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YouTube, Sony Pictures in talks over feature films

  • Story Highlights
  • Sources: YouTube is in talks to acquire rights to full-length movies from Sony
  • Sony Pictures' Web video property, Crackle, could boost YouTube's long-form hopes
  • YouTube is trying to become a player in Hollywood as online video is booming
  • Representatives from both companies declined to comment
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By Greg Sandoval
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CNET.com

(CNET) -- YouTube is in talks to acquire licensing rights to full-length content from Sony Pictures, home of such films as "The International" and "Spider-Man," sources familiar with the negotiations told CNET News.

YouTube is in talks to acquire licensing rights to full-length content from Sony Pictures, sources told CNET.

YouTube is in talks to acquire licensing rights to full-length content from Sony Pictures, sources told CNET.

Details about what a final agreement could look like are sparse, but any partnership between the two powerhouses would likely benefit both.

Representatives from both companies declined to comment.

Word of the negotiations comes a week after Disney announced it had licensed short-form content to YouTube. Those clips will come from a range of Disney brands, including ABC and ESPN. For YouTube, obtaining short-form clips from Disney is an important step but still doesn't provide what YouTube needs most.

Founded in 2005, YouTube made a name for itself by showcasing amateur-made snippets as well as hosting scores of illegally posted clips from the best TV shows and films. YouTube has done much to rid the site of pirated content, but the flip side is that most of the hot shows and films that generated big viewership are gone.

At the same time, a host of Web video services are offering full-length films and TV episodes online. To compete, YouTube is trying to get access to the same premium content but has so far only acquired a handful of films from the archives of Metro-Goldwyn-Mayer.

Sony Pictures' Web video property, Crackle, could mean a major boost to YouTube's long-form hopes.

Is YouTube a movie channel?

YouTube is trying to become a player in Hollywood at a time when the online video sector is bursting with an increasing number of savvy and very watchable Web video services. YouTube, which did more than any company to create the online video sector, is at risk of falling behind when it comes to offering the kind of content most sought after by audiences as well as advertisers.

Hulu, the ad-supported video portal formed by News Corp. and NBC Universal, has become synonymous with long-form content. The service is easy to use and provides a high-quality viewing experience. Netflix's Web streaming requires a monthly subscription fee to access movies but can boast a much larger movie-library than Hulu.

Netflix has also made the all-important jump from showing films on a PC to delivering streaming video to a TV, via set-top boxes, such as Roku and Xbox 360. Apple can offer mobility to those who download movies and TV shows to iPhones and iPods.

The cable companies are also talking up their own online-video plans. After decades of pumping money into Hollywood, the cable operators and premium movie channels could have an advantage when it comes to acquiring studio content.

Here's where Crackle and YouTube can help each other. Sony Pictures presumably wants to promote Crackle, so it needs to get in front of a large audience. YouTube needs popular movies and TV shows and that means striking deals with studio and networks willing to post long-form content on the Web. Not all of them are.

Some studio executives have told CNET that they don't believe full-length movies can make money online. To generate a decent return, a large number of ads must accompany a film. Tests show Internet viewers resent this, according to film-industry sources.

The good news is that at this early stage at least, managers at Sony Pictures' digital unit appear to believe in long-form Web video.

Sony Pictures embraces long-form Web video

Sony Pictures acquired Crackle for $65 million in 2006, shortly before Google paid $1.65 billion for YouTube. The site began as Grouper, a video-sharing site and YouTube rival. In July 2007, the studio swapped business models and names after it became obvious YouTube had locked up the video-sharing market.

A visit to Crackle shows Sony Pictures is a trailblazer when it comes to posting movies online. Not only is the studio posting more full-length films on the Web (more than 60) than competitors but the quality of the movies appears to be better. At Crackle are such films as "The Opposite of Sex", "Groundhog Day," "El Mariachi," "Go," "Tommy," and "The Professional."

The studio has also been very willing to license content to such outlets as Hulu, Gaia, Sprint and AOL. Hulu has a deal to showcase nine films, including "In the Line of Fire" and "Single White Female."

Here's the catch: judging from the other distribution deals Sony Pictures has struck, it probably wouldn't give YouTube access to more than 15 movies. The studio has also asked some partners to display films using the Crackle video player, a request that undoubtedly is designed to give Sony Pictures control of advertising and to direct people back to Crackle. The studio also doesn't allow partners to syndicate its content, which means YouTube users won't be able to embed Sony films on their blogs or personal Web sites.

If you're YouTube, you shouldn't care. If you want to become the place for all things video--user-generated as well as films and TV shows--and if you believe your audience is too big for Hollywood to ignore and that eventually advertisers will pay a premium to get in front of that audience, then at this point you jump through hoops to get the best content.

YouTube and Google can't be too choosy. The truth is that two years ago they miscalculated how much they needed Hollywood. YouTube frustrated some studio and TV executives by saying "we're not responsible for the actions of our users."

Since then, YouTube managers have changed their attitude and have focused on making the site more appealing to big entertainment companies, such as offering better-quality streams, and filtering for pirated content. Still, what was true two years ago is true now: none of the big entertainment companies is going to allow Google to build YouTube's business on their content without getting something in return.

There's also the question of what the studios intend to do with the traditional distribution model. Hollywood has long had agreements in place to release films through a complex assortment of channels, including theatrical release, DVD sales, and cable, premium, and broadcast outlets. For example, film-industry sources say the money Hollywood earns from the Web is a trickle compared with the ocean of cash it receives each year from cable providers.

Nonetheless, more and more people are canceling their cable subscriptions and turning to the Web for entertainment. Even execs from the cable companies have acknowledged this. Last week, after Disney announced the agreement with YouTube, I asked Jordan Hoffner, YouTube's chief of content partnerships, whether YouTube, Hulu, and the other Web video services can convince Hollywood to wean itself off these other distribution channels.

"I think that what we're doing is we're dealing with a fragmented world," Hoffner said. "You can't just say you're going to count out any distribution channel and focus on one because audiences are moving to other places. We're one of the places they're moving to."

If YouTube only gets a handful of Sony movies and if they aren't the best and if there's lots of strings attached, YouTube should still go ahead. Sony and Disney are worth twisting yourself in knots for.

YouTube's decision makers should remember that Crackle currently hosts 60 movies but that is a drop in the bucket compared to what's available in Sony Pictures' vast film library, one of Hollywood's biggest treasure troves of film content.

© 2009 CBS Interactive Inc. All rights reserved. CNET, CNET.com and the CNET logo are registered trademarks of CBS Interactive Inc. Used by permission.

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