• by Wayne Friedman , Staff Writer, March 29, 2007

The creators of Kazaa and Skype prepare to debut their latest venture, Joost.

Their aim: to transform entertainment as we now know it.

"Goodbye, television. Hello, Joost."

With that bold greeting, peer-to-peer revolutionaries Janus Friis and Niklas Zennstr"m debuted their latest start-up, Joost, which promises to forever change the way we watch TV. The new online service dangles the prospect of nothing less than the syndication of prime-time fare, for free and on demand.

When it officially debuts later this year, Joost, previously known as "The Venice Project," will join a fast-growing roster of companies aiming to distribute content themselves. The players range from BitTorrent to YouTube to the networks themselves, including NBC and News Corp. which, in late March, announced their own plans to offer free streams of TV shows via AOL, MSN, Yahoo, and MySpace.

Unlike many of the new enterprises hoping to become online video hubs, Joost's founders have a track record of breakout hits. The Scandinavian entrepreneurs created two of the best-known Internet brands: the infamous music and movie download service Kazaa, and Internet telephone company Skype.

"Joost is like the next generation MSO or cable company," says Tim Hanlon, senior vice president of ventures for Publicis' futurist division, Denuo. And, as with cable, the enterprise relies on the cooperation of the TV networks. "It's not going to be divisive, but collaborative," Hanlon adds. "Content providers want to be in control," he says. "But they can't control it completely. They need third parties."

"We like to think of ourselves as an aggregator," adds Yvette Alberdingk Thijm, executive vice president of content strategy and acquisition for Joost. "The business model is very simple. It provides [content owners] with another form of distribution."

Joost's First Broadcast Buddy

Whether Joost's founders will be able to replicate their Kazaa/Skype success with television remains to be seen. Perhaps the biggest factor will be whether the major media companies decide it's in their interest to partner with Joost. To date, just one - YouTube-foe Viacom - has done so.

Viacom, which in March sued the Google-owned YouTube for more than $1 billion for copyright infringement, also recently agreed to allow Joost to stream programs including "The Real World," "Laguna Beach," "Beavis & Butthead," and "Flavor of Love," as well as movies from Paramount Pictures.

Viacom and Joost executives won't discuss financial specifics, but some reports suggest Viacom will receive two-thirds of the advertising revenue and other compensation for each particular video stream.

Joost's Alberdingk Thijm offers only that future deals might be different for different companies. "The content owners have the final say," she notes, adding that numerous combinations of advertising-based deals could be struck. "The content owners can sell the time and package it with their other media - or we can sell it. We have a global sales team in place."

Other details aside, Joost says no more than three minutes of advertising will be placed in any hour-long program stream. Also, a single advertiser will sponsor each stream. Consumers will be unable to skip commercials - a restriction that ABC and others employ when streaming from their own sites.

Still, these specifics may change, depending on how the market evolves, since, according to Alberdingk Thijm, the "holy grail" of online video has yet to be discovered.

Speed and Style

The ultimate in online video might remain elusive for now, but delivering high-quality images will be a critical component. Here, Joost stands to benefit from its peer-to-peer technology, which enables easy distribution of large amounts of material. Joost's interface - seen as more elegant and easier to use than the alternatives - also is drawing kudos. Joost additionally offers social networking features, like the ability to chat while watching video.

"If Joost is able to provide juiced-up speed for larger video files - while their user experience [remains] superior to YouTube, which I believe it is - then they've got a legitimate shot," said Alan Schulman, chief creative officer of Brand New World, a digital media branding and creative agency.

Joost hopes to distinguish itself from sites like YouTube by offering only professional content - avoiding low-quality travelogues or wedding videos that reside on user-generated sites.

Still, there are some similarities with YouTube, which also offers a user-friendly interface and a host of social features, including the ability to share and comment on clips.

Just as analysts wonder how YouTube will make money, they also aren't sure Joost will be able to turn a profit while building a financial model that will be acceptable to all major media companies.

While Joost is somewhat analogous to a cable operator, the comparison only goes so far because cable companies not only give networks air time for ads, but also give them a cut of subscriber fees.

