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Viral video site poses challenge for Hollywood

The entertainment world is putting the squeeze on, but will it be more like a hug than a headlock?
/ Source: Hollywood Reporter

The entertainment world is putting the squeeze on, but will it be more like a hug than a headlock?

In a few short months, the Web site has emerged from the obscure ranks of dozens of online viral-video outposts to dominate even giant portals in the category, including Yahoo! and Google.

But its astonishing growth — streaming 30 million videos a day — also has put old-guard media empires on the defensive. NBC Universal Inc. and CBS Corp. are just a few of the power players who have clamped down on YouTube recently for hosting copyright-infringing clips snatched from broadcast airwaves.

"As the broadband digital space develops, it's important for rules of the road to be clearly established," says Richard Cotton, executive vp and general counsel at NBC Universal.

However, the relationship between this Internet upstart and Hollywood isn't as adversarial as you might assume. For every corporate lawyer firing off angry letters to YouTube, there are two more executives exploring potential partnership opportunities -- maybe even an outright acquisition.

What's more, YouTube execs claim that these conflicting legal and promotional imperatives often unknowingly emanate from the same company.

"There's been a few examples of marketing departments uploading content directly to the site, while on the other side of the company their attorney is demanding we remove this content," YouTube co-founder Chad Hurley says.

Power of viral video
The media establishment's schizophrenic attitude toward YouTube reflects the undeniable promotional power of viral video, which sends clips bouncing around the Internet's young-adult user base like a beach ball at a Nickelback concert. As conglomerates begin charging for programming everywhere from their own Web sites to Google Video, savvy independents like YouTube are being sized up as allies a la iTunes or enemies on par with the Napster of old.

Hurley places himself in the former camp. YouTube is actively seeking partnerships with media companies, positioning itself as something of a virtual buffet where one can nibble on bite-size clips of programming for free in order to drive consumer interest in the feast offered by movie studios and TV networks.

"The community and viral nature of it is often an opportunity to reach a large audience and to promote movies," Hurley says. "We don't see YouTube as a place to watch a whole show. We're about clips and promotional content, and user-generated content."

In just a few months, YouTube has generated an inordinate amount of attention for a company with only 20 employees squeezed into a loft above a pizza parlor in San Mateo, Calif. Hurley founded the company in February 2005 with fellow twentysomething Steve Chen; both are former employees at eBay's online payment service PayPal.

YouTube is not a peer-to-peer service like Napster, but its video-hosting capabilities allow Internet surfers to stream videos easily from a Web page. Also unlike Napster, most of the video available is not entire TV episodes or movies but short clips no longer than three minutes.

That makes YouTube and its ilk ideal for showcasing homemade video of everything from baby's first steps to frat-house pranks. But many of these sites are positively teeming with copyright-infringing footage snipped from current and past television shows and movies. There is no barrier to entry for illegal videos; users can upload whatever they want in less than a half-hour.

Not long after its soft launch in May, viewers were watching 30 videos a day; by the time the company officially launched in December, it was 3 million. Today, YouTube has twice the traffic of Yahoo! Video and more than three times that of Google Video and AOL Video.

"Their growth has been phenomenal," says Leeann Prescott, senior research analyst at Internet tracking firm Hitwise USA. "It's really the next evolution of online entertainment."

Copyright violations chased down
But many of the hits that drove the growth were copyright-violating clips. Last month, NBC Universal ordered YouTube and other unspecified viral-video Web sites to take down hundreds of clips, including a "Saturday Night Live" skit known as "Lazy Sunday" that became an Internet sensation. YouTube complied but since has had to chase down more "SNL" material at NBC Universal's behest, including a skit featuring Natalie Portman.

One week later, CBS News came down on YouTube for making available a "CBS Evening News" segment about an autistic basketball player that also became a big Internet draw.

At least that example was one where CBS wanted the footage seen. Not so over at ABC, which had to weather the indignity the day after its Academy Awards telecast of YouTube users parsing every second of a vignette featuring Tom Hanks in which he appears to have accidentally muttered profanities. ABC declined comment.

Sources say Fremantle North America, producer of the Fox powerhouse "American Idol," leaned on YouTube to remove scenes from the megahit show. The company declined comment.

But for all the notoriety YouTube has earned, Hurley notes that the site has not been sued, nor has it even received a cease-and-desist letter. What YouTube has been bombarded with are Digital Millennium Copyright Act notifications, which compel Web sites to remove copyright-infringing material.

YouTube has received high marks from most companies that credit the Web site with complying quickly with removal requests.

"YouTube has been a good corporate citizen and taken off copyrighted material," says a spokeswoman for the Motion Picture Assn. of America, the lobbying arm for the major Hollywood studios. "We'll continue to monitor what they do. Right now the indication is they are willing to work with us."

