Sony to Buy Video Sharing Website

Times Staff Writers

Sony Pictures Entertainment today is expected to join Hollywood’s new-media mash-up by buying online video service Grouper Networks Inc.

With its $65-million acquisition of Grouper, the movie and television unit of Sony Corp. becomes the latest traditional media company to vie for a growing -- and potentially lucrative -- Internet audience that prefers its entertainment short and, often, stupid.

For the record:

12:00 a.m. Aug. 26, 2006 For The Record
Los Angeles Times Saturday August 26, 2006 Home Edition Main News Part A Page 2 National Desk 1 inches; 63 words Type of Material: Correction
Sony deal for Grouper: An article in Wednesday’s Business section about Sony Pictures Entertainment’s acquisition of Grouper Networks Inc. said Sony did not have a big ad sales force like Viacom Inc. and News Corp. Sony’s ad sales force is smaller than those of Viacom and News Corp., but it is substantial, employing 40 people and generating annual revenue of about $300 million.

Video-sharing sites such as Grouper and category leader YouTube Inc. attract millions of viewers with a smorgasbord of short clips including home video of cuddly puppies, wince-inducing stunts and bootlegged snippets of TV shows and movies.

Grouper draws a fraction of the monthly visitors of YouTube, but analysts said YouTube’s price was probably too high to justify the risk. Both companies are privately held.


Although advertisers are expected to spend nearly $17 billion online this year, even the most popular video-sharing sites don’t make serious money because advertisers are leery of their messages appearing next to risque or extreme clips. Grouper, which raised $5.5 million in venture capital funding, runs only simple text ads brokered by Google Inc.

Sony said it planned to make minimal changes to Sausalito, Calif.-based Grouper to boost advertising revenue, perhaps by following the lead of YouTube, which on Tuesday announced plans to run video ads.

“It’s not as much a way of promoting our movies or television shows as a stand-alone business that has growth opportunities,” Sony Pictures Chief Executive Michael Lynton said. “The idea is for Grouper to stand on its own two feet and make money for us.”

Unlike Viacom Inc. and News Corp., which have invested heavily in new-media ventures to expand their cable and broadcast TV holdings, Sony doesn’t have a big advertising sales force to sell online commercials. Its main goals are to create and distribute movies and TV shows.

“It’s a bit of an odd fit, but you can see why Sony would be broadening its portfolio,” Jupiter Research analyst David Card said. “Sony can behave like a mogul and maybe cultivate talent. Mostly they’re going to try to build an audience and sell ads. That will be a new skill set for them.”

Learning new skills has been a sort of mantra at Sony, the Japanese electronics and entertainment giant that changed the rules of consumer technology with innovations such as the Walkman portable music player and the Betamax home video recorder. But its recent efforts have stumbled.

Last year, Welsh-born Howard Stringer became the company’s first non-Japanese chief executive and was given the mandate to help the company’s disparate divisions to work more closely together. Buying Grouper is a departure from Sony’s tradition of developing its own platforms and services in-house.

Grouper was founded in 2004 by Josh Felser and David Samuel, who had sold online music service to AOL for $320 million in 1999. Grouper started as a way for friends to share digital music and other big files over a peer-to-peer network before morphing into an online video site.

Felser and Samuel will remain in charge of Grouper.

Despite YouTube’s early lead, analysts said, the online media game is still young, and victory might require the sort of deep pockets possessed only by mainstream media giants such as Sony.

“This is rapidly developing into a very high-stakes kind of a game,” Forrester Research analyst Josh Bernoff said. “And I think that unless someone’s got some secret tech sauce that they’re not telling anybody about, the winner here is going to have to do a bunch of expensive things like advertising and putting additional money into development.

“This may be a time when being part of a public company makes a big difference, in terms of the ability to invest resources.”

Sony, for instance, could spend heavily to market Grouper and infuse it with clips of movies and TV shows. Bernoff said Sony might have learned from previous online efforts. Sony was the major studio proponent of Movielink, a movie download service that attracted four studio partners but continues to struggle for an audience. It also launched the Sony Connect online music service as a rival to Apple Computer Inc.'s iTunes Music Store, only to founder.

“We have in Sony the only electronics company that also owns content, and for over a decade the net result of this has been nothing,” Bernoff said. “There has been absolutely no advantage or disadvantage to the fact that these were all owned out of the same company. So I think that with Stringer at the helm, you’re more likely to see some actual synergies happening.”

Online video communities such as Grouper are known to attract snippets of copyrighted television shows or music videos in addition to original creations. And that raises the prospect that Sony could find itself on the receiving end of infringement allegations just as German media giant Bertelsmann did after its purchase of the original Napster file-sharing service.

Lynton and Felser said the risk was minimal because Grouper swiftly removed video as soon as it received notice that a copyrighted work had been posted to its site.

Richard Doherty of research firm Envisioneering Group in Seaford, N.Y., said his study of online video sites turned up so many copyrighted works that “we figure there are not enough attorneys in all the law schools of the world and all the law offices of the world to begin to prosecute” the alleged infringements.

But the risks, Doherty said, are outweighed by the potential rewards of capitalizing on the popularity of video market, identifying new online talent or even promoting new Sony movies and television shows.

“There’s more risk in not moving,” he said.

Gaither reported from San Francisco, Chmielewski from Los Angeles.



Recent deals

Some recent deals by entertainment and technology companies to take advantage of growing interest in online entertainment:

Today: Sony Pictures Entertainment is expected to announce that it will buy the online video-sharing service Grouper Networks for $65 million.

Aug. 21: YouTube announces plans to let advertisers create channels filled with video content they produce themselves, and sell ads to accompany the clips.

Aug. 9: MTV Networks, a subsidiary of Viacom, says it will acquire online video and games distributor Atom Entertainment in a $200-million deal.

Aug. 7: Google agrees to pay Rupert Murdoch’s News Corp. at least $900 million to provide search results and online ads on MySpace, and other websites run by Fox Interactive Media.

Aug. 6-7: Viacom MTV Networks agrees to distribute clips from its cable networks and TV programs such as “Laguna Beach: The Real Orange County” and “SpongeBob SquarePants” on Google’s advertising network.

May 31: Yahoo changes its online video service to allow users to store and share homemade videos, similar to YouTube.

Oct. 13, 2005: MTV Networks buys Internet video provider IFilm for $49 million to add short movies from Hollywood studios and amateur filmmakers to its websites.

July 18, 2005: News Corp. agrees to acquire Los Angeles-based Intermix Media, the parent company of MySpace, for $580 million.

June 27, 2005: Google Video begins allowing users to seek and watch short video clips.

Source: Times research

Los Angeles Times