Kate Bulkley, Media Analyst.

The small screen on your PC

By Kate Bulkley

The Guardian

Monday July 23, 2005

It is fair to say that if the free internet telephone system Skype had not achieved such huge success, then the word "Joost" might not be on the lips of so many people in the television business.

Skype was a phenomenon; a successful mix of easy-to-use technology that solved the problem of paying too much for international phone calls. Its success made its creators Janus Friis and Niklas Zennstrom millionaires and gave them a calling card that has made their next big thing a lot easier to launch.

Not only is Hollywood willing to sit down with them (Warner Bros and CBS have already signed programme supply deals), but more than 30 advertisers are already on board and the nascent online TV service - with fewer than 1 million users - is not yet out of the testing phase.

Joost is a free broadband TV service that aspires to be a global TV network, free to use and supported by advertising. The vision is to move beyond YouTube-style short video clips that run in a small video window on your PC, to a full-screen, much higher-quality, service that offers entire TV shows as well as internet features, such as favourites ranking and the ability to share with friends.

"If you look at the marketplace, iTunes has been extremely good in the US for buying TV shows, but what you haven't seen so far is full-screen, professional content on an ad-supported model," says Friis. "The reason that TV is great is because you turn it on and you don't have to take out your credit card."

TV on the internet. Sounds like a pretty simple idea. But Friis admits that Joost is a lot riskier than launching Skype because, unlike the internet calling service where the technology only needed to please the users to be a success, Joost needs to keep a total of three different groups happy at the same time.

"Skype was a bit like 'let's give them free calling technology and see what happens,'" recalls Friis. "With Joost we have to get the whole virtuous cycle working from the beginning. We need to get users watching content, [we need to keep] content owners happy and putting more content in, and have the advertisers there as well."

The good news for Joost and for its backers is that the business model makes money from the start. This was clearly appealing to investors. In May of this year, a foundation controlled by Li Ka-Shing - the scion of Hong Kong's Hutchison Whampoa - which owns the 3 mobile phone network in the UK; US network CBS and its owner Viacom; and venture capital firms Sequoia Capital and Index Ventures, together invested $45m to fund Joost.

"It's early days and we'll have to see how the business model develops," says Danny Rimmer, a partner at Index Ventures, which was also an investor in Skype. "There is quite a bit of work ahead and the team has not solved all the kinks and probably won't for a few generations of the product development. But both Janus and Niklas are product perfectionists, and they will not release anything before it is ready. The fact that the sign-ups have gone from zero to 800,000 in an invitation-only phase is pretty impressive."

The technical kinks in the service have to do with its software, which Friis admits has "some bugs" are normal to all technology start-ups. Joost uses peer-to-peer technology to stream videos to users, an approach that has drawn fire from critics who say that the pressure on the internet and ISPs will be considerable. Friis says that he has heard this kind of criticism before and is not worried. "In the next few years there is going to be a lot more video traffic on the internet, but I fully expect the backbone vendors and the router manufacturers to sell more equipment to upgrade the network," he says.

In a sense Friis and Zennstrom have heard a lot of things before. Cries of bandwidth overload come almost every time new web applications from browsers and MP3 music files increase traffic on the web. Friis says that Joost's decision to base the online TV network on peer-to-peer technology was about spreading the pressure on the internet among the Joost users. "Peer-to-peer becomes more stable as more nodes (or users) are added to the network," says Friis.

The pair's first entrepreneurial effort was the music-file sharing site Kazaa that attracted lawsuits for allowing the sharing of pirated music. "Funnily enough our past history with litigation surrounding Kazaa mans that people think 'OK these guys probably don't want to be in another lawsuit.' It was OK back then maybe, but I wouldn't want to do it again," Friss says with a smile.

When Friis and Zennstrom sold Skype to eBay in 2005 for 2.1bn, the deal came with an earn-out arrangement, which means that they spend only about 50% of their time on Joost. This was one of the reasons why they hired Mike Volpi, a 13-year veteran of Cisco Systems, the router company, as CEO. Volpi will move from Silicon Valley to London and will be a senior pair of hands, and someone who both Friis and Zennstrom trust because he has been on the Skype board for several years.

Friis admits that there is lots of competition out there, from start-ups like Veoh (an online video service backed by the former CEO of Disney, Michael Eisner) to so-called content aggregators such as Babelgum, founded by Italian entrepreneur Silvio Scaglia. Many people in broadcasting believe that watching normal-length programmes on a PC is not going to catch on. But Joost's founders believe young viewers are already hooked on TV-type viewing on their laptops, and the company says a combination of high quality content and secure delivery as well as being a "cool" user interface will help them stand out.

"I think we have a very good position, good relations and good momentum with the content owners," says Friis. "No one else has the number of deals we do with the content owners and that takes time. You have to meet them again and again and explain it, but we've established relationships with a lot of these guys now."

However, one big area missing is the UK where Joost has so far signed no deals with local broadcasters, although it has a few deals with production companies such as Aardman Animation. One of the stumbling blocks is a move by the terrestrial broadcasters to develop their own jointly owned broadband service called Project Kangaroo. It is trying to do for broadband what Freeview has done for digital TV.

"If the UK broadcasters want to focus on Project Kangaroo, then fine. We'll focus on countries like France and China and I've no doubt the UK will develop over time," says Friis. "People are struggling with what to do. When people choose different strategies, sometimes they align with ours and sometimes they don't, but the landscape is changing all the time."

Of course, Friis has one advantage with Joost over Skype - the current project needs a lot less users to make the business a success, although no one will admit how many that is. Friis says the founders' ambition is to have "hundreds of millions of users" across the globe and that would be a pretty big TV network.

Janus Friis will be speaking at the Media Guardian Edinburgh TV Festival from August 24-26. Full details at www.mgeitf.co.uk


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