February 21, 2006

Radio Abeokuta, a Web site dedicated to the promotion of the Yoruba language and culture in Nigeria, recently started carrying video news stories from Reuters Group PLC. It didn't conduct a word of negotiations with the British news giant. It simply filled out a form on the Reuters Web site. So did a news site in the Slovak Republic and an American political blog called Wizbang, among more than 120 others.

This simple transaction, which has big implications for the media business, was made courtesy of a small Cambridge, Mass., start-up business called Brightcove Inc. With backing from Time Warner Inc.'s America Online and Barry Diller, it is one of many companies vying to be a middleman profiting from the vast flood of video content now coursing through the Internet.

Brightcove's technology makes it easy for any producer -- from home-movie buffs to television networks -- to distribute their videos to multitudes of Web sites. All three parties -- the video's maker, the site that shows it and Brightcove -- often will share revenue from the resulting advertisements or sales.

"You become a little multimedia or cable company yourself," says Kevin Aylward, who runs Wizbangblog.com1, a political Web log, or blog. On its homepage is a link to the "Wizbang News Channel" that activates a Brightcove player featuring a choice of 15 Reuters news stories.

Even in its early days, this business model represents a challenge to the media industry, and an opportunity for entrepreneurs. Once, producers of films, TV shows and video material relied on other big companies -- broadcast networks, cable systems -- to get shows in front of an audience. Now, these new forms of distribution could turn anyone into a producer with a nearly endless array of possible outlets.

Apple Computer Inc., General Electric Co.'s NBC and America Online to make popular TV shows available on the Web. Recently, cable television channel Oxygen Media Inc., National Lampoon Inc. and the New York Times Co. each signed up with Brightcove.

"We have so much content and so little of it is seen," says Larry Kramer, president of CBS Digital Media, a unit of CBS Corp. "News, entertainment and sports can all be sliced and diced for different markets." CBS is selling some of its programming through search giant Google Inc. and Apple as well as on its own Web site. CBS also is talking to Brightcove about a possible deal.

Distributors like Brightcove are eyeing the promise of advertising tied to online video content. The idea is similar to the way Google syndicates advertising to third-party Web sites, in which both sides share the resulting revenue.

Brightcove's two-member sales staff sells 15- and 30-second commercials that appear before many videos wherever they are played. Typically, the company will give the lion's share of the ad revenue to the video's producer, keep some for itself and give some to the hosting site.

If video suppliers such as Reuters want to sell their own ads alongside the video, instead of those sold by Brightcove, the technology company would charge Reuters a fee. Brightcove also runs a revenue-sharing system for people who want to sell video content for consumers to download onto their computers.

Brightcove is just one player in a race under way to build new video networks on the Web. One of the first entrants was Roo Group Inc. Much like Brightcove, it generally acts as a middleman between video producers and Web sites. Roo profits by selling technology, services and ads inserted in videos. Blinkx Inc. has developed a search engine that uses a number of techniques, including voice recognition, to hunt out online video. Blinkx sells ads on its site and in videos supplied by 50 partners. YouTube Inc. runs more of a community site and has amassed a huge library of mostly individually produced videos. Its profit comes mostly from banner ads on its Web site for now.

As for established Web operators, Google already allows users to download TV shows from its site for a fee. It also recently added a feature that enables Web operators to easily install certain videos supplied by Google on their own sites. Google says it is considering adding ads to those videos. Yahoo Inc., meantime, has launched its own content, such as "Kevin Sites in the Hot Zone," the travel log of a war correspondent.

Not everyone will be left standing after the market begins to settle. "I don't think there's room for five of us," says Ian Blaine, chief executive of thePlatform for Media Inc., another start-up company that is acting as a middleman. "There's room for two or three."

Brightcove has signed up some powerful backers. America Online was the biggest investor in Brightcove's latest round of financing, which totaled $16 million. Barry Diller's IAC/InterActiveCorp holds a minority stake and Mr. Diller took a seat late last year on Brightcove's board, his only other outside corporate board position besides Washington Post Co. and Coca Cola Co.

Sharp Increase

Video is flooding to the Web because of the sharp increase in the number of homes with broadband connections -- more than 40 million have one today -- and the improving quality of Web-based movies and TV programs. It still is too early to tell how much these new companies will dent the business of traditional distributors. On an average evening during TV's prime time, according to ratings agency Nielsen Media Research, more than 69 million households tune into TV shows such as American Idol, Commander In Chief and HBO movies.

Cable companies, meantime, are protecting their flanks by offering video-on-demand, an Internet-like feature that enables viewers to watch movies and programs whenever they want.

Mr. Allaire, the Brightcove founder, got interested in computers in 1983 growing up in Winona, Minn., when his family bought an early version of an Apple computer. He also showed some early entrepreneurial instincts. At 13, he convinced his parents to hand over about $5,000 they had invested for him in mutual funds so he could start a baseball-card business. He traded cards throughout junior high and high school and doubled his money.

He moved his first business, Allaire Corp., to Boston from Minnesota in 1996 but in the eyes of his colleagues he retained the sensibilities of a Midwesterner. A couple of years ago, he was given a giant tomato as a joke gift because of his preference for meat and potatoes.

