Watch Out, Flash; Google Buys On2

Google today announced it bought On2 Technologies in a stock-for-stock transaction worth $106.5 million. On2 has historically been a core underpinning of online video with its encoding and compression technologies. However, the company is not an obvious pick for Google, especially given that its main VP6 product is much less dominant than it used to be. The purchase makes it evident that Google is preparing to make a video infrastructure play.

Just about everyone that powers online video or has their own Flash player, including Adobe, continues to pay On2 licensing fees for its VP6 video codec. However, in the last couple of years, the industry has largely chosen H.264 as VP6’s successor. Though H.264’s selling point is its high quality, a big part of the reason people moved away from VP6 was those On2 licensing fees. “It was like dealing with Tony Soprano every year,” said a source today. “If you were a day late…It was archaic licensing. It was just a nightmare.”

Still, VP6 is already installed on computers everywhere, and with Google managing its licensing (or even dropping it), the format could come back into power. The open-source video compression format of choice, OGG Theora, which is being pushed by Mozilla, has not won industrywide confidence, so it could be that Google is trying to substitute another contender. Google, with its Chrome browser, is one of the leaders of the new HTML 5 standard, which handles video natively and could eventually eliminate the need for Flash and Silverlight-type plug-ins.

Google Vice President of Engineering Vic Gundotra demonstrated YouTube mocked up in HTML 5 at a recent developers’ conference. There’s no indication YouTube will trade in Flash just yet, but clearly that’s figuring into people’s long-term visions. However, another funny twist is that, at least according to our source, YouTube itself is thought to use an open-source version of VP6.

We wouldn’t be surprised if Google goes ahead and open-sources On2 itself. From the press release:

“Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform,” said Sundar Pichai, vice president, Product Management, Google. “We are committed to innovation in video quality on the web, and we believe that On2’s team and technology will help us further that goal.”

Shares of Google are essentially flat, off less than 1 percent at $449.98, while shares of On2, which is traded on AMEX, have rocketed higher by 49.7 percent to change hands for 57 cents. Adobe shares, meanwhile, are down 3.5 percent to $31.84.

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Podcasts, podcasts, podcasts

I have two podcasts to plug this week:

* The latest Guardian Media Talk USA podcast is up. David Folkenflik, NPR correspondent, and John Temple, ex editor of the Rocky Mountain News and now a damned fine media blogger, and I talk about the AP, the TechCrunch/Twitter affair, and news as charity. I also interview Josh Cohen, product manager of Google News.

* Leo Laporte, Gina Trapani, and I recorded the inaugural edition of This Week in Google (TWiG). You can watch it in video here and listen to the podcast here. We discuss all kinds of things: Apple (AT&T) blocking Google Voice; the importance of Google Wave and the live web; the AP (again); Gmail getting rid of that damned “on behalf of”; Microsoft Office (finally) going into the cloud. Great fun.

I wish I could embed both of them here (hint, hint) but go take a listen and please subscribe.

Vid-Biz: Schmidt, Netflix, YouTube

Eric Schmidt Resigns from Apple’s Board; move comes as the two companies increasingly compete head-to-head in multiple sectors. (GigaOM)

Report: Netflix Coming to iPhone/Touch and the Wii? Multichannel’s unnamed industry source says you’ll be able to watch on additional devices (though probably only over WiFi). (Multichannel News) Meanwhile, Netflix CEO Reed Hastings said there is no magic number that would trigger the company offering a streaming-only solution, and that the company is still focused on its hybrid strategy. (Video Business)

YouTube Gets Into Local News; video site wants to work with news outlets to deliver (and monetize) News Near You content, but local stations aren’t sure if hooking up with Google is really in their best interest. (The New York times)

Real-Time Animation Starting to Transform TV Production; the ability to create graphics and animation on the fly helps with visualization during green-screen shooting. (Variety)

WGA to Rep CBS New Media Writers; 15 news, promo and sports writers creating content for CBS in the LA area joing up with the scribe’s union. (The Hollywood Reporter)

Add Some Asparagus to Your YouTube Video; CollegeHumor gives you the secret codes to spice up any YouTube clip. (via Mashable)

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Guardian column: Micohoo vs. Gulliver

My Guardian column this week on the Microhoo search lashup:

In bringing together their search traffic, Microsoft and Yahoo are fighting an unwinnable war. Worse, they are still fighting the last war. . . .

But while they pound their little fists on Google’s shins, Google remains the unchallenged giant in the arena that really matters: advertising revenue. According to the blog Search Engine Land, Google takes almost a third of all online advertising money – $21bn a year – and it doesn’t rely just on search.

And Google is turning to the next battlefields: mobile, social media, the live web, and online tools. . . .

Yahoo can now jettison the technology resources that went into search. That’s rather sad. After all, 15 years ago, it was Yahoo that first organised the web for us. Its original ambition seems quaintly naive today: human editors cataloguing every site worth visiting and deciding which were the hot ones we should visit. Back then, we, and Yahoo, thought the web was a medium, like TV, that we experienced together. Yahoo never quite broke out of that thinking. It still treats its site as a destination we have to go to with walls around it to keep us in. It just introduced a new homepage to some fanfare. Homepages are so 1999. . . .

