Searching for online video's holy grail

(Fortune) -- A seemingly endless number of companies are engaged in creative ways to make money from online content by displaying advertising. But an up-to-now stealth startup called iAmplify is coming out of the closet with a different way to make money - enabling any website to sell video.

The company, founded in 2004 and based in New York and Los Angeles, is tiny but has no shortage of ambition. It has recruited a gaggle of top media executives as executives and advisors. Longtime book industry leader David Naggar just left Random House, where he was running a $200 million division, to become iAmplify's president. Michael Wolf, who for many years led the media industry consulting practice at Booz Allen and then McKinsey, has joined part-time. So has Jacqueline Leo, a veteran magazine editor who until recently ran Reader's Digest.

The company is run by Jack and Murray Hidary, who in the past co-founded multiple Internet businesses, including Earthweb. Murray Hidary is CEO. The videos it sells and distributes are typically neither slick and professionally-produced, nor the user-generated stuff on YouTube. Instead iAmplify mostly represents a third category: experts offering instruction, inspiration and advice. You download its videos and own them. They can be played in iTunes or any video player.

Wolf, who will be advising the Hidarys and Naggar on strategy, says that while other video websites, most notably YouTube, have created Web destinations, iAmplify instead offers "a business system." Much as Google's (GOOG, Fortune 500) AdSense network enables any Website to host ads, iAmplify runs a marketplace where any site can find pertinent videos to sell. Though you can buy videos directly from iAmplify, most sales occur on topic-specific sites which get a cut of the sales - a potentially lucrative alternative to advertising. The videos range in price from $1.99 to $299.

Say you run a yoga website. You can pick from a variety of yoga videos on iAmplify's site. If one of your readers buys, you get 20%. If you blog about gambling and happen to sell poker star Phil Hellmuth's course on how to play poker in 46 short video lessons, you'll get $30, your cut of the $150 price. It takes a lot of AdSense hits to equal that.

Or if you have a faith-oriented website, perhaps you'll sell a subscription to Marianne Williamson's weekly lecture series, which goes for $20 per month. That's $4 monthly for you.

The challenge facing iAmplify is classic chicken-and-egg. Until it makes enough video content available it can't satisfy the monetization needs of a very wide variety of sites. But until it's selling a lot there's little incentive for video-makers to join. Up to now the company has focused on recruiting experts one by one-it has accumulated several hundred on topics including weight loss, parenting, and power walking. The company remained quiet until now as it tested its system and figured out what customers are willing to pay for video downloads.

Now it's confident it has fine-tuned a formula that will work. Fortune spoke exclusively to company executives, who never before fully described their aims in the press. The company has exclusive contracts with Random House, News Corp.'s (NWS, Fortune 500) Harper Collins, and other publishers to be the online video store for their authors. If they want, publishers can simply upload and sell video of an author's book tour.

But iAmplify also invites anyone to apply to join its system. Only a few have been approved that way thus far, but Naggar and Hidary aim for the number to increase rapidly. It splits the revenue with video creators. "We want people to use this as a turnkey system to build a business around themselves," says Jack Hidary, who serves as the company's chairman. "We can blast their video onto relevant websites."

Many iAmplify experts use the system to sell on their own sites as well. Captain Tom Bunn, an airline pilot, offers a $299 multi-part course to help people conquer their fear of flying.

Says Naggar: "In the past, the owner of a Web site on flying wouldn't have been able to sell video even if they wanted to. We're selling thousands of videos at prices of over $100, because it's the right content in front of the right eyeballs."