Web Video Comes of Age

It seems that in households across America, the ubiquitous question of "What's on TV?" is ever so slowly being replaced by "What's on the Web?" The trend is in its infancy, but for those who are successful in cultivating and exploiting online video, the payoffs could be substantial. The usual suspects are involved in the race, but some have better strategies than others.

Video-rich websites see video traffic double every six to eight months, USA Today recently reported. The revenue to be had is still relatively small, but things aren't likely to stay that way for long. Gross billings from streaming video ads are expected to be $321 million in 2005, up 75% over 2004. Next year, the forecast is for gross billings to grow another 41.7% to $455 million, according to Research and Markets. Giants like General Motors (NYSE: GM  ) and Procter & Gamble (NYSE: PG  ) are among the buyers of streaming video ads.

But not every company is pursuing the same strategy to capture the new revenue. Google (Nasdaq: GOOG  ) has a straightforward plan and intends to offer TV shows for a fee. The Internet giant may find that it has some impressive competition, though. Comcast (Nasdaq: CMCSA  ) is heavily promoting its "On Demand" service, which allows viewers to watch TV shows and movies at their convenience. Unless Google can get exclusive access to some shows, it's hard to see consumers choosing Google over good old-fashioned cable TV.

Yahoo! (Nasdaq: YHOO  ) and Time Warner's (NYSE: TWX  ) AOL, meanwhile, are wisely packing their sites to the gills with video that is less likely to compete directly with TV offerings, including exclusive interviews, show outtakes, and movie clips. The most potentially lucrative avenue, though, is original and exclusive content, and both companies are working hard in this area. AOL would seem to have an advantage given Time Warner's entertainment assets. And, in fact, AOL has already launched two original shows, The Biz and Project Freshman. However, while both shows zero in on the teen and twentysomething demographics that advertisers love, neither seems likely to grab viewers' attention over the long run. For its part, Yahoo! has built entertainment management credentials and recently began its first show, Kevin Sites in the Hot Zone.

The race to capture video revenue is still up in the air. But for now, at least, it seems likely to be a two-horse race between Yahoo! and AOL.

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Time Warner is aMotley Fool Stock Advisorrecommendation.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.


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