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Google may have acquired the reigning first-generation online video-sharing site in YouTube – for the king-sized price of $1.65bn this week – but others have been placing smaller bets on a second generation of sites in the Bay Area.

Sony bought Grouper in August for $65m, a service that allows users easily to edit videos, while Yahoo acquired Jumpcut, another editing site, in September for an undisclosed sum.

Other sites matching the trend towards editing tools include VideoEgg, One True Media and San Diego-based Eyespot.

“YouTube are the first and largest player, but hopefully we can play leapfrog with next-generation video offerings,” says Josh Felser, co-founder of Grouper.

Millions of videos are viewed every day on YouTube by visitors but only 60,000 are uploaded by its users, suggesting the vast majority are still uncomfortable with handling the technology. On Grouper, about 10 per cent of videos uploaded have been edited with its software to create what it calls “Groovies”. All video can be formatted to play on iPods and Sony PSPs.

Sony has not yet revealed its plans for the company but its electronics division, which makes camcorders, and Sony Pictures, its movie business, have both been in talks with Grouper’s management.

This suggests the editing software will be tied in with Sony’s hardware and film content will be added to the site, perhaps allowing users to create their own “mash-ups” – re-edited versions of Sony content, perhaps mixed in with their own material.

“It’s becoming a big media business, the cycle here is very similar to what happened with online music – the big companies realise they have to be in this space so they start acquiring expertise,” says Mr Felser.

Yahoo’s acquisition of Jumpcut will add splice and spice to its existing consumer video storage. Jumpcut invites its users to upload their video and photos, grab other people’s content and remix everything into movies that can be shared.

Google and YouTube may eventually have to offer something similar to retain users.

“It’s a big market and given that we’re talking about large amounts of short-form video, I think there is very little consumer loyalty,” says Joe Laszlo, analyst at Jupiter Research.

“Nobody’s going to be exclusively a YouTube viewer.”

Bob Davis, a partner at venture capital firm Highland Capital says: “The video revolution is in its infancy.

“We haven’t scratched the surface of online video. There will be niche sites that relate to certain types of video. There will be a slew of video advertising sites that specialise in inserting ads and there will be companies that focus on editing video online.”

Another leading VC firm, Kleiner Perkins Caufield and Byers, backed One True Media to the tune of $5m in first-round funding this summer. It allows users to upload video and photos, create montages, add soundtracks and copy video on to DVD.

“Most consumers find editing very hard. Our aim is to help them create something in a couple of clicks rather than a couple of hours,” says Mark Moore, chief executive and co-founder.

He sees the Google-YouTube deal as a catalyst for online video in all its forms as users move more towards watching the web than reading it.

The next revolution coming by later this year will be a kind of “fusion TV”, Mr Moore predicts, with broadband digital video recorders appearing and Internet
Protocol television services that will feature
YouTube-type user-generated content.

Al Gore’s Current TV channel is one example, while other online services and content owners allow users to “rip” movies and sports footage and remix them.

“We’re only about a year [out] from the explosion of online video,” says Brian Haven, analyst at Forrester Research. “That happened when Apple announced video in iTunes. There is still a lot more content to get out there and it’s not all user-generated either.”

VideoEgg won $12m in third-round funding last month and is becoming a leading infrastructure provider in online video. Its editing tools are used on 60 partner sites including AOL and social networking sites such as Bebo. It has just launched a network that allows ads to be inserted into user-generated content.

“YouTube has shown that a destination site is a compelling approach to short-form video content,” says Kevin Sladek, chief strategy officer.

“But we think there’s a better role for video to play and it’s broader than just one site.”

Watch the video and read the transcript of the FT’s interview with Google CEO Eric Schmidt

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