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Sunday, January 28, 2007

Joost is no Red Herring

They shook up the music industry and challenged the telecommunications sector. Now the Scandinavian duo that created Internet telephony service Skype is aiming to take on the television and cable industries.

Niklas Zennström and Janus Friis, who were also behind popular peer-to-peer music-sharing site Kazaa, unveiled their much-anticipated Internet television service Joost.

News reports hailed Joost—in part because the duo seems to have the Midas touch—and appeared to suggest the team was on the verge of revolutionizing the way people watch TV. But building Joost into a broadcasting powerhouse won’t be easy: For the first time, the duo will need to outmaneuver powerful competitors and form partnerships with major content producers that have so far remained on the sidelines.

Joost, formerly known to the digerati as The Venice Project, certainly seems compelling enough. It will let viewers watch TV for free over the Internet. The service will feature channels that users can flip between to find shows and a keyword search function so viewers can pull up programs on demand. Joost will also let users chat among themselves as they watch Internet TV. Joost says it wants nothing less than to merge the best of television with the best of the Internet.

The Luxembourg-based company, which the Scandinavian twosome reportedly funded with proceeds from the $2.5-billion sale of Skype to eBay, aims to offer global audiences to professional content creators. It plans to generate revenues from advertising and undisclosed “interactive services” delivered over its peer-to-peer `platform, the same technology that powered Kazaa and Skype.

Joost also promises to alleviate some of the pain Internet users feel when trying to locate content, such as television shows, online. News Corp.’s Fox network, for example, posts programs to the company’s MySpace social networking site, making the content sometimes difficult to find.

“The ability to get content from multiple sources through one interface could make [Joost] very successful,” says David Hallerman, senior analyst at research firm eMarketer.

Timely Play

Joost’s timing appears impeccable. Online video consumption is booming as Internet users flock to new sites and services, including Google’s YouTube video-sharing site. A key difference is that YouTube deals mainly in short, low-quality video clips created by individual users, while Joost plans to offer full-length, professionally produced TV shows and movies. Joost also says it plans to eventually move the Internet service to television sets through set-top boxes.

But industry analysts say Joost must overcome several hurdles. Aleksandra Bosnjak, media analyst at Ovum consultancy, notes that Joost will eat up a hefty amount of bandwidth, which could be problematic for consumers who have bandwidth caps on their Internet service.

A greater issue is that Joost has signed up few content providers. So far the startup has inked deals with Warner Music, TV-production company Endemol, September Films, and Indy Car Series. But leading movie studios and television production firms are all notably absent from that lineup and without compelling content, Joost will be hard-pressed to turn a profit.

“If the service is advertising-based, then they need to get people watching in order to generate revenues—and without attractive content, that’s not going to happen,” says Ms. Bosnjak.

On the advertising front, Deutsche Telekom’s T-Mobile, chewing gum maker Wrigley, and cosmetic manufacturer Maybelline, owned by L’Oreal, have agreed to give Joost a try, but the company must entice many more advertisers if it is to succeed.

And there will be plenty of competition for advertisers from other newcomers. Google’s YouTube might deal in amateur video fare, but movie download services such as Movielink, Apple iTunes, and file-sharing programs such as BitTorrent all covet a chunk of the online video market.

The odds are fair that Mr. Zennström and Mr. Friis will score a third hit, but success this time around is no sure bet.

Thanks to Red Herring for this super article.

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