The networks may disagree. By only offering video, VeohTV omits all the other advertisements on the network sites. For example, people who watched an episode of Heroes on NBC.com last week also saw for 40 minutes a banner ad for McDonald's on the same page. VeohTV users watching the same episode would not see the banner.
Rick Cotton, the executive vice president and general counsel of NBC Universal, said that streaming full-length television episodes drives traffic to other parts of NBC's site and exposes users to the ads on it. And the right to play those shows is valuable, he said, pointing to the still-unnamed venture between NBC Universal and the News Corp to create an online repository of their TV shows and movies. Sites like MySpace, AOL and MSN have already entered into commercial agreements to display the venture's content.
"This material has value," Cotton said. "The notion of taking it and generating traffic with it needs to be negotiated and needs to be done with the agreement of content owners." That's why NBC and the other major studios are keeping close tabs on VeohTV's business model.
For some video content, VeohTV can act as a digital video recorder, turning a video stream - meant to be viewed on the Web - into a downloaded file on a user's hard drive. VeohTV users can record a YouTube video, for example, even though YouTube, owned by Google, says its terms of service specify that videos uploaded to the site will only be streamed.
Other software, like the recently released RealPlayer 11, by RealNetworks, can turn streaming video into downloads as well. But according to Ricardo Reyes, a YouTube spokesman, VeohTV steers users away from its ads while violating YouTube's contract with its users. Reyes says the company is watching Veoh carefully. In response, Shapiro says his software provides an easier way to do something that is already technically possible on YouTube.
Shapiro and his backers are aware their product will disrupt current business models. So have many technological innovations in the past, he argued, and Veoh hopes to build a large audience while courting large media companies. That creates an apparent contradiction that will be hard to resolve. Veoh maintains that it does not need permission to list and play other companies' videos inside VeohTV. But it also wants to play nice.
"We are going to try to be friendly to content owners," said Todd Dagres, a partner at Spark Capital who serves on the Veoh board. "We are going to try to be the white-hat company."
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