Good Luck Killing YouTube

Why is it so hard for old media to learn from its new-media mistakes?

The Wall Street Journal is reporting that a consortium of media companies including News Corp. (NYSE: NWS  ) , Viacom (NYSE: VIA  ) , CBS (NYSE: CBS  ) , and NBC parent General Electric (NYSE: GE  ) are in negotiations to launch a site to take on Google's (Nasdaq: GOOG  ) YouTube.

The thinking is sound, on the surface: The networks can point to unauthorized clips of their shows serving as major traffic drivers to YouTube. But dig a little deeper, and you'll see, for starters, that although CBS and NBC do have some of the top draws on YouTube, it's a result of a sponsored relationship. CBS even issued a press release touting that the 328 videos it had uploaded to YouTube had generated 29.2 million streams in their first month on the site.

It also bears mentioning that YouTube has been featuring CBS show clips throughout its site. Still, CBS has only has half as many subscribers as LonelyGirl15. And NBC? It's been asleep at the wheel, with 60 other channels -- most of them amateur -- landing more subscribers.

Dwarfing the biggies
The bigger risk, of course, is that the four conglomerates somehow manage to hash out a plan that's agreeable to them all. At that point, an outlay of capital will be invested in developing the site. Why is that a problem? Let's see .

  • Big media sites have ad sponsors to feed, and many of them have resorted to a practice known as "pre-roll," in which short ads run before the clips. The logic is that folks won't stick around to see an ad after the stream has run. That may be true, but the viewer may zone out the site altogether, with so many less obtrusive sites available.
  • Viral videos, by definition, spread quickly, but they still need a sizeable base to start from. Consider the "Lazy Sunday" phenomenon. The hilarious music video aired on NBC's Saturday Night Live, but NBC didn't take it seriously until it became a hit on YouTube. Only then did it halt YouTube's airing and upload the clip to NBC.com. There is no way that it would have been as popular had it started on NBC.com exclusively, and that's the risk with a smaller site.

  • The four networks may have it wrong: Sending more audiences online may wean them further off the television set. Four rivals competing for mindshare may not settle in harmoniously when each one is out to promote its own slate of new shows. Local affiliates will grow a few more gray hairs.

  • Two compound words with compounded problems: MusicNet and pressplay. Anyone remember them? They were two rival music subscription services that the major labels offered up. However, they were too protective of their intellectual properties, so they shackled their streams. Music fans turned to less restrictive peer-to-peer file-swapping networks to get their pirated tracks for free. It wasn't until Apple (Nasdaq: AAPL  ) came in and unified the rival labels under a service that gave fans a bit more flexibility in manipulating their files that the major labels found a bankable voice in the digital age.

Is the video content industry at the same risk as the prerecorded music industry was in this era of faster Internet connections? Not necessarily, but we've already seen what happens when big companies try to get small without checking their egos at the door.

Dental floss for mental flaws
YouTube has already begun negotiating with content providers for revenue-sharing deals. Some of these networks rely on Google as an important digital partner in selling ads, so there is already a working relationship and a little mutual respect in place.

The networks want to control their own destiny in cyberspace. There is nothing wrong with trying to cut out the middleman. The problem creeps in when you disregard the value-enhancing powers of the middleman. The networks feel as if they are the ones that made YouTube so popular. The stats tell a different story.

Check out the most viewed videos of all time on YouTube, and you won't find the majors. The site's top draws have been clips of pets reacting, babies laughing, and folks dancing and lampooning what major media heads think we should consider entertaining. Yes, there is an entry up there from NBC's America's Got Talent show, but if you Google "America's Got Talent," this clip is also the second entry on the result page. In other words, even when you're a star, YouTube is the tool to make you an even brighter one.

Come to the table to talk revenue-sharing with YouTube? You bet. Take it on as an enemy, or disregard it as irrelevant without you? The truth may surprise you as to whose irrelevance you may ultimately unmask.

Longtime Fool contributor Rick Munarriz isn't a YouTube junkie, but he does find himself on the site more often than he would care to admit. He does not own shares in any of the companies mentioned in this story. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has a disclosure policy.


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