Image: Huang Yixin and Wei Wei
Huang Yixin And Wei Wei / Forbes
Two Chinese college students, Huang Yixin and Wei Wei, created videos of themselves in their dorm room lip-synching to Backstreet Boys hits. The clips also got the attention of a Beijing media company, which found the students a job lip-synching for a Pepsi Cola commercial.
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updated 8/2/2006 8:38:55 PM ET 2006-08-03T00:38:55

Technology changes, but popular taste doesn't. Everyone loves a talent show, which is why audiences tuned into the Major Bowes Amateur Hour radio show in the '30s and why they're watching “American Idol” today. Now a crop of entrepreneurs want to move the talent show from the small screen to the computer screen.

The Internet already serves as an unruly gong show: Would-be stars can put their performances up on sites such as YouTube or GarageBand.com and hope that someone, somewhere notices. In a few cases, that's even panned out, bringing a tiny bit of fame, and very little money, to the new cyber-celebrities.

But startups KSolo, Bix and SingShot — which opened the doors to its virtual Karaoke club Monday — aim to create sites where performances are evaluated and the cream rises to the top.

All three sites ask people to sing along, Karaoke-style, into their computer microphones. Listeners rate their favorites. At KSolo and SingShot, only vocalists are eligible to share renditions, but at Bix singers, lip-synchers, dancers, comedians and artists are welcome to show off through their Web cams.

One challenge facing these sites is that, unlike YouTube, they’ve taken the legal high-road: Users cannot upload copyrighted music or video. This means they’ve spent months wrangling with music publishers such as EMI, Warner Music Group's Warner Chapel and Sony BMG for lyrics and music licenses, and with Karaoke library companies such as Songdog and Soundchoice for rights to instrumental tracks.

“It takes resources to navigate those licensing waters,” says SingShot CEO Ranah Edelin, who relied on his background negotiating content licensing deals for RealNetworks' Rhapsody music service.

If they didn't make nice with the publishers, the startups could be liable for up to $150,000 per song, according to Holland and Knight copyright attorney Edward Naughton. “Since these companies are encouraging people to manipulate copyrighted works, they’ve got to go the old-school route of buying licenses,” he says.

The current tally: Bix has 1,000 songs, KSolo has 4,000, and SingShot launched with 2,500. That's the rough equivalent of a standard night club Karaoke catalog, but they all promise more are on the way. Each site features tunes by the Beatles, but none contain recent radio hits such as Kelly Clarkson’s “Since U Been Gone.” Bix’s current catalog is quite small, and doesn’t even contain perennial Karaoke favorites like the Righteous Brothers. Apple Computer's iTunes store, by contrast, sells 2 million songs at 99 cents each.

While these deals are a boon to the music companies’ profit — they represent a new revenue stream based on inventory they already have on hand — they’re a hardship on the startups who must spend time, and money they haven’t yet earned, negotiating for as many song rights as possible.

Video-upload companies like YouTube and Google's Video search product, however, escape buying licenses from publishers. If their users upload copyrighted works, the companies are betting that they'll be protected by the Digital Millenium Coypright Act, which stipulates that as long as they don’t encourage or profit from infringement, and agree to take down infringing videos, they aren’t liable. The Recording Industry Association of America has already begun serving users of sites like YouTube with “cease and desist” letters, but thus far hasn’t targeted YouTube itself.

There’s always a chance YouTube could join the Karaoke party and begin offering its users the chance to perform, warns Inside Digital Media analyst Phil Leigh, thus putting a damper on the startups’ grand plans. YouTube already serves 100 million videos per day. “If this karaoke and lip-synching stuff looks profitable, YouTube will get into it,” he says.

On a panel at a conference in Palo Alto, Calif., last week, YouTube Chief Executive Chad Hurley said his unprofitable company is more interested in creating a stage for its users rather than telling them what kind of content to create. But he did leave the door open to other, rights-based business plans. “We’re not building our business around the DMCA,” he said.

The online-performance companies hope to pay for their pricey licenses in different ways. Bix, which is currently in a closed beta test, is free to viewers and contributors, but hopes to make the bulk of its money with advertisements and contest sponsorships.

Creative Strategies analyst Ben Bajarin thinks Bix’s business model is strong. “Imagine that Coca-Cola hosted a contest asking people to submit videos doing the funniest thing they can think of with a Coke bottle,” he says. “That’s great for the brand, and because Bix will let them control what user-generated content makes it in, advertisers won’t be afraid of it.”

But Bajarin’s not as confident about the audio-only subscription-based models of KSolo and SingShot, who both charge $9.95 per month. “I think the audio-only sites will have a tough time of it because Karaoke is not a personal delight, its something you do in a group.”

Leigh agrees. “While these types of sites have the potential to become as big trends as podcasting and blogging, I think advertising is the way to make it work. Consumers don’t want to pay a toll every five miles on this road.”

But KSolo Chief Executive Nimrod Lev has no illusions that his year-old subscription site will match YouTube’s popularity. “We never saw our service as viral, and that’s because of the subscription,” he says. “Subscriptions kill viral elements.”

Instead, Lev says KSolo will hit the mainstream with partnerships inside its new family--the startup was acquired by News Corp.'s Fox Interactive Media division in May for an undisclosed sum. News Corp. also owns MySpace, “American Idol” and the popular reality show's Web site, so the tie-ins are obvious, says Lev. “We were afraid FIM would build their own service like ours, but we didn’t feel mature enough to approach them. Instead, they came to us.”

In the three months since the acquisition, FIM hasn’t done anything to integrate KSolo into “American Idol,” but the company has beefed up its “Idol” site, which until late 2005 was treated as a marketing site rather than a revenue-generating destination. The site received 9 million visitors in May. Lev says a direct relationship with “Idol” is in the works.

But even if FIM does bring KSolo to the masses through “Idol,” there’s still room for another subscription-based competitor, argues SingShot’s Edelin. “Thanks to ‘American Idol,’ this universe is only growing,” he says, noting that tryouts for the next season of the TV show begin in August. “FIM’s purchase of KSolo is exhibit A in the proof of validation of this business.”

© 2012 Forbes.com

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