Spike Lee, Italian billionaire take on YouTube

NEW YORK (CNNMoney.com) -- Chew on this. A startup called Babelgum is looking to make waves in the burgeoning world of online video.

But Babelgum plans to focus more on videos by "professionals" and not the user-generated content like cats playing a piano that has helped make Google's (Charts, Fortune 500) YouTube subsidiary an online video juggernaut.

Babelgum founder Silvio Scaglia (left) and CEO Erik Lumer (right) have partnered with director Spike Lee to air Lee's new short film "Jesus Children of America" online.

To that end, Babelgum is hoping to attract buzz in the next few months through a deal it has inked with director Spike Lee to make Babelgum the exclusive online video home of a new Lee short film called "Jesus Children of America."

The Babelgum site, which is still technically in beta testing and requires a password, will open up to the general public later this month.

But can Babelgum, even with the latest from Spike Lee, stand out in a rapidly growing crowd of online video startups?

Erik Lumer, the chief executive officer of Babel Networks, the Dublin, Ireland-based company that owns Babelgum, said that there are several factors that make Babelgum different from other online video sites.

Lumer describes Babelgum as more of an Internet TV company since the video player that users will have to download from the site will employ peer-to-peer file sharing technology, similar to what companies like BitTorrent offer.

This should enable viewers to get a faster and higher quality video stream than they might be accustomed to seeing on sites like YouTube, which often have grainy video and can get slowed down by buffering.

But Babelgum is not the only site catering to professionals and mainstream media companies. Joost is another hot company that has attracted attention, in part because it was started by the co-founders of Skype, the Internet phone service now owned by eBay (Charts, Fortune 500), and file sharing service Kazaa.

In addition, Joost has already signed up content deals with media heavyweights Viacom (Charts, Fortune 500), Sony (Charts), CBS (Charts, Fortune 500) and Time Warner (Charts, Fortune 500), the parent company of this Web site. And Joost is also touting itself as a company that will offer TV quality video through peer-to-peer file sharing.

But James McQuivey, a TV and media technology analyst with Forrester Research, said people should be attracted to both Babelgum and Joost because of their video quality.

"Consumer expectations for the quality of video online have risen," he said. "Joost and Babelgum are interesting because they have technology to make it possibly faster and cheaper to deliver content."

As such, Lumer is optimistic about Babelgum's prospects. He said that there is enough room for several online video sites.

"With more advertising dollars moving online, there is the potential for a large industry to emerge," Lumer said.

And Babelgum may have a big advantage over other startups since the site's founder, chairman, Silvio Scaglia, is a billionaire who seems committed to making Babelgum a big player on the online video stage.

Scaglia is the founder of Fastweb, the second largest telecom firm in Italy. Fastweb is in the process of being sold to fellow European telecom company Swisscom (Charts), which is freeing up Scaglia to focus more of his attention on Babelgum.

Lumer said that because Scaglia is the sole source of funding for Babelgum, the company can focus exclusively on building up the site's library of video content and attracting advertisers since it won't have to worry about satisfying venture capitalists or other investors.

"There is no exit strategy. There is no pressure to go public or sell the company," he said. Lumer points out that in addition to the Spike Lee film, the company has partnerships with the Associated Press and Reuters for news clips and that Babelgum is also building a library of sports videos, documentaries, animated shorts and classic black and white movies.

He said the site currently has between 1000 and 2000 hours of videos in the pipeline for when Babelgum's beta expands to the general public and that the company is working on getting more than 10,000 hours of content.

The company is not including advertising in any of its videos just yet, according to Lumer. He said Babelgum wants to first establish a critical mass of viewers, probably a couple of million, before the company will approach marketers.

But he stressed that the videos on the site will be free to view and that once advertising is embedded in the content, Babelgum plans to split revenue on ads that it sells 50-50 with content creators.

Lumer also said that while Babelgum is planning to initially focus on English-language videos, eventually, the site will have videos in other languages as well.

And building up more partnerships will be key for Babelgum, Forrester's McQuivey said. He does think that ultimately, not every new online video site can succeed. As such, McQuivey said the survivors will be the sites that have large, diverse offerings of videos. After all, YouTube didn't necessarily become the big hit that it is because of technology.

"There will have to be a shakeout. The winners will end up being the companies who have the most content," McQuivey said.

Can Babelgum be one of those winners? Lumer thinks so.

"We are focusing on getting the product right, investing in content," he said. "The focus is on building libraries of material that can target niche interests and a wider variety of users."

Babelgum has ambitious plans but it will face some tough competition. Still, having a billionaire backer certainly helps.

The reporter of this story owns shares of Time Warner through his company's 401(k) plan.