As video sites on the Web struggle to find a business model that will pay their mounting bandwidth and storage bills, many of them are trying to reinvent themselves. Veoh, which has raised a total of $70 million, had to cut 35 percent of its staff earlier this month and the site seems to be losing steam. Unique visitors are down 18 percent from their high a year ago to 15.2 million worldwide, and users of its desktop app VeohTV are down 40 percent to 7.2 million worldwide, according to comScore (see chart below).

Founder Dmitry Shapiro is now back as CEO and he is pouring the company’s remaining energy into a new product launched six weeks ago called Video Compass (read our review). Since launch, it has been downloaded 800,000 times, and is currently being downloaded at a rate of 25,000 a day. Video Compass may amount to a Hail Mary pass to try to save the company. It is an attempt to spread video search across the Web by bringing you search results when you don’t even know you are looking for videos.

The way it does this is through a browser add-on for Firefox and Internet Explorer that is triggered whenever you do a search on a growing list of sites, including Google, Yahoo, Amazon, Craigslist, Wikipedia, and even YouTube. In the past few days, it just added Twitter Search, MySpace, Hulu, DailyMotion, and Metacafe. Up next will be Flickr, Photobucket, and Facebook.

Whenever you do a regular search on these sites, a ribbon with Veoh video search results pops down triggered by the same keyword you are searching. For instance, if you are searching for “police” on Amazon, a bunch of Police music videos appear along the top ribbon, along with some car chase footage. You can cycle through the videos by clicking an arrow to see more results in the ribbon or you can click on related tags along the top (”Sting,” “crime,” “japanese police”) to refine your search.

If you click on any of the thumbnails, a semi-transparent player opens up and lets you watch it in-situ, without necessarily going to Veoh.com. When you are done, you close the window and you are back at where you left off.

I’ve been testing Video Compass for the past few days, and the video results pretty decent. I find them to be a bit redundant on other video sites such as YouTube, but they can sometimes offer better results on narrower video sites. For instance, try searching for “Moldova” on Hulu and you get one result, whereas the Veoh Video Compass bar turns up plenty of protest videos. And do a search on Twitter and it adds a whole different dimension to your search. Even searches on Google bring up more video results than occur naturally. And you can always turn it off if it starts to annoy you.

The big question is can Veoh create a business around a browser add-on? That all depends on how much of a habit people make of clicking on the Veoh video results and how good they are. Veoh has developed its own behavioral targeting technology which generates both video recommendations and helps target advertising. Shapiro tells me:

Today we are doing a pretty good job monetizing Veoh.com. We serve pre-rolls (at high CPMs), mid-rolls, overlays, and targeted display units. Our behavioral targeting engine lets us get higher CPMs than our competitors, while selling out more inventory. While I can’t share the exact numbers with you, I can tell you that our quarters are in the millions and every quarter has been a record quarter, although we are not cash flow positive yet.

With Video Compass, he can promote content from partners directly in the toolbar when people are conducting associated searches elsewhere on the Web. Movie trailers would be one obvious type of content to promote, but sponsored video ads of all stripes could be placed in both the results or during playback. There is also a lot of empty real estate around the player that can be filled with ads in the future. Finally, Shapiro is working on ways to drive users back to Veoh.com where the monetization model is more clear. So he is not giving up on his destination site entirely.

Relying on people to download his add-on, however, is a risky strategy. Not only does it require people to go out of their way, as more and more browser add-ons adopt similar triggering mechanisms, conflicts could emerge. For instance, Glue has a similar user interface, although it is not triggered by searches. But you can imagine a time when two different add-ons are both triggered and either one cancels out the other or the top of the browser becomes a mess. This is essentially the same problem people have with the new Diggbar and other Website framing mechanisms. They can create a lot of clutter instead of helping you cut through it.

