto's networks "all lack any kind of filter to avoid the exchange of files protected by authors, producers and performers’ intellectual property rights." Those allegations wouldn't take the case very far in the U.S.  For starters, it's legal to share songs online if the copyright owners grant permission to do so -- not something the major labels have done, admittedly, but some independent labels and artists have. And it's not necessarily illegal to facilitate unauthorized sharing, particularly if the technology has a legitimate use and its creator can't monitor or control what people do with it. Nor is there any obligation to use filters to block infringements, at least not yet.

In an interview, Soto said, "What they claim is that we are competing with them and we are breaching their IP [intellectual property]." But he insisted that unlike Napster, his programs give him no way to watch what users do. He also noted that numerous independent musicians use Blubster to distribute their songs. "Many of those musicians need to use p2p software because they can't get distribution deals" from the major labels, he said.

The case raises the same set of issues that the RIAA and MPAA litigated here against Grokster and StreamCast (distributor of the Morpheus software), and both here and in Australia against the companies behind the Kazaa software. The labels won those cases with the help of internal company records and testimony showing that the companies planned to encourage and capitalize on piracy. The Supreme Court's ruling in the Grokster case doesn't apply to Spain, though, so the courts there will be following a different legal roadmap.

The lawsuit seemed a little odd, given that Soto's networks are small potatoes compared to BitTorrent and other third-generation p2p applications. Soto suggested that the labels were running out of options for deterring piracy in Spain. The record companies' efforts to identify individual infringers on p2p networks have been blocked by the courts, as have their claims against sites to bootlegged songs.   

UPDATE: I got a bit more insight into the complaint from Beatriz Sanchez-Eguibar, director of legal services for Promusicae. Although there's no concept of "contributory infringement" in Spanish law, she said, the complaint against Soto accuses him of infringing copyrights by making software available to people who used it to make unauthorized copies of songs. It also accuses him of unfair competition because his profits came at the expense of the labels' works. Soto has about three weeks to reply to the complaint, and hearings on the case could be wrapped up within a year. As for the links sites, Sanchez-Eguibar said that some had been temporarily sidelined, but the cases had yet to be decided. And in regard to lawsuits against individual infringers, she said Spanish law recently was changed to make it easier for Promusicae to force ISPs to disclose the identities of customers whose accounts may have been used for piracy. "A new door has opened," Sanchez-Eguibar said, although the labels have yet to walk through it.

In response to John Mitchell's request (see his comment below), I asked Sanchez-Eguibar to send me a copy of the complaint, but she said it was confidential. So all I can offer on that front is jpegs of five pages supplied by Soto's publicist. I have no reason to doubt their authenticity, but I can't vouch for how complete they are. Here you go (click on the images to get a full-size view): Music industry lawsuit against Blubster

Music industry lawsuit against Blubster

Music industry lawsuit against Blubster Music industry lawsuit against Blubster Music industry lawsuit against Blubster

Lonelygirl15 goes to Italy

Lonelygirl15_still_2 EQAL, the digital entertainment start-up behind the lonelygirl15 phenomenon, announced a deal today with M.A.D. Entertainment of Milan to develop a version of the serial online drama for Italian Internet users. It's the first foreign-language version of the show, now it its third season online. EQAL will co-produce the show (due out late this year) but will rely on M.A.D. Entertainment to line up Italian distribution and advertising partners. The announcement comes less than a month after EQAL landed a partnership with CBS to build interactive experiences online to complement selected TV shows.

The new version of lonelygirl will have different characters and plots, but will follow the same strategic path as the original, founders Miles Beckett and Greg Goodfried said in an interview Wednesday in New York. The goal remains to make the short video episodes the heart of a social network where fans interact with the shows -- not in a "choose your own adventure" sense, Beckett said, but in chat rooms and other settings that blur the line between the characters and real viewers.

EQAL's first two serials (lonelygirl15 and KateModern) have built audiences large enough to attract advertisers, whose products have been integrated into the story lines. Product placement has its detractors, but Beckett said there are practical reasons for EQAL to go that route. Long pre-rolls are unpopular, those shown after a video have very little value, and EQAL's videos are too short to support interstitials, he said. The company also found that the tactic supported the illusion it was trying to create of real people communicating through videos. After all, Goodfried said, real people are more likely to be holding a Pepsi than a can of generic soda.

lonelygirl15 photo courtesy of the lg15 website.

SpiralFrog signs EMI

SpiralFrog free music downloads non-MP3 WMA DRM not Apple iPod compatibleSpiralFrog, the ad-supported music-downloading service, announced Tuesday morning that it has signed a distribution deal with EMI, the country's fourth largest major record company (out of four). The news comes nearly two years after the company signed its first (and only other) major label deal, with market leader Universal Music Group. Ahh, remember when EMI used to be the first in line to support new business models online? At any rate, the deal brings an odd assortment of notable acts to SpiralFrog's roster of free downloads, including Coldplay, Norah Jones, Keith Urban, Frank Sinatra and David Bowie. Company chairman Joe Mohen has said he expects SpiralFrog to line up the remaining majors by the end of the year. Until it does, its service remains intriguing but incomplete, with a growing user base despite some handicaps that will be hard to overcome (e.g., it doesn't work with iPods).

Time Warner doesn't love online TV

Time Warner Cable opposes advertiser-supported free online TV by broadcasters ABC.com NBC.com CBS.com Hulu.com Glenn Britt, head of Time Warner Cable (soon to be a pure-play cable operator), recently engaged in a revealing Q&A with the Wall Street Journal's Vishesh Kumar that highlights yet another impediment to TV networks putting their shows online. Britt warns that cable operators such as Time Warner won't be willing to pay a network as much for the rights to its programming if the same content is available online for free. As he put it:

If all of the programming goes to the Internet, and it's free, then there is a whole source of revenue that the entertainment business is not going to have anymore.

I think we will have to have a new formula for financing television programming, or else we just aren't going to get the same quality and quantity that we are used to today. That's just pure economics. People should think things through before they just go willy-nilly putting things on the Internet.

His argument makes sense if you believe the Net induces TV viewers to abandon the prime-time version of their favorite programs faster than, say, TiVo does. But it's hard to believe that many people skip watching "Gray's Anatomy" on their living room sets because they can tune it in later on their computers. Today, at least, programs transmitted online are viewed on computers, which suggests that the audience is separate from the TV-watching audience. It's time- and place-shifters, or college students who don't have TVs in their dorm rooms.

Britt may have a valid point about the long-term impact of ad-supported online programming. TV sets will eventually become smart enough to tune in ABC.com and Hulu as easily as they do over-the-air and cable broadcasts. But by discouraging programmers from making shows available online, Britt's conceding the Internet to content providers who represent a bigger threat to the entertainment-industry economics, including independent producers, user-generated sites and video bootleggers. Cable operators can try to stand in the way of online content reaching the TV -- after all, they're the ones whose set-top boxes have high-speed modems but no browsers -- or they can try to capitalize on it. Oddly enough, Britt himself said last week that his company planned to help consumers get more Web content to their TV sets (although his comments left some key questions unanswered). Go figure.

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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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