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Disney/ABC Strikes Broadcast Deal With YouTube

YouTube and Disney Media Networks today announced an agreement to show mini-episodes from ESPN and the Disney/ABC Television Group on ad-supported channels at the Google-owned (NASDAQ: GOOG) video portal.

Channel roll out is scheduled to begin in mid-April for ESPN and early May for ABC Entertainment, ABC News, ABC Family and SOAP.net. As part of the agreement, the ESPN Video Player will be integrated into ESPN's channel on YouTube.

"This deal provides us with the opportunity to reach a broader online audience, to experiment with different monetization models and to extend the reach of our advertisers within branded environments that they most desire," Anne Sweeney, co-chair, Disney Media Networks (NYSE: DIS) and president of Disney/ABC Television Group, said in a statement.

Indeed, the news comes at a time when TV broadcasters are trying to figure out the secret formula for making money by showing content on the Internet without cannibalizing its traditional revenue models and YouTube tries to capitalize on its loyal audience of hundreds of millions of viewers. For February, comScore reports YouTube traffic accounting for 41 percent of online videos viewed and just under 100 million unique viewers.

To that end, YouTube sees the deal as part of its effort to beef up partnerships with content providers as well as meet viewer demand.

"It's a landmark agreement for us and for Disney in the sense that they expand the reach of their online audience beyond ABC.com, and its great for our community because we've been noticing that premium content is becoming increasingly popular, so we want to create partnerships to meet that need," Chris Dale, a YouTube spokesman, told InternetNews.com.

He said the joint-venture also provides the opportunity for both entities to make money. "We've been evolving the site to increasingly accommodate partners, long-form, short-form, other premium partners, and part of that is the integration of the ESPN player into the site which allows them to sell their own ads around their content," said Dale.

Dale declined to comment on whether talks of full episode deals are still being discussed with Disney/ABC, as well as if YouTube is currently undergoing a redesign to upgrade its player, improve navigation at the site and better showcase premium channels.

What also makes the Disney-YouTube deal interesting is that it comes on the heels of news yesterday that ABC is in talks with Hulu, a YouTube competitor, to take an equity stake in exchange for providing ABC shows to the fast-growing site that lets people watch TV shows for free. Analysts have suggested that this signals a major shift in ABC's Internet strategy, which formally considered Internet video sites as adversaries that would erode ABC's value.

Meanwhile, the move has implications beyond the obvious increase in ad money for both companies. The deal has industry watchers' attention because right now TV broadcasters are continually tweaking the Internet TV ad revenue model to see what works and a host of factors, in particular cable TV's role, come into play, said Tom Morgan, a consultant with MediaD.tv which focuses on the development of on-demand and Internet-based TV.

The challenge, he said, is for TV broadcasters to duplicate parity and scale on the Internet. That means having enough viewers so that online advertising – which generally brings in less money per viewer – generates enough cash for them to still afford to make quality programs.

He also said cable TV companies, which make money from subscribers in addition to advertising, complicates the matter by offering an alternative method for Internet TV advertising. In that scenario, cable companies put content on the Internet but only as an extension of the basic cable subscription. "So, for example, you can see ESPN on the Internet, but only if you're a cable subscriber," said Morgan.

"It's a big deal from the TV standpoint, because with Internet TV, everyone is wondering which way it will go. The broadcast model and dot-com model have one revenue stream; they only have ads. If that wins out, how will it work? How does it look?" Morgan said. "Or will it be the cable model, go with Comcast or DirecTV to extend reach? That's the battle that's going on right now."

As for how the YouTube deal helps ABC in the near-term, Morgan sees it as an opportunity for more customized, creative ads. "You can do more with Internet advertising because it's dynamic, you can target it, it costs less, so that's the encouraging part for ABC," he said. "But if television gets commoditized like the banner ad business did, TV won't be happy on the Web."