So, let Yahoo and Microsoft celebrate their deal. Yahoo doesn’t have as much to celebrate. It turned down acquisition offers and now it gets no cash from Microsoft. And it is surrendering its earliest competence to a competitor. Microsoft has more cause to grin. It got Yahoo’s search traffic for no cash and doesn’t have to manage the rest of the old beast.

And Google? One wonders whether it notices beyond that irritating poking at its shins. It’s too busy trying to conquer what comes next.

The John Henry fight of man v. algorithm

I interviewed Josh Cohen, product manager for Google News, this week for the Guardian MediaTalkUSA podcast (out early next week) and asked him how many clicks to news sources Google News causes. The answer: a billion.

And then I saw this PaidContent report on URL-shortener thinking of offering a breaking news service. That doesn’t seem so crazy when you hear how many clicks it causes a month. The answer: a billion.

It so happens I just wrote this in my Media Guardian column, coming out Monday, about the Microsoft-Yahoo search lashup:

Oh, search still matters. But it is beginning to matter a little less. Venture capitalist Fred Wilson recently pointed out that 14% of traffic to his blog,, comes from Google, down from 29% the year before. Wilson argues that the difference is Twitter—that is, links from people over algorithms. (Note that Wilson is a Twitter investor.)

Now I’m hardly saying that Google is being overrun by the power of mankind. Nor will I argue that every link sends to is news – except more of it is than news organizations would admit if they were wise enough to expand the definition of news to the hyperspecific, a word a commenter below suggested I start using instead of hyperlocal. Your friend’s concert photos are news to him and you. Note also that isn’t the only source of human-powered live links; there’s the rest of Twitter and its other clients, not to mention Facebook and fresh blogging.

But I do think it’s significant that given the platform to collect the power of links by people, it can quickly match the power of the algorithm. I also think there’s even more power in bringing the two together.

Vid-Biz: Velocix, Viacom, Google

Alcatel-Lucent Acquires Velocix; terms of the deal not disclosed, according to Dan Rayburn, the company was acquired for its technology and not its revenue. (The Business of Online Video)

Viacom Q2 Profit Drops 32 percent; ad revenue still down for cable nets (though it picked up from the first quarter), and the success of Transformers 2 won’t be truly reflected until later this year. (The Wall Street Journal)

Google Teams Up with Visible World for TV Commercials; partnership will allow advertisers to create multiple versions of ads that can be distributed through Google TV Ads service. (The Wall Street Journal)

Hollywood Files New Suit Against The Pirate Bay; 13 studios demand the site operators (who already lost an earlier case) should be fined and prevented from distributing TV shows and films. (The Washington Examiner)

Epix Gets First Carriage Deal; Verizon FiOS TV to carry the upcoming pay TV service from Viacom, Lions Gate and Paramount. (The Hollywood Reporter)

Web Series Based on The Jerk Movement Starts Shooting; Skinny Jeans: The Movement will feature the hip-hop group The New Boyz, and the 20 episodes will be distributed through sites including Hulu. (Variety)

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Google: YouTube Will Soon Be “Very Profitable”

YouTube will be “very profitable” in the “not too distant future,” Google’s Nikesh Arora said on the company’s quarterly earnings call today. The site’s monetized views have “more than tripled in the past year,” according to Jonathan Rosenberg, SVP of product management. “We’re now monetizing billions of views of partner videos every month.”

Google CEO Eric Schmidt, who’d previously given YouTube a few public spankings about pulling its weight in revenue, said today he was “very pleased” with the site’s money-making trajectory.

Brand display advertising is doing well on YouTube, noted Schmidt and Arora, who is president of global sales operations and business development. And the majority of YouTube views are not professional content, Schmidt added. Google execs called out featured videos on search, the YouTube home page masthead, pre-rolls and long-form content as areas for revenue growth.

YouTube’s bottom line gets a lot of ink, considering there is virtually no confirmed information about the site’s expenses and revenue. Credit Suisse had made a splash in April by estimating that YouTube could lose $470 million this year, however an infrastructure research firm disputed that report, saying the bank had underestimated Google’s ability to minimize costs.

As for the percentage of video views that YouTube monetizes, Rosenberg gave Google’s first real comment on the matter — if only on a relative basis. A YouTube exec had previously said that the assertion that YouTube only monetizes 3-4 percent of views is “grossly inaccurate.” The company gave the slimmest of indications that the portion was at least 9 percent of views, and perhaps higher. In those single digits, tripling might not be as huge of a jump as it seems.

As for pre-rolls, embracing them shows a change on YouTube’s part to reflect the reality of serving video. The site had scorned the format early on for being unfriendly to users. In August 2007, a YouTube product manager told us, “Pre-rolls and post-rolls did not perform well on our platform. [In our testing,] 75 percent of our users were unhappy with them.” Today, Arora said on the call that YouTube users now accept that pre-rolls are a necessary corollary to premium content. Rosenberg noted the site sees “very little drop-off” when it shows pre-rolls.

With reporting by Jordan Golson.

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