• by Gavin O'Malley  @mp_gavin, March 26, 2007

YouTube isn't the only video site likely to be affected by the coming NBC Universal/News Corp. joint venture. Smaller digital video players are expected to feel the deal's waves.

Joost--a start-up from the founders of Kazaa and Skype--just announced plans to offer ad-supported versions of a host of Viacom programs. Similarly, BitTorrent Vice President and General Manager of Consumer Services Eric Patterson said at OMMA Hollywood this past week that the company plans to start offering ad-supported TV programs by the end of the year.

"When the big players agree to play together, there's automatically less need for the smaller guys," said David Clark, a managing director with investment banking firm Jordan, Edmiston Group, Inc. "There's room for other players, but they obviously don't have as much to offer."

BitTorrent, a peer-to-peer Web company, has drawn 135 million people worldwide who have downloaded files using the service--one-third of all P2P traffic online.

Last month, BitTorrent launched BitTorrent Entertainment Network, a new service that has compiled the rights to more than 3,000 movies, 1,000 games and 1,000 music videos from 34 participating content providers. The network has deals with Paramount Pictures, Lionsgate, Warner Bros. and MGM.

Like iTunes Music Stores, the BitTorrent business is a pay Internet service, where users can rent movies for $4 each, and download-to-own TV shows and music videos for $2 each. BitTorrent also plans to add a digital-rights-management-free music download service in the near future.

Both Kazaa and BitTorrent have had a history of unauthorized digital-content distribution. Now the founders of both companies are setting themselves up to provide above-board digital-entertainment services.

If NBC and News Corp. do find success with their new venture--and that's still a huge if--it could threaten the continued adoption of peer-to-peer distribution, which relies on the collective computing power of its users to thrive.

"To the extent that this creates an efficient use of one set of servers powered by NBC and News Corp., the deal could take some of the air out of peer-to-peer," said Forrester Research analyst Josh Bernoff.

But with the future of digital video distribution still highly uncertain, everyone is hedging their bets, Bernoff added.

Case in point: The broadband services company Roo Group, in which News Corp. holds a minority stake, recently agreed to buy legal P2P service provider Wurld Media's assets for up to $10 million in cash and stock.

News Corp. earlier this year agreed to purchase a 5% stake in the company, with tentative plans to purchase another 5% in the near term. The deal gave Roo's existing clients--including News Corp., Verizon and The Street.com--access to a burgeoning pay-to-play market.

Indeed, a recent report by Adams Media Research projected significant increases in consumer spending on downloaded movies, music and TV shows. The report projected that pay-to-play spending will top $4 billion in 2011, far exceeding revenues derived from video advertising.

While details are still scarce, News Corp. and NBC have made it clear that advertising will not be the only source of revenue coming from the new venture. Selling their own and others' movies and TV shows is also part of the plan.