The acquisition of iFilm's video-on-demand business demonstrates that traditional media companies are realizing the potential of the Web, analysts say.Viacom International Inc. and iFilm Corp. are expected to close a merger agreement within days, giving the media conglomerate an entry into online distribution and potentially robust ad sales from the channel.
The deal reportedly would involve Viacom paying $50 million for the video-on-demand firm, and iFilm would likely be folded in with the conglomerate's other properties, which include MTV, CBS, Nickelodeon and VH1.
The move has been percolating for some time, with analysts predicting the merger as part of Viacom's interest in expanding its Web presence. The company has already beefed up the sites of MTV and VH1, and bought pre-teen Web favorite Neopets.com.
iFilm, founded in 1998 as an outlet for short films, broadened its content in recent years to include video clips and film trailers, and garnered backers like Sony Pictures Entertainment, Eastman Kodak and Liberty Digital Inc.
"Viacom is making a smart move, because it will train them to think about distribution in other ways," said former TV Guide critic Jeff Jarvis, who analyzes media issues on his Weblog, BuzzMachine. "But, they could actually do everything iFilm does without buying the company."
Read Sean Carton's commentary here on the Viacom purchase of iFilm.
Media companies like Viacom are focused on owning the channels of distribution, Jarvis said, which is what limits many of them from fully utilizing online opportunities. Rather than work on buying up firms like iFilm, media companies could focus on how to distribute content through them, he said.
He added that they should also contribute to the creation of more video-on-demand sites that serve up their content, if a digital rights management agreement can be reached and ad placement made available.
"This Viacom deal may well spark a number of similar mergers and acquisitions, as media conglomerates try to harness the video-on-demand online channel," Jarvis said. "But a more effective tactic may be to help create similar sites, so that video can be spread virally. Basically, to take part in the birth of a thousand AtomFilms and iFilms."
Click here to read about AtomFilms' multi-partner video distribution agreement.
One effect that a Viacom merger with iFilm will have is to highlight how many traditional media companies are now focusing on the Web, recognizing that many users are getting their video content through the computer as well as the TV.
"Internet video is exploding," Forrester Research Inc. analyst Josh Bernoff said. "A typical video-laden media site sees its video traffic double every six to eight months."
Because of this growth, and the exposure that the Viacom move might give to the distribution channel, Bernoff said he expects that sites offering video ads could see substantial ad sales in the coming years.
As ad sales rise and broadband brings more interest in online video, the industry is going to keep growing quickly, said Vice President Scott Roesch of AtomFilms, AtomShockwave Corp.
"It's a pretty amazing time in this industry," he said. "There's a lot of activity on the acquisition front and there's due to be more as the Web matures as a mass market entertainment medium."
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