Media Giants to hunt For Next YouTube in 2007

U.S. media executives expect another round of frenzied deal-making in 2007 as film, TV and Internet media companies try to reach a new generation of viewers as entertained by each other as by the latest TV show. Though mergers on the scale of AOL’s 2001 purchase of Time Warner for more than $100 billion are unlikely, the hunt for what CBS Corp. Chief Executive Leslie Moonves calls the “next YouTube” will be a top media priority next year.

Google Inc.’s $1.65 billion purchase of the phenomenally popular online video-sharing site in November served as a wake-up call to traditional media players, whose own projects to court online viewers mostly came up short. YouTube grew so quickly - from a garage project less than two years ago to 100 million views a day now - by tapping into viewers’ desire to be in front of the camera. Homemade videos now compete for attention with professionally produced clips and, in some cases, win.

YouTube’s rise illustrates how quickly Silicon Valley sensations can upend decades-old media business models. “The next YouTube is relevant because it could be six people who live on the outskirts of San Francisco that are trying desperately to be funded by Sequoia (Capital) and frankly not even thinking about getting name badges that say CBS,” former Allen & Co. banker Quincy Smith, now president of CBS Interactive, said in an interview.

Speaking broadly about the media industry, Smith added, “Those six guys could be the core element of building a whole new platform on which we broadcast all of our existing content … I’m sure there will be huge deals.” Leaders of top media companies, including Time Warner Inc., Walt Disney Co. and Vivendi’s Universal Music Group, will discuss their strategies in the fast-changing landscape at the third annual Reuters Media Summit in New York this week.

At stake is control of the global Internet advertising market that is estimated to reach nearly $30 billion this year and is expected to rise 73 percent to $52 billion by 2010, according to a recent PricewaterhouseCoopers study.

IN THE MIX

While YouTube has yet to turn a profit, its rise has been all the more disturbing for old media since many clips uploaded by teenagers, dorm-room producers and others are pirated. Eyeing the disastrous effects of the music industry’s response to online piracy – record labels had focused on attacking Web sites instead of offering consumers legal alternatives – media executives these days see potential business opportunities, where once they saw defendants. “What happened in print, in music, it’s now happening in video,” Smith said.

CBS, General Electric Co.’s NBC Universal, Warner Music Group, and Universal Music have all signed deals to experiment with generating advertising sales on YouTube. For some, it is an uneasy alliance. NBC Universal CEO Robert Wright has said he remains concerned about rampant piracy on YouTube, which does not screen uploads for copyrighted clips, but pulls them down after being alerted.

That’s partly why media companies aim to find other, newer ways to reach customers.

“Could you see another distribution model created?” said David Sanderson, head of Bain & Co.’s media practice. “That’s what we’ll see in the next successful business model that’s going to be about true value creation. It’s about the distribution of content.”

Me-too YouTubes of every permutation are now hot buyout targets, executives said. They include Metacafe Inc., Revver Inc. and Veoh Networks, which is backed by former Disney CEO Michael Eisner and Time Warner. Driving these purchases will be the consumer. “Relentless respect, listening to and understanding of the consumer – that’s what it’s going to be all about,” Ron Grant, the newly appointed president of AOL, told Reuters.

Grant, hired by AOL’s new CEO Randy Falco, a 31-year veteran of network NBC Television, said finding the next hot thing could be tough. “It’s one of these things where it’s hard to predict where it comes from,” he said. One thing is certain: “Having your fingers in the mix is critical,” Pali Capital analyst Richard Greenfield said.