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In the world of Web video, either you are YouTube or you are in trouble. Today, well-funded video site Veoh laid off 25 people, the company confirmed today. The layoffs were brought on by a restructuring, as the company shifts focus away from its standalone site, says founder and now-reinstated CEO Dmitry Shapiro. Shapiro replaces former CEO Steve Mitgang. With both today’s layoffs and cutbacks last November, the company is now left with 45 employees, says Shapiro. We have added the latest round to our Layoff Tracker.

Shapiro says that the company is doubling down on its video search browser plug-in, Video Compass, in an effort to engage consumers with videos at times when they wouldn’t normally be watching them. Video Compass adds a video recommendations whenever you conduct a search on Google or elsewhere on the Web. Veoh adds over 25,000 new Video Compass users daily. Veoh’s standalone video playing site is having difficulty competing with the bigger players in the game like YouTube and Hulu. Still Shapiro maintains that Veoh’s site remains popular among consumers, generating more than 200 million video streams each month from content publishers such as ABC, CBS, ESPN, Viacom, and Warner Bros. Comscore says Veoh’s site had 15 million unique views worldwide in February 2009, down from 18 million last August, plus another 7.2 million for its VeohTV app, which has also been losing viewers (see chart below). Shapiro says that the site alone reaches over 23 million unique users each month.

So what went wrong? Shapiro says that the video search business model is still immature. He thinks that while video should be omnipresent in a consumer’s web experience, the ad model is still evolving. Shapiro is sure that advertisers will one day throw seven and eight-figure dollar amounts to advertise on video sites, but its simply not there yet. For that reason, Veoh is tightening its belt and trying to come up with new ways get consumers to watch videos. But getting people to watch videos online doesn’t seem to be the problem. It is getting advertisers to pay to reach those viewers.

Veoh is placing a big bet on Video Compass, which is a novel video discovery tool, but still has many glitches to work out. As we wrote in our review, Video Compass sometimes offers bizarre matches and appears only after the page you’re visiting has finished loading (so your Google search will finish, for instance, and only then will the Veoh ribbon pop in, shifting everything down a few centimeters).

Veoh has been on a rollercoaster ride over the past year. It is currently embroiled in a lawsuit with Universal Music Group, which so far seems to be going its way, marginally. Veoh has also raised significant capital ($70 million to be exact) from big-name investors like Goldman Sachs, Gordon Crawford and Time Warner. Shapiro says investors are supportive of the company’s redirection so far.

The two comScore charts below show worldwide unique visitors (for both Veoh’s site and its VeohTV app), and a U.S. comparison of Veoh.com to Hulu,.com.

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Live video on the Web is starting to take off, judging by the massive jump in traffic that Justin.tv is witnessing. According to comScore, the live video site’s global audience saw a massive jump from 9.3 million unique visitors in January to 15 million in February, which is about the same number of people who went to Veoh and nearly twice as many as visited Hulu.com. Of course, Hulu is only available in the U.S., where it is fourth most popular video site, and its videos are watched on other sites as well. In the U.S., ComScore only shows Justin.tv attracting 1.4 million people in February. So most of its audience and growth is global, with particular strength in Spain, Brazil, Germany, and the UK.

Quantcast, which directly measures all three sites, shows a similar trend. Globally, Justin.tv has 22.1 million monthly uniques, compared to 15.8 million for Hulu, and 11.9 million for Veoh. While the U.S. numbers are 3.9 million for Justin.tv, 14 million for Hulu, and 4 million for Veoh. (Ustream.tv seems to be the second-largest live video streaming site with 6.7 million global monthly visitors and 1.4 million in the U.S.). These are all site numbers, Quantcast also measures “network” numbers which presumably includes videos embedded elsewhere, and those are about double the site stats for each service. Justin.tv itself claims 1,800 percent year-over-year growth in unique visitors based on its internal Google Analytics numbers.

What all of these number show is that live video is beginning to make its mark, and could soon challenge the top video sites for the attention of audiences. There are 428,000 channels broadcasting live video on Justin.tv. Of those, 40,000 channels broadcast 1.75 million hours of video each day. And the level of engagement seems to be just as high as on regular video sites. ComScore’s VideoMetrix estimates that the average Justin.tv viewer in ethe US. watches just over an hour a month (64.7 minutes), almost exactly the same as a Veoh viewer (64.5 minutes), but still well below a Hulu viewer (87.2 minutes).

