Why online video sites are hot targets

Steve Rosenbush
04 Oct 2006
00:00

As the Internet snaps to life with homemade movies, TV shows, and other forms of video, companies that offer online video are seeing the value of their businesses surge. How much their value is rising, however, is becoming a topic of increasingly hot debate, among moguls in Hollywood, entrepreneurs in Silicon Valley, and investors in New York.

Mark Cuban, the tech entrepreneur and owner the Dallas Mavericks, said on Sept. 29 that anyone who buys YouTube, one of the most popular video sites, is a 'moron.' His comments came the same week that analyst Jordan Rohan of RBC Capital Markets argued that MySpace, the social networking site that generates a huge volume of video traffic, could be worth $15 billion in three years. At its heart, this debate is over what role these Internet video companies will play in the media world"”bit players, important supporting actors, or the new media stars.

VALUABLE VIEWERS.

That's not necessarily so online. A smaller audience may be more valuable than a big one, if the small one does the sorts of things that advertisers like"”such as clicking on ads, buying products, or visiting related content. The bottom line is that Net video companies can be judged on a wider range of factors than traditional media companies, which makes some of them worth more and some worth less.

'VideoEgg Gets a Jolt of VC'

). One thing that encouraged the VCs was the rate at which viewers clicked on advertising from VideoEgg's sponsors. The 'click-through' rate, as it's known, was well in excess of 1%, compared with an industry average of a fraction of 1%. In other words, VideoEgg's audience could be worth as much as a site with twice the number of viewers, because it delivers so many more of its viewers to advertisers.

MONEY POURING IN.

SNE

) paid $65 million for Grouper, a startup known for its online video audience and its technology. Time Warner (

TWX

) and Michael Eisner have invested in online TV site Veoh. The founders of Web phone service Skype, which was acquired by eBay (

EBAY

) last year, are launching a new online video site, currently operating under the code name of The Venice Project (see BusinessWeek.com, 7/24/06,

'Kazaa, Skype, and now 'The Venice Project''

).

News Corp.

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