August 22, 2006 9:00 PM PDT
Sony gets into video sharing with Grouper hug
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Grouper is the eighth-largest among the companies that host user-generated videos on their Web sites, according to statistics provided in May by traffic-tracking firm Hitwise.
It is being picked up by Sony Pictures Entertainment, a Hollywood studio known for movies including "The Da Vinci Code" and "Talladega Nights: The Ballad of Ricky Bobby," and television shows including "Rescue Me" and "Wheel of Fortune."
Online video is white hot and analysts have predicted that several big entertainment companies would begin shopping for acquisitions that they could offer their audiences. All the entertainment moguls are said to want to duplicate the success of News Corp.'s Rupert Murdoch. The media tycoon acquired social networking site MySpace for $580 million last year and he seems set to make his initial investment back.
Earlier this month, Google agreed to pay him $900 million over almost four years to serve search and advertising listings to MySpace's 100 million users. Since then, the talk has been whether one of the big entertainment players would go after YouTube, by far the largest of the video sites. YouTube executives have repeatedly said they weren't interested in selling, but that hasn't stopped observers from guessing at the company's worth. The guesses have ranged from $500 million to $1 billion.
Sony apparently opted for a less-expensive entry into online video. But the company had to do something, said Ben Bajarin, a consumer technology analyst with Creative Strategies. The company's Web strategy has foundered, he said.
"Connect (Sony's digital music site) has been horrible," Bajarin said. "They definitely need an iTunes' equivalent. What they are likely going to want is to capitalize on their own content and marry it with some user-generated content."
Bajarin said Grouper's users are mostly teens and young adults who are comfortable buying on the Web. To such an audience, Sony may be able to sell music and consumer electronics, as well as movies over the Web.
"Many people in the Grouper community use Sony cameras to create videos and Sony Vaio computers," Sony Pictures CEO Michael Lynton said in a statement. "It makes sense to complete the circle by having Grouper be part of Sony."
But Sony isn't getting MySpace. When Murdoch bought that company it had already established itself as a juggernaut. Grouper has less than 1 percent of the video-sharing market share, compared with YouTube's 43 percent share, Hitwise reported. Visitors to YouTube spent more than 13 minutes on the site, while Grouper's users hung around for just more than 5 minutes.
The Sausalito, Calif.-based Grouper was founded in 2004 by a group that included Josh Felser, one of the founders of Spinner.com, the music site sold to AOL in 1999 for $350 million.
Felser, 42, has remarked recently that the market for video-sharing sites has been heating up but that Grouper's leadership was not seeking a buyer.
"We had other options including financing," Felser said. "When this started, we were pursuing an operating deal with them. We made this deal because we want to win and we think Sony will help us do that."
For the burgeoning video-sharing market, the Grouper purchase raises some important questions. Is Grouper the first fish to be netted in what analysts expect is a likely industry shakeout? If so which properties are the most attractive?
Competitors in the sector number more than 200. Among those companies that made Hitwise's top 10 in market share, few are standalone companies. Besides YouTube, some of the other video sites that have attracted attention are Revver, Metacafe, Heavy.com, Dailymotion and Guba.
San Francisco-based Guba already had a relationship with Sony after having signed a deal in July to distribute Sony movies. Guba's CEO Tom McInerney said he isn't worried about Sony wanting out of its deal with Guba or whether his company is attractive to Hollywood.
"Sony is going to want multiple distribution channels," McInerney said. "Buying a company is an easy way to do it. They get a user base, they get talent, and they get technology."
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