So why is Justin.tv so popular overseas? Could it be all the live sports events streamed over the service? Soccer and female wrestling seem to be particulraly popular.

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Things are not going well for Universal Music Group’s in its lawsuit against video-sharing site Veoh. First, the Los Angeles judge, A. Howard Matz, ruled last month that the safe harbor provisions of the Digital Millennium Copyright Act do apply to the case, contrary to UMG’s request for summary judgment.

On Monday, Veoh scored another point in the preliminary legal sparring that always precedes the main event. The same judge threw out the part of the complaint that named Veoh’s investors as defendants in the suit. UMG had tried to argue that Shelter Capital, Spark Capital, and Michael Eisner’s Tornante Company were guilty of “vicarious copyright infringement” and “inducement of copyright infringement” (yes, those are actual crimes) because they effectively control the company and sit on its board.

UMG cited as its precedent a case involving Napster and its then-single investor Bertelsmann, which actually was found guilty of vicarious copyright infringement, but only because Bertelsmann chose to keep Napster running even after it was obvious that it was an infringing service.

Judge Matz noted in his ruling that Veoh has so far not been found guilty of any copyright infringement, and his previous position on the DMCA’s protections shows that he understands the difference between users infringing copyright and Veoh. He also ruled that the mere act of being an investor or board member of a company facing copyright issues and fulfilling those normal duties does not constitute infringement, even if the company they “control” is found guilty.

Merely exercising ownership power to select members for a Board of Directors cannot invite derivative liability for infringement. Nor is there a common law duty for investors (even ones who collectively control the Board) “to remove copyrighted content,” in light of the DMCA. . . . these descriptions of how the Investor Defendants exercised control are the equivalent of “plain vanilla” characterizations of what directors ordinarily do . . . and are expected to do.

Rather, the board members and investors have to go out of their way to encourage copyright infringement. Yet if you read the ruling (embedded below), it is clear that Shelter and the other investors were doing everything they could to get rid of and filter out infringing content.

If this ruling and the last one are any indication, Universal Music Group has a tough road ahead as it presents its central case.

Jan 31 Umg Filing

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Popular video site Veoh has just released a new version of its browser plugin, Veoh Video Compass. The plugin, which is available for Firefox 3 and IE7, presents a selection of videos relevant to your search queries and the pages you browse in an unobtrusive ribbon at the top of your browser. It’s a nifty feature that seems to work pretty well, effectively adding a video search to compliment whatever you’re looking at on the web.

At launch Video Compass works on Google, Yahoo, and most popular search engines, using your search query to suggest videos and related queries. The plugin is also gradually adding support for contextual matching, which tries to identify keywords on the page you’re browsing and offers related videos. Right now the feature works on selected portions of Amazon, Best Buy, WalMart, Wikipedia, and IMDB.com, and the company plans to continually add more.

Users can play each video directly from the ribbon, without having to load a new page. Clips come from a variety of sources, including YouTube and Veoh (with priority apparently given to the latter). Videos appear as popups with a dark overlay, which Veoh plans to use to embed ads.

Aside from occasional bizarre matches (which are to be expected as Veoh builds up its database), my biggest complaint is the fact that the Veoh Compass appears only after the page you’re visiting has finished loading (so your Google search will finish, and only then will the Veoh ribbon pop in, shifting everything down a few centimeters). This might sound like a trivial nitpick, but it gets annoying.

Alongside the new extension, Veoh is launching a new homepage that includes improved navigation and an increased emphasis on recommendations. The site is also now offering a selection of videos that are accessible on the iPhone (just go to the Veoh homepage from Mobile Safari).

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For those Web companies that comply by it, the Digital Millennium Copyright Act is turning out to be their best friend. Last week, Universal Music Group (UMG) was denied a summary judgment by a Los Angeles court in its copyright infringement case against Veoh. (Court