Verizon, YouTube Deal

Verizon, YouTube Aim
To Bring Web Videos
To Cellphones, TV
By AMOL SHARMA and KEVIN J. DELANEY
November 7, 2006; Page A1

Verizon Communications Inc. is in advanced talks with YouTube Inc. to bring the popular Web site's videos to cellphones and television sets, in what would be a landmark link-up between telecom and Internet video.

An agreement would allow Verizon's customers to view some of the most avidly watched entertainment on the Internet. That could advance the long-expected convergence of video and cellphones. It could also, at least temporarily, give Verizon a marketing edge over its rivals in the wireless and cable industries, furthering the company's efforts to expand into Internet and entertainment services.


Under the terms being discussed, customers of Verizon Wireless -- Verizon's joint venture with Vodafone Group PLC -- would be able to view some YouTube videos on their cellphones through the carrier's premium V Cast service, people familiar with the matter said. Verizon Wireless, like other cellular providers, has been adding video and data services to offset declining revenue from its calling plans.

Verizon also would offer YouTube videos as an on-demand feature of a TV service it is launching throughout the nation. The company paved the way for the launch with a massive upgrade of its network that is expected to cost $18 billion through 2010.

A deal with YouTube, which could be finalized within weeks, would give Verizon the chance to showcase its new network, which runs on fiber-optic lines all the way to subscribers' homes and has more capacity than the networks of competing cable operators. It could also give Verizon the exclusive right to carry YouTube videos for a limited period of time, one person with knowledge of the discussions said. The talks, however, could still fall through.

Though many cellphones provide Internet access, it is difficult for cellphone users to watch video on the Web, in part because it typically isn't formatted for cellphone screens. But cellular operators such as Verizon Wireless have the technology to bring video, music and other entertainment options to those screens. And their millions of subscribers make them attractive to digital-entertainment companies like YouTube, which are looking to extend their reach beyond personal computers.

YouTube, which has agreed to be acquired by Internet giant Google Inc. for $1.65 billion, is expected to seek similar deals with other big cellular operators -- such as Sprint Nextel Corp. and Cingular Wireless, a joint venture of AT&T Inc. and BellSouth Corp. -- to get the widest possible distribution for its content.

A spokeswoman for YouTube declined to comment on whether the company is in discussions with telecommunications carriers.

YouTube rose to Internet stardom by offering a wide variety of videos submitted by its users. They range from home videos to clips recorded from TV, such as music videos and soccer highlights. Users watch videos more than 100 million times daily on the site.

It remains to be seen whether YouTube's online success can translate to TV sets and cellphones. For one thing, the quality of the many homemade videos it carries is generally lower than what viewers expect on their TV sets. And consumers have yet to take to video on cellphones in large numbers.

Chad Hurley, YouTube's chief executive and co-founder, told an advertising conference last week that he sees a huge market in mobile services. The company has already launched a service that allows cellphone users to upload videos from some handsets to the YouTube site, but the clips can be watched only on a PC. The proposed Verizon deal would give cellphone customers an easy way to access YouTube videos while on the move.

The talks between Verizon and YouTube come at a time when a wide range of media and advertising companies are racing to figure out how to cash in on the skyrocketing popularity of Internet entertainment. Comcast Corp., the nation's largest cable operator, also has had talks with YouTube but has opted instead to create its own video-sharing site that will have ties to its video-on-demand service on TV.

Verizon Wireless, like other cellular carriers, is marketing new data services such as ringtones, songs, games and videos as its revenues from voice services decline. YouTube videos could give Verizon's business a boost by encouraging more subscribers to sign up for its V Cast service, which costs an additional $15 a month.

Verizon already offers video clips from major media companies and networks such as MTV, ESPN, and ABC News, but a YouTube deal would be its first with a company whose videos appear only on the Internet. Among the many clips Verizon was offering yesterday was a short CBS News piece on President Bush's last-minute campaigning before today's midterm elections. Rivals Sprint and Cingular have even broader offerings, including live TV.

Under the terms being discussed, Verizon Wireless cellphone users would be able to access about 50 to 100 of the most popular videos on the YouTube Web site at any given time, people familiar with the matter said. Initially, Verizon cellphone users wouldn't be able to post material of their own to the V Cast service but, by the end of the year, they would probably be able to upload video shot with a Verizon camera phone, a person with knowledge of the plan says.

As part of the proposed deal, Verizon, starting next year, would allow users to view YouTube videos on demand through its new TV service. Users would likely be able to buy access to the top YouTube videos of the day for a small fee, with the revenue shared between the two companies.

Verizon is offering TV as part of its effort to compete with cable companies in selling consumers bundles of home phone, Internet and television services. At the end of the third quarter, Verizon said it had 522,000 customers for its fiber-based Internet service and 118,000 TV customers.

Up until now, Verizon's TV service hasn't varied significantly from digital cable service, offering roughly the same slate of the most popular channels as well as movies and video on demand. A deal with YouTube would give the phone giant an opportunity to distinguish itself from cable, especially with viewers in their teens and twenties who are YouTube's biggest fans.

Verizon rival Comcast has decided to go it alone with its own video Web site, ziddio.com, which became accessible to the public in a trial phase yesterday. Ziddio solicits videos from users which, if they are deemed good enough, will show up on Comcast's video-on-demand service or traditional cable networks. Today, for example, the site is promoting contests for videos about Jedi warriors and messy houses. The best videos will be available on demand when Ziddio is officially launched, probably before the end of the year. Comcast also hasn't ruled out the possibility of doing a deal with an Internet company like YouTube or Revver Inc.

The Verizon discussions with YouTube suggest there are some areas where it makes sense for the large telecom carriers and Internet companies to work together. Until now, the giant cellular providers sometimes have been reluctant to cooperate with companies like Google and Yahoo Inc. Providers such as Verizon, Cingular, and T-Mobile USA generally have opted to work with small start-ups like Medio Systems Inc. and JumpTap Inc. when integrating search features into their handsets, rather than work with the Internet powerhouses, who have demanded a larger share of revenue from mobile search-based advertising.

Landline phone companies, meanwhile, have chafed at the fact that they get no slice of the massive profits that Google and other Internet companies generate on the Internet, despite the fact that their lines provide the Internet connections customers need to use those services. Telecom industry observers have mused for several months about the possibility that AT&T and Verizon might begin charging Internet companies and online video providers a special fee to guarantee priority treatment of their traffic on the Internet, an arrangement opponents say would violate principles of "net neutrality."

The dynamic of the Verizon deal would be very different, however: The carrier would be harnessing YouTube's Internet brand to promote its own FiOS TV services, treating the Web site as a partner rather than a competitor. If any money changes hands in the deal, it is likely Verizon will be paying YouTube, a person familiar with the matter said.

Verizon was hesitant about doing a deal because of legal concerns surrounding YouTube's content. In some cases, users of the video-sharing site have uploaded copyrighted material without the permission of the music labels and media companies that own the rights. The company already faces a copyright-infringement suit filed in July in U.S. District Court by Los Angeles News Service owner Robert Tur over several videos he alleges appeared on the site without his permission. YouTube has said Mr. Tur's suit is "without merit."

YouTube says it removes copyrighted videos when requested by their owners, which it says protects it from liability. At least partly to help insulate itself from lawsuits, the Web site has signed content licensing agreements with some media and entertainment companies, including Vivendi SA's Universal Music Group, Warner Music Group Corp., Sony BMG and CBS Corp.