What's on next
The union of television and the internet is spawning a wide variety of offspring

From The Economist print edition

Feb 8, 2007

BOSSES in the television industry have been keeping a nervous eye on two Scandinavians with a reputation for causing trouble. In recent years Niklas Zennström, a Swede, and Janus Friis, a Dane, have frightened the music industry by inventing KaZaA, a “peer-to-peer” (P2P) file-sharing program that was widely used to download music without paying for it. Then they horrified the mighty telecoms industry by inventing Skype, another P2P program, which lets internet users make free telephone calls between computers, and very cheap calls to ordinary phones. (The duo sold Skype to eBay, an internet-auction giant, for $2.6 billion in 2005.) Their next move was to found yet another start-up—this time, one that threatened to devastate the television industry.

It may do the opposite, as it turns out. The new service, called Joost and now in advanced testing, is based on P2P software that runs on people's computers, just like Skype and KaZaA. And it does indeed promise to transform the experience of watching television by combining what people like about old-fashioned TV with the exciting possibilities of the internet. But unlike KaZaA and Skype, says Fredrik de Wahl, a Swede whom Messrs Zennström and Friis have hired as Joost's boss, Joost does not “disrupt” the industry that it is entering. Instead, rather than undercutting television networks and producers, he says, Joost might, as it were, give them new juice.

That is because Mr de Wahl and his Joost team, working mostly in the Netherlands, have bravely ignored the totems of the internet-video boom. Chief among these fashions is letting users upload anything they want to a video service—which might include clips of themselves doing odd things (“user-generated content”) or, more questionably, videos pirated from other sources. The celebrated example of this approach is YouTube, which is now part of Google, the leader in internet search. Its big problem, however, is that it can be illegal (if copyright is violated) and fiendishly hard to turn into a business.

On February 2nd Viacom, an American media giant, became the latest company to demand that YouTube remove copyright-infringing clips from its website. YouTube has struck deals with some media firms, including NBC and CBS, to allow their material to appear on its site, and had been trying to thrash out a similar agreement with Viacom. Many observers regard Viacom's move as a negotiating tactic. But whether YouTube can make money is unclear. Last month Chad Hurley, YouTube's chief executive, sketched out plans for generating advertising revenues and sharing them with content providers, but so far his firm has none to speak of.

Joost is also ignoring the two business models seen as the most respectable alternatives to advertising. One is to make users pay for each television show or film they download, but then to let them keep it. This is the tack chosen by Apple, an electronics firm that sells videos on iTunes, its popular online store; by Amazon, the largest online retailer; and by Wal-Mart, the largest traditional retailer, which launched a video-download service this week. The other approach is to let users subscribe to what is, in effect, an all-you-can-eat buffet of videos, and then to “stream” video to their computers without leaving a permanent copy. This is the approach taken by, for instance, Netflix, a Californian firm that mostly delivers DVDs to its subscribers by post, but now also streams films.

The reason that Joost is ignoring all of these methods, says Mr de Wahl, is that none has much to do with the experience of simply watching TV, which most people enjoy. Unlike the download or streaming approaches, he says, “TV is not about buying today what you want to watch tomorrow, it's about turning it on and watching.” And in contrast to the “lean-forward” context of “snacking” on a YouTube clip in one's cubicle while the boss has stepped out, TV is a longer and more relaxed “lean-backward” experience.

Hence Joost's most shocking innovation, which is not to change the practices that TV adopted decades ago. It will be free, with advertising breaks—no more than three minutes per hour—either before, during or after a show, depending on the market. Americans, says Mr de Wahl, are more tolerant of interruptions.

Joost has “channels”, like ordinary TV, but these are now playlists of videos that start whenever it is convenient to the viewer. Viewers can import their instant-messaging buddy lists and chat online with friends while watching the same programme. For advertisers, such engagement is worth something, because the activity proves that somebody is watching, rather than being asleep or out of the room. Combined with other information, such as the computer's IP address and hence its location, advertisers will be able to target their spots much more accurately—all “Desperate Housewives” fans in a particular neighbourhood, for example—and thus ought to pay a premium.

The thing that is missing in this new vision of television, however, is the set itself. Beaming video from a computer to a television is possible: Apple and other firms are starting to sell the necessary gadgets. But until it becomes much easier to connect televisions to the internet, big media companies are likely to “wait and see” before committing to Joost, says Jeremy Allaire, the boss of Brightcove, a rival internet-video firm based in Massachusetts. In the meantime, thinks Mr Allaire, media firms are mainly interested in building their own brands, so Brightcove provides content owners with technology to show television on their own websites, syndicate their shows to other websites, track audiences and collect advertising revenue.

There is, in short, no consensus about the best way to combine television with the internet. Instead, there are a variety of experiments, of which Joost is the latest example and YouTube the best-known. But as with telephony, the internet is unpicking service delivery from network ownership. Joost, YouTube, iTunes and Netflix do not need their own networks to supply their video services: they can piggyback on fast internet links provided by others.

According to iSuppli, a market-research firm, internet downloads will claim more than one-third of the market for on-demand video by 2010 (see chart). So just as internet telephony has been bad for traditional phone companies, this “internet bypass” could be bad for the “on demand” video services being offered by cable-TV and telecoms firms over their networks. But by bringing television to more screens in more social contexts, all this could provide new models for programme-makers to finance their productions and offer advertisers new ways to reach consumers. And so Joost and rival services could end up rejuvenating the 75-year-old medium