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After long negotiations, ABC are becoming a stake holder in Hulu, the Internet TV company funded by NBC, Fox and Providence Equity Partners. This deal further strengthens Hulu’s position as the leading premium online TV provider, with 27 partners, and newly extended 2 years exclusivity of the main players’ content.

Hulu is proving that great content is king. The site, that was launched a little more than a year ago, has shown meteoric growth and is the third largest online video site in the US. However, as Jeff Zucker, NBC’s President,  mentioned in his NYC Media Summit interview, the site is still not profitable.

This deal has a profound effect on YouTube, the queen of video UGC. The site, which is losing hundreds of millions of dollars annually, is facing a huge challenge, that puts it in a collision course with the TV networks’ prodigy.

UGC videos are less attractive to advertisers, as many of them do not wish to associate themselves with acts of stupidity caught on video. This leads to lower CPM in these sites. However, video streaming is still an expensive operation. This is why I believe that UGC is not a viable business model in the video world, and this equation is the biggest challenge to YouTube today.

YouTube is trying to change the equation, by introducing premium content on its platform. Some of the first moves in this direction was the introduction of HD player, and hosting videos longer than 10 minutes. The company also announced a deal with MGM, a major move in this direction.

After creating the online video revolution, and empowering users across the globe to broadcast themselves, YouTube has to play the big media game.

And in this game it is facing the biggest challenge of all – beating the TV networks in the online market.

Would they succeed to leverage their huge user base? Time would tell…

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