GoogTube deal shifts paradigm on-demand

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CHICAGO -- The potent combination of Google's search savvy and YouTube's handle on Internet video will yield the first viable new-media successor to broadcast and cable television, which for decades have squandered the ad-supported critical mass they have enjoyed in what was once the only home screen.

If you believe that there is no going back from a future of on-demand digital TV programs, movies, music, data and communications, then the new Google-YouTube union offers the interactive infrastructure and tools needed to manage and monetize Web-based digital video that is for now unmatched by broadcast, cable, satellite and telephone platforms. Even such other Internet content aggregators as Yahoo!, AOL, MySpace and Microsoft's MSN are playing catch-up with varying degrees of content creation, organization and utilization.

What it means is that the eyeballs, ad dollars and creative content that have sustained traditional television will increasingly nonexclusively shift to interactive platforms that can give consumers and advertisers all of the same and even more of what they specifically want on interchangeable screens and devices.

The estimated 100 million video streams initiated daily by YouTube users and the average 6.2 million daily visitors it attracts worldwide, according to comScore, are ripe for Google's consumer-behavior and advertising-savvy technology. The reason for YouTube's phenomenal first-year growth is because as the "people's" video network, it gives consumers immediate, open access to most commercial- and user-generated content. It reflects the demands of a younger, first-mover consumers base that, like MySpace, will broaden in age as it matures.

Because the $1.65 billion deal makes Google-YouTube the video traffic leader -- with 60% of an online video advertising market expected to grow from $640 million to $1.5 billion in 2009, according to Merrill Lynch -- this bold move is not only an opportune buy but also a brilliant read on the next profound step in media's revolutionary transformation. While that might sound cosmic, just look at what's going on. Google did.

Clearly, the emerging standard for video and information is on-demand interactivity: consumers being able to find, download, store, recall and transfer content of their choice on virtually any platform or device. Digital interactivity is the key to unlocking the bottomless content in this Pandora's box. However, search is the means by which to find and manage the data, television program, movie, music or other content of choice. One can't exist without the other in this brave new-media world.

Add to that the ability to charge consumers a fee to access the content or, better still, charge advertisers for accessing quantifiable targeted consumers, and the result is an efficient, lucrative new-media model that some already have dubbed GoogTube. Broadcasters don't have it, even with their government-mandated digital conversion. In fact, Google (especially with the video eyeballs YouTube provides) is oddly close to mimicking the advertising-supported notion of content supply to consumers on their whims rather than a set television schedule. Satellite also is not interactive.

Telephone companies eventually will have a broad interactive base across which to drive on-demand content, though those efforts might come too late and without Google's unmatched search and management tools. Cable, the only traditional distribution platform that even comes close, primarily remains homebound.

Even on the Internet, there are few early video purveyors that have the breadth, depth and functional framework that Google can provide to a well-trafficked site like YouTube. The response by new- and old-media rivals will be telling.

A smart competitor like News Corp.'s MySpace already is following suit, having recently entered a $900 million, multiyear search and advertising partnership with Google, which is working overtime to assure that its YouTube acquisition will not interfere.

AOL, in which Google has invested $1 billion for a 5% stake, also is signing on to a Google-inspired open access and advertising-supported business that will boost its equity value from $13 billion to $24 billion by 2009 and grow earnings from $1.85 billion to $2.3 billion in the same three years, according to CitiGroup analyst Jason Bazinet.

"As Google now has locked up the majority of large-scale traffic generators (including its interests in MySpace and AOL), it would appear that the barriers to entry in challenging its dominant search position have been steadily raised," Bernstein Research analyst Michael Nathanson notes.

Right now, it's all a matter of perspective.

"We see ourselves as a technology provider and a distribution network," Google CEO Eric Schmidt said last week. "We want other media companies to put their content into this new emergent, larger system as a result of the YouTube acquisition."

Time Warner chairman and CEO Richard Parsons called it a "stunning" deal, while Microsoft CEO Steven Ballmer warned media companies to beware.

In fact, this is precisely the leap video must take to survive and thrive in the digital broadband media world, where portability, accessibility and personalization are keys to content success on all-size screens everywhere. That isn't going to happen with video rigidly bound by scheduled time slots, commercial pods and even tightly managed Web streaming by the owners of conventional broadcast and cable television networks.

It also isn't going to occur with online video scattershot all over the Web, even in such hot spots as YouTube, Facebook and so many other sites that are struggling to sort and manage content using the elements of community.

So, it isn't enough just having interesting or desirable content, and it isn't enough just having an interactive platform on which some community congregates. The tools for functionality such as search and management that make content more valuable -- flowing among consumers, platforms, devices and advertisers -- are mandatory but not as easy to come by.

That's why Google's aggregation of video in a much bigger way -- both searched and random, both critical mass and niche, both commercially produced and user-generated -- is important for all concerned.

Because Google can perfect ways of making money from content online by connecting the right targeted consumers, advertisers, content producers, platforms and devices, there are growing fears that the Web giant could emerge as a one-of-a-kind digital gatekeeper. If that occurs, it will be the product of the same free market and entrepreneurial forces that have given broadcasters, cable-system operators, satellite and telephone companies that same kind of clout in the past.

But this time around, the economics of content production and distribution don't pay off unless it flows through a framework of interactive functionality that requires a grasp of technology, consumer behavior, viral marketing and commerce. Call it digital video by the people, for the people, of the people, which means consumers will see and experience mostly what they prefer with little left to chance and random sampling (surely the biggest liability of the new-media age). In the GoogTube world, video and data interface with user-generated content, advertising and service elements as well as the common bonds of community to develop into a multidimensional experience that can be a win-win for all players.

That mindset will carry over to every conceivable form of text and video content imaginable, making Hollywood and Madison Avenue major players in a more leveled universal playing field that covers entire new realms.

A new report by Morgan Stanley analysts Richard Bilotti and Benjamin Swinburne concludes the largest outflow of old-to-new media advertiser dollars will be $4.3 billion in all television spending moving online between now and 2010, although the impact will be muted by the size of the media conglomerates that own mainstream broadcast and cable. Internet ad spend triples to $33 billion by 2010 (growing 20% annually), compared with traditional media ad spend growing only at about 3%. But it all pales by comparison to the 35% increase in adverting of the streaming rich media that the new Google-YouTube combination represents.

"As viewers begin to embrace the web as an alternative video path, the continued fragmentation of viewership will hurt the 100% ad-supported models of broadcast TV, especially local TV stations," a Bernstein Research note warned on Friday. "No longer will local stations monetize the local monopoly retransmission rights of original telecasts," the research note read. "As viewers continue to scatter, the linear monetization of audience will also break down, putting further pressure on local stations' ability to profit from audience traffic to late night news."

With this framework, Google serves as an aggregator and arbiter through the selection and order of its searches. By closing the gaps between production and consumption of content, as well as the investment and return, the economics of media and entertainment will change dramatically. Consequently, the syndication of content will reach beyond legacy distribution players to Google-YouTube and a new generation of Internet bypass video purveyors. That is the overriding fact that will lead Google, content providers and other key players to resolve the copyright protection and payment issues that are critical to assuring that creativity and commerce continue to flourish in the digital world. After all, they are bound by the common goal of making money.

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