Skype's founders' next target: TV

Niklas Zennstrom and Janus Friis plan to one-up YouTube by streaming legal video onto your TV. Fortune's Mark Halper reports.

By Mark Halper, Fortune contributor

(Fortune Magazine) -- Niklas Zennstrom and Janus Friis aren't used to competition like this. The maverick duo that rocked the telecom and music industries with their Internet startups Skype and Kazaa are now trying to shake up the TV world with their latest Web company, Joost. This time there's a different landscape out there.

Joost provides free software that turns PCs and Internet-equipped TV sets into screens that can fetch any video to which Joost has acquired the rights. Joost streams videos to end users who watch for free but can't save the content. It plans to make money by selling advertising when it launches commercially in June, sharing revenue with content providers. "We want to liberate people from having to wait for a TV show to start at eight o'clock," says Zennstrom, who founded the Luxembourg company with Friis last year as the Venice Project and changed the name to Joost in January.

But haven't we heard about the death of traditional TV before? Now that more than 300 million people around the world have broadband lines to support video, the competition is fierce. From startups to big telecom companies to broadcasters, it seems everyone is trying to change the way we watch TV and films.

Take Silvio Scaglia, whose Milan company Fastweb was an early pioneer of broadband-delivered TV and video. Scaglia has just launched his latest venture, Babelgum, based in Dublin, which has the same business model as Joost's. Scaglia has put about $13 million of his own money into Babelgum, and he's not about to cede the market to a couple of guys known for VoIP and music sharing. "We're in this for the long run," says Scaglia.

Then there's BitTorrent, the San Francisco downloading service that, after making a name for itself by providing pirated videos, has gone legit, signing distribution deals with at least 40 content providers, including Paramount, 20th Century Fox, Warner Bros., and MGM (Charts, Fortune 500). BitTorrent co-founder and president Ashwin Navin says his market for selling downloadable, storable video is different from Joost's free, streamed, ad-supported content. But, he points out, "Joost has to be concerned over why it's a better experience than YouTube, which has comprehensive content and will be improving its quality over time."

Zennstrom's answer: Joost's video quality and rights protection far outshine anything YouTube and its imitators offer. That's because Joost uses a peer-to-peer distribution technology, not unlike the one behind Skype, that enables it to deliver full-screen, high-quality video compared with the low resolution on YouTube. And with YouTube parent Google (Charts, Fortune 500) being sued by Viacom (Charts) for $1 billion for posting unauthorized video, Zennstrom is preaching the legitimate acquisition of content. "If you don't have content," he says, "it's not going anywhere."

Joost CEO Frederick de Wahl says the company will have acquired rights to 10,000 to 20,000 hours of programming by the time it goes live. In February, Joost picked up MTV and other content from Viacom, adding it to a list that already includes National Geographic and "Big Brother" creator Endemol.

"Joost, unlike YouTube, understands copyright," says Viacom CEO Philippe Dauman. He also praised Joost for allowing Viacom to sell its own ads and to link viewers back to Viacom's Web sites. But lest Joost get too confident, Viacom has also struck similar deals with other companies, such as BitTorrent. And other traditional media companies, including NBC and News Corp. (Charts), are making their own Internet moves.

The ultimate test will be whether Joost signs up advertisers. Zennstrom, who is an active board member, says Joost already has commitments from, among others, Philips, T-Mobile, Perrier, Unilever, Wrigley, L'Orťal and IBM. "We don't have any problems getting meetings with the top people in these companies," says Zennstrom. That's what comes of having staked out a reputation as a successful radical who is ready to apply a more mainstream business model. Now, may the best maverick win.  Top of page