August 22, 2006 9:00 PM PDT

Sony gets into video sharing with Grouper hug

A unit of Sony, which has struggled to piece together a winning Web strategy, has acquired video-sharing site Grouper for $65 million, the companies announced Wednesday.

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.

Josh Felser
Josh Felser

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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2 comments

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The business is selling camcorders, not videosharing itself
Hi Greg
Smart piece, but I think you missed the point: the business of Sony is to sell camcorders. In these last years this segment has slowered down, eaten up by digital cameras. Now all this videosharing stuff is taking it up again. It's clear that Sony can't stay out of it, it's just a step under the value chain
I think it's a marketing move for traditional business (and it's a good move,indeed)
Alberto D'Ottavi
Posted by dottavi (1 comment )
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Who got the better deal?
Did Grouper or Sony? Grouper, facing heavy competition from utube sold at an opportune time. But look who they were bought by... Sony, which has had alot of recent problems from hiding rootkits in their copy protection, battery issues in Dell computers, and delays and high prices in Blue-Ray. I think the Grouper stock holders are the winners here, not the Grouper employees. How safe are their jobs with Sony at the helm?

This deal gets sony into a hot market, but do they have the expertise to make it work for them? I find this harder to believe. It used to be sony was the leader. Now they're buying themselves into the spotlight.
Posted by Seaspray0 (9714 comments )
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