Streaming Ahead

Kevin Rose recently ditched cable and TiVo. Why pay for services tied to traditional broadcasting when premium content, including first-run fare, is available for free over the internet? It's a question Rose, the 31-year-old entrepreneur behind Digg.com, the massively influential social news site, and legions of his peers are increasingly asking too.

Since founding Digg in 2004, Rose has fast become a Web 2.0 icon. Today, Digg boasts 35 million unique monthly visitors. Over 84,000 fans follow Rose's musings on Twitter. If that weren't enough exposure, 200,000 tune into Diggnation, Rose's weekly Web show, where he and his co-host drink beer and riff about Digg's top stories.

Brand advertisers like it, too. Michelob, Virgin America, Warner Bros., and Intel shell out up to $80 C.P.M.'s (cost per thousand viewers) for the show's highly coveted 18- to 34-year-old male audience. When Rose endorses a product (like Adagio green tea), his audience follows. After the first green tea episode, for example, Adagio sold 100,000 extra boxes of tea.

Diggnation may not be the future of TV, but it's a reasonably good indicator of where things are headed: more on-demand, ad-supported, free internet video interlaced with user-generated and commercial content, more personalized programming with interactive options-all watchable on screens of any size at anytime.

It's something traditional networks have begun to recognize. Recently, CBS partnered with YouTube to run some of its full-length shows on the Google-owned website. And NBC and News Corp. have come up with a surprise hit called Hulu, a free internet video service that serves up full-length shows and movies that are hi-res and ad-lite. Hulu is on track to match YouTube's anticipated $175 million in revenue in 2009, according to Arash Amel, an analyst at Screen Digest. All four networks have brought the traditional model of television, slightly revised, to the Web by featuring 15- and 30-second ads before and throughout the programs, a sign that it may not be a stretch to extend the old model into the new environment.

Ben Silverman, co-chair of NBC Entertainment, believes that Diggnation and the networks have something that YouTube largely doesn't. “The issue is episodic,” he says. “Advertisers need scale and a reliable, consistent framework. I don't think there's much user-generated consistency yet.”

Meanwhile, original Web series are proliferating, holding appeal for advertisers and viewers. Seth MacFarlane's Cavalcade of Cartoon Comedy, scored the backing of Burger King, and is one of YouTube's most popular series with millions of viewers.

Gemini Division starring Rosario Dawson is a sci-fi Web show from NBC.com sponsored by corporate heavyweights such as Microsoft, Cisco, and Acura. Viewers are encouraged to try their hand at character development and offer up story lines. Sony has Crackle, which runs popular, Web-based series. Not every webisode works though. Quarterlife, which ran on MySpace, was widely applauded, but it was later panned after one episode aired on prime-time television.

YouTube is striving to move beyond pirated, one-off clips and grow into a money-making powerhouse loaded with commercial content, including feature films. Thousands of content partnerships have been signed with the N.B.A., BBC, CBS, Showtime, HBO, and many more. But perhaps its boldest deal yet is one between YouTube's parent company, Google, and Lionsgate: Whenever a user uploads video snippets containing copyrighted material from Lionsgate, instead of sending a “take down” notice, the studio will leave it up on YouTube and share in any revenue generated by the clips.

“Media companies are recognizing the opportunity and they are embracing the community,” says Jordan Hoffner, who runs YouTube's content partnerships.

Monetization remains the trick. As NBC's Silverman notes, “I don't think we necessarily have the perfect approach. It's an evolving business. But two things have been obvious over the past 50 years since the birth of television: As new technology arrives, content becomes more valuable and new platforms develop. We need to be invested in the new platforms.”

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