One big unanswered question is whether TV executives will deal with Joost in the absence of subscription revenue.

"Is ESPN on Joost going to get $2.50 per subscriber that it does with cable systems?" asks Larry Gerbrandt, senior vice president and general manager of Nielsen Analytics. "That's one of the most interesting questions: Who is going to pay?"

The answers will be critical as the new business grows, especially since some major media companies attribute the success of cable to subscriber fees.

"Right now the Web is the broadcaster's friend," says Gerbrandt. "One of the problems with broadband video is it allows video to be re-defined. But if you don't re-define it [yourself], it can be destabilizing. That's why networks have to seize the initiative. Otherwise, they could find out they'll be where the music industry is."

For now, Joost continues to talk with all major media companies and broadcast networks. While many are not commenting on the record, they seem to generally favor Joost's concept.

"They have proven themselves twice," says one network executive, referring to Kazaa and Skype. "The second thing [in their favor] is that they are trying to license content. The third is that they have a more consumer-friendly interface."

This executive, whose network hasn't made a deal as yet with Joost, notes the hurdle will come from media companies' allegiance to cable-like advertising and subscriber business formulas - which provide the networks with hefty revenues.

Other than Viacom, no major media companies have forged deals with Joost as of press time.

Money Talks

Joost may be willing to share ad revenues with content providers - but paying a license fee is another matter entirely. TV networks, however, tend to think they're entitled to such fees. "We think in a license model we should get paid for the licensing," says a network executive.

Joost argues it's helping to build stronger promotional ties for the network, which will boost the audience for traditional TV viewing. Why then should Joost pay a license fee? One industry executive proposed that Joost might take the astonishing step of asking for money from the networks.

TV networks have another major concern: Companies like Joost might compete with content providers' own efforts to distribute online. "[Networks] have to be smart about serving their content across as many distribution points as possible," says Hanlon. "Viewers aren't necessarily going to go through the front door [of the networks' own sites]. They might want to go through the side door or back door."

And what if the networks don't want to give the content to consumers on demand?

"If viewers don't find what they want, they'll try - through legal or illegal means - to get stuff that they want," predicts Hanlon.

Indeed, the rise of one of the Joost founders' previous ventures, Kazaa, proves that Web users don't hesitate to take matters into their own hands and seek out the content they want from unlicensed sources.

Still, some TV networks might decide it makes more sense to distribute content themselves online. In fact, in late March, NBC and News Corp. announced a joint venture to stream TV programs and movies online, at a stand-alone site, and also on the portals AOL, MSN, Yahoo, and social networking site MySpace.

Jeff Gaspin, president of NBC Universal Cable and Digital Content for NBC Universal Television Group, brags that with the deal, the networks potentially reach 96 percent of the online audience. Peter Chernin, COO of News Corp., said the venture will be so powerful that Web video start-ups will be struggling to catch up.

What's more, it's not only TV networks that are competing with Joost. Companies like Veoh have also staked a claim to a piece of the Web video market. Veoh also uses a P2P model, and has the backing of Time Warner and former Disney chief Michael Eisner. Separately, AOL, MSN, and Yahoo have built out their video offerings, while Apple's iTunes now sells downloads of many popular TV shows.

Regardless of whether other networks team with Joost, the start-up isn't just sitting around, passively awaiting a decision. Joost is already going after their big customers - the advertisers - and has attracted interest from companies such as L'Oreal for its Maybelline brand - a sponsor in Joost's current beta test.

Many networks, in turn, will look to not only protect their existing advertising client base, but also their current distributors.

Joost "will be direct competition with cable and satellite," says one network executive. "We have tremendous existing businesses with those companies - representing billions of dollars."

Yet if Joost - or any of the other new online video ventures succeed - TV viewers may wonder why they are continuing to pay for cable. "At what point do I dump my cable subscription?" asks Nielsen's

Gerbrandt, adding that the future will likely find a host of companies competing to get TV to viewers. "It's going to be about multiple avenues to deliver the most popular content."