Dispatch from the edge of Web TV

Content can still rule if its good; dancing cats, meanwhile, will need super-syndication

After several days of the latest Digital Hollywood event, some thoughts on the value of content.

Silicon Valley and Hollywood have staged a running battle for several years now over whether content or distribution business models would create and hold more value in the age of digital content.

In simpler terms, the question is whether it's worth more to own Web video content or own the Web sites on which people will watch it.

The battle has led to several public divorces, including the $1 billion lawsuit Viacom filed against YouTube and the split last July when Steve Jobs ended Apples iTunes relationship with NBC rather than raise the price of NBC video downloads to $4.99 from 99 cents.

Although content has been declared dead a number of times over the past year, evidence is piling up to the contrary.

Just as high-quality content attracted audiences and advertisers in the world of traditional television, the same is proving true with Web TV.

While millions of Web video viewers still spend their lunch hour looking at free short-form episodic shows or amusing themselves with YouTube user-generated fare, a growing number are turning to Hulu, Disney's Crackle and ABC's own site to view ad-supported, full-length episodes of their favorite shows.

In other words, whatever ad money is being made in Web video today is in long-form, not the long tail.

Now, that may change if Google can finally figure out how to squeeze any cash out of YouTube visitors, who watched more than half of all U.S. Web video streams in June, according to Nielsen Online.

"You have a lot of UGC there, but nothing that is building a sustainable audience," says Ron Eigen, who developed shows for television and now runs DoDiligent, which makes sponsored Web videos for clients.

In fact, such a small percentage of UGC videos go viral and amass enough hits that only a site like YouTube has any chance of making a business out of them, Eigen predicted.

More likely, we'll see the Web TV business develop the same way that traditional television did, only in accelerated time.

The big studios and networks will control distribution of their best content and pay for it either with ads or subscriptions.

While YouTube, MySpace and Yahoo still dominate the list of most-viewed video sites, content owners including Nickelodeon, ESPN and Turner Sports and Entertainment are among the top 10, as are Hulu and Disney Online, which includes ABC.com and Crackle.

ABC is using streaming technology from Move Networks, whose CEO has said that the average viewing times for the streams it delivers are over an hour long.

At the same time, smaller production studios like Mania TV will be able to create episodic content at a relatively low cost and high enough quality that will attract niche audiences that advertisers will pay to get in front of.

ManiaTV CEO Peter Hoskins says every show they produce now is profitable and that their revenue is coming from traditional TV advertising money that is getting less bang for its buck from the networks as their audiencs shrink and fragment.

"That money will migrate to us," Hoskins says.

Granted, none of this will happen overnight, because TV advertising is still bought and sold by human beings.

"ManiaTV is the exception, and they've also been at it for a while," says Sean Atkins, a former executive at HBO Digital Media. "Ad buyers would still rather sit down with one person" to spend their ad campaign dollars, rather than have to deal with dozens of small production studios.

That may slow things down a bit, but my guess is that Internet video advertising, like Internet search advertising, will become more automated and efficient as ad-serving technology advances.

Until is does, though, most of the ad sales will still be made by folks at places like NBC and Fox, which jointly run Hulu.

Hulu, after some initial grousing about its catalog and player, is now streaming 82.8 million videos per month to 2.6 million average visitors. That means the average user of Hulu, which shows mostly feature-length films and full-length TV episodes is watching 30 videos per month -- or one per day.

Crossing the daily threshold for long-form content may mean that Hulu has already succeeded in building an audience of habitual watchers, thereby replacing the couch potato with its digital equivalent -- the Web video addict.