Studios Not Sure Whether Web Video Innovator Is Friend or Foe

In an online world awash with amateur videos of pratfalls and stupid pet tricks, who could help but notice Natalie Portman’s gangsta rap on YouTube?

The Harvard-educated star pulls a hoodie over her pixie haircut and busts into a bleep-filled rhyme about a day in her life, delivered Snoop Dogg-style. The skit -- which uses Portman’s clean-cut image as its comedic foil -- is the edgy, irresistible stuff that exemplifies the Internet’s emergence as an entertainment medium.

But it didn’t originate on YouTube; it was a sketch from NBC Universal’s “Saturday Night Live.”

Portman’s skit wasn’t a mere technological blip. In recent months, episodes of “The Simpsons,” Jon Stewart’s gay cowboy montage from the Academy Awards ceremony and another “SNL” piece, known as “Lazy Sunday,” have found their way onto YouTube, a Web community created as a place to share and watch original video shorts.

In the four months since it launched, YouTube has become a full-blown Internet tsunami. It streams about 35 million videos a day and attracts an audience of more than 9 million people a month, according to Web measurement firm Nielsen/NetRatings.

That makes it more popular than Google, Yahoo or AOL’s video services. The company plans to eventually convert the traffic to advertising revenue.

YouTube also illustrates the conundrum facing the entertainment industry as it struggles to control the online distribution of its television shows, movies and other types of content. Unlike Internet file-swapping services such as Napster and Kazaa, YouTube doesn’t tout itself as a place to steal other people’s stuff.

By all accounts, it acts like a responsible corporate citizen when asked to remove copyrighted works.

That leaves the studios internally conflicted about how to deal with YouTube, with lawyers sending threatening letters alleging infringement even as other executives contemplate how to exploit its ability to reach a young, tech-savvy audience that is growing up in front of a computer screen instead of a TV.

“We look at sites like YouTube and, for that matter, a multitude of other online options as just that -- new options that we look to embrace,” said Darcy Antonellis, Warner Bros. Entertainment Inc.’s senior vice president of worldwide anti-piracy. “We look to embrace it, but not at the expense of infringing copyright.”

Founders Chad Hurley and Steve Chen, alumni of the electronic payment service PayPal, came up with the idea for YouTube after a San Francisco dinner party in January 2005. They wanted to share video of the party with friends but discovered there was no easy way to do it without bumping into limits on e-mail file sizes.

Like any good geek faced with life’s inconveniences, they set off in search of a technological solution, using Chen’s credit card and Hurley’s Menlo Park garage. In three months, they arrived at a technology that enables video to be posted online in minutes.

The idea attracted an instant following among budding videographers, who sent in their “Star Wars” spoofs, lip-sync performances bathed in the glow of their monitors and radical finger-boarding exploits.

But YouTube quickly became a magnet for video that is hardly homemade: the final seconds of the Florida versus UCLA basketball championship game, the Beatles’ first performance on “The Ed Sullivan Show,” highlights from the Turin Olympics and late-night skits from David Letterman and Jay Leno.

“ ‘The Simpsons,’ ‘Family Guy,’ ‘24,’ ‘Arrested Development’ -- Fox has a lot of popular television content, and we find our stuff pirated on video sites like this frequently,” said Melinda Demsky, vice president of content protection for Fox Entertainment Group. “The troubling part is the sheer volume of the resources it takes to find it all. It’s safe to say we’ve sent complaints about many hundreds of infringing files.”

Chen said YouTube has worked aggressively to keep pirated video off the site by limiting the size of videos that can be uploaded, creating software that makes it easier for television studios to report infringing works and improving tools for removing all copies of a particular show or highlight.

“We’re not the next Napster because we’re not renegades trying to fight the system,” Hurley said. “We’re working aggressively with the content community to remove it.”

But YouTube clearly benefits from the occasional copyright slip. Take, for example, the “Saturday Night Live” skit “The Chronic(what?)cles of Narnia,” which leaked onto YouTube after its Dec. 17 airing. It attracted about 5 million online views -- a total rivaling the show’s 6.6 million viewers -- before NBC asked that it be removed.

“When the ‘Lazy Sunday’ clip was released on YouTube, their traffic shot up 85%,” said Josh Felser, chief executive of Grouper Network Inc., a website that helps people share photos and short video clips. “It’s hard to imagine they were unaware of it.”

Julie Supan, YouTube’s senior marketing director, said the clip prompted two calls from NBC Universal -- one from lawyers complaining about content infringement, the other from executives eager to discuss working together.

The “Lazy Sunday” episode prompted NBC to start posting video highlights from “SNL” and other shows on its own site after they air.

“I think you will see lots of these discussions going on,” said Richard Cotton, general counsel for NBC Universal. “Ultimately, these conversations have to evolve into some kind of commerce. The kinds of high-production-value material that’s represented by network television or programs like ‘Saturday Night Live’ are very expensive to produce. There has to be some way by which that investment is recognized.”

Marketers have already recognized YouTube’s potential for reaching the coveted young-male demographic group.

For example, British satellite television service BSkyB’s ad agency posted a live-action re-enactment of the opening of “The Simpsons” (including a real-live Bart roller-skating over Homer’s car) to accompany the start of the new season. And the Chicago band OK Go posted a backyard video of itself doing a dance routine to the new single “A Million Ways,” spurring legions of fans to post their own renditions of the contagiously goofy performance.

The hope that YouTube can turn viral video into a vibrant ad business is what attracted Sequoia Capital. It invested $3.5 million in November and provided an additional $8 million last week.

The founders declined to say how they plan to make money, just that they expect to put advertising on the site.

Russell J. Frackman, the Los Angeles litigator who represented the recording industry in its lawsuits against now-defunct swapping sites Napster, Aimster and Grokster, predicted that mainstream companies pushing technological boundaries will become the next battleground in copyright disputes.

“Obviously, you still have the peer-to-peer sites around and other sites that are pretty egregiously infringing,” Frackman said. “But what I think is happening is the focus is changing from the Napsters and Aimsters and Groksters, where pretty clearly their entire business plan is based on infringement, to the kinds of businesses like Google and others where the essential business is not necessarily built on infringement, but these businesses over the years are pushing the envelope for competitive reasons.”

Google, for example, built its multibillion-dollar operation as a search engine. But its mission of making the world’s information accessible has put it in conflict with book publishers and a client of Frackman’s, adult magazine publisher Perfect 10 Inc., which object to its unauthorized use of copyrighted works.

“They can be just as damaging as the pirates in certain contexts,” Frackman said.