Established players sign on
YouTube is starting to see a trickle of established players sign on for promotional partnerships. Indie label Matador Records is spreading the word on the band Pretty Girls Make Graves by allowing viewers to submit music videos for its upcoming single. Cable network MTV2 has provided clips from upcoming programming including "The Andy Milonakis Show" that links back to the MTV2 Web site. Even advertisers are on board, as Nike has seeded the site with video clips promoting its footwear.

This week, Disney's Dimension Films entrusted YouTube with the trailer for its upcoming film "Scary Movie 4," which promptly garnered 200,000 streams in its first 15 hours on the site.

"In terms of sheer popularity, presently YouTube is at the forefront when it comes to video sharing," says Ian Schafer, CEO of Deep Focus, Dimension's advertising agency. "The more people who see this film's trailer, the more people we feel will get excited about this film."

Hurley indicated that this is just the beginning, with even bigger brands soon to make joint announcements with YouTube from all over the industry. He also says other programmers are taking a more covert approach, uploading movie trailers and the like without striking any official deals in hopes of starting a faux-organic wildfire of buzz.

Not that YouTube will partner with just anyone. Cognizant of the anarchic sensibility pervading viral video, the company wants to be selective in order not to be viewed as a sellout to corporate interests.

"We are moving really cautiously for that reason," Hurley says. "We are looking at indie brands, the kind of brands that resonate with our users."

For now, the company is abstaining from any kind of advertising on the site in hopes that partnerships with media companies eventually will help pay the bills. Advertising will eventually be incorporated, but in the meantime YouTube is subsisting on the $3.5 million in private equity funding it received in November from Sequoia Capital.

In the meantime, YouTube is still trying to make amends with corporate Hollywood by improving the mechanism that allows it to move quickly to strike infringing videos. But even as the company improves its technology, Hurley warns that constitutional protection is still in place to keep YouTube an open community. "We're not required to police the site," Hurley says. "But we're building the tools to help control everything."

NBC Universal's Cotton is taking a wait-and-see attitude, noting that digital media is a fast-evolving landscape. Still, he isn't ruling out putting on more pressure.

"They may have to undertake additional activities on the order of filtering or screening," Cotton says.

Were it only that easy. Some of YouTube's more creative users do more than just post excerpts of shows; they splice them together with footage from other bits of video. These amalgamations yield a few absurdist oddities like a video mash-up of "The Apprentice" with footage of Charles Manson, which suggests what might happen if Donald Trump were interviewing the notorious serial killer for his show.

YouTube is far from alone in the viral-video category, with dozens of others attempting to mount the kind of mindshare it has aggregated, including Grouper, Vimeo and Clipshack.

Some new entries are aiming for a more distinctive corner of the market, like Revver, which takes a zero-tolerance policy against illegal footage and goes as far as splitting advertising revenue with amateur auteurs who submit to the site.

"Web sites that attract users by flagrant copyright infringement we don't see as a business," Revver founder Steven Starr says.

YouTube's main competition seems to be the big-brand portals, all of which are stumbling into video-sharing in fits and starts and leaning heavily toward the subscription model. While Google Video has lined up interesting partner brands like CBS, its navigation and ease of use has been heavily criticized.

Yahoo seemed to be moving strong into original programming but recently has made indications that it will back away from that strategy in favor of more user-generated content.

"I think they're adjusting to the amount of attention we're receiving," Hurley says of Yahoo Inc. "They're going to be chasing us. We can out-innovate these guys. They are large organizations that take time to innovate product."

YouTube's greatest competition might turn out to be the Internet brand that is currently its greatest asset: social networking giant, which Hitwise estimates delivers one out of every five streams for YouTube. In January, MySpace launched its own video hosting service at that could become an easier go-to option for MySpace's massive user base.

"It could cut into YouTube's traffic," Hitwise USA's Prescott says.

MySpace recently was acquired by News Corp., and therein lies another challenge that might lie ahead for YouTube. Media companies are snapping up online properties in part because they serve as a promotional base. Witness how News Corp.-owned cable channel FX injected MySpace with the latest video from Ice Cube: It happens to double as a promo for "Black. White.," an FX series that launched this month and counts the rapper as one of its executive producers.

And News Corp. isn't the only media giant that recognizes the advertising potential of viral video. Not long after the acquisition of, Viacom grabbed a similar site, Last week, NBC Universal acquired the female-targeted Web site, which it plans to seed with video programming as well.

Hurley acknowledges that YouTube could make a nice acquisition target but says no such plans are in the offing.

"That is not our intent," he says. "We're not looking for a quick exit."