At Allaire Corp., Mr. Allaire and his brother Joseph developed a technology called "ColdFusion" that made possible a wide range of Internet activities that were new at the time, such as online ordering. By the late 1990s, it had more than $120 million in revenue and in 2001 was purchased by Macromedia Inc. for $360 million in stock and cash.

Mr. Allaire began laying the groundwork for Brightcove in early 2003, a time when the cost of digital video production was falling sharply and the use of high speed Internet connections was on its way to becoming mainstream. He says the "tipping point" came when he saw a demonstration of Microsoft Corp.'s Media Center, the software that runs many new PCs.

"It made it clear to me that distribution of video to TV sets over the open Internet was going to happen," he recalls.

Mr. Allaire began working on his business plan while working at General Catalyst Partners, a Boston venture-capital firm and one of Brightcove's earliest backers. Code-named "vBay," his idea was to create a video marketplace, not person-to-person like eBay, but one where he would be an intermediary between a content owner and a Web site owner.

Mr. Allaire talked to executives at such big programmers as Weather Channel, CBS and Discovery Communications Inc. He had a staff member cold call 100 small producers to see if they would be interested in his business model. Mr. Allaire asked an intern to "judiciously" study how similar distribution models evolved in the porn industry, which often is an early adopter of technology trends. (Brightcove doesn't accept pornography.)

A year later, Mr. Allaire showed his concept to investors. One of the keys was making it easy for the multitude of potential partners. "You fill out a form, you check a box and now you're a video distributor," Mr. Allaire says.

In the fall of 2004, a group led by General Catalyst and Accel Partners, of Palo Alto, Calif., put up the venture's first $6 million of funding. Mr. Allaire chose the name Brightcove based on a suggestion made by his wife. He says the "cove" part of the name is a metaphor for how his company helps content owners find the right audience in the vast sea of the Internet.

Testing the Concept

Brightcove tested its concept last year and went live in November. Among the first to sign up was National Lampoon. The company was creating a video-based Web site called National Lampoon Toga to complement its cable network, which is shown on college campuses. Letting Brightcove handle the technical aspects, National Lampoon launched the site at Togatv.com2 in weeks rather than months.

National Lampoon also chose Brightcove to help other sites carry Toga segments. Currently about a half dozen sites have signed up, including Ratemyprofessors.com3, a site that lets students grade their college teachers. When users of that site choose a professor, a Brightcove player with the Toga brand offering Toga videos appears in the upper right-hand corner of the screen. First it plays an ad, which recently was for 20th Century Fox's "Date Movie." Then users can choose from 12 Toga comedy titles such as "The Old Testament Told in a Minute" and "Spring Break 24/7."

National Lampoon keeps the ad revenue and pays Brightcove based partly on how often the video is watched. Closely held Brightcove doesn't disclosed its profit or revenue, and Mr. Allaire declines to provide any details.

Some content companies still are a little cautious about jeopardizing their existing -- and lucrative -- deals with cable companies and other traditional distributors.

Bollywood & Beyond Inc., which has the rights to hundreds of Indian movies and music videos, is on the verge of finalizing a deal with Brightcove, hoping to expand distribution beyond its Web site and video-on-demand deals with cable operators. Vinodh Bhat, Bollywood & Beyond's general manager, says there are scores of Bollywood fan sites that would make natural syndication partners.

Mr. Bhat says he is careful not to anger the cable companies that carry his Bollywood movies. They will get the content for at least six months before it is sold online.

"It's more of a courtesy on our part but it makes sense financially," Mr. Bhat says. "For all the hype of Internet-delivered video, there aren't a tremendous amount of transactions coming from that avenue."

Reuters is moving faster than other media companies partly because it doesn't have to worry about cable- or satellite-TV operators. Its video footage and reports are sold mostly to TV networks and online sites. "That gives us a little more latitude in the consumer media space," says Stephen Smyth, a Reuters vice president.

To reach its audience in as many forums as possible, Reuters is syndicating through Brightcove 20 video news stories, which are rotated often, to bloggers, small newspapers and other Web sites. Each affiliate site plays the videos on an embedded Brightcove player that features the Reuters brand. Mr. Smyth says these smaller media properties are going to be an important way of attracting consumers as the traditional media audience fragments.

One taker is Mr. Aylward of the political blog Wizbang. On the blog's homepage is a small player with a caption that says, "Watch the Wizbang News Channel." When it is clicked, the Brightcove player appears with a choice of 15 Reuters news stories. Mr. Aylward says he likes the system, because instead of posting links to videos hosted elsewhere on the Internet, he now can keep readers on his page. Eventually he wants to use Brightcove to post videos from a wide range of political and news content companies through links embedded in individual stories.

Reuters plans to start airing ads alongside its videos this summer and still is recruiting for affiliates to take its product. Currently, there is an offer on Reuters.com4 for Web site owners to "add Reuters video to your site." Two clicks takes potential partners to a simple form. Reuters reviews the application within 48 hours and, unless it feels the site is inappropriate, sends some code by email that can be easily inserted onto the Web site. Brightcove's technology sits behind the scenes, facilitating this process.

"Bob's your uncle," says Mr. Smyth, using an English expression meaning piece of cake: "It's done."

Write to Peter Grant at peter.grant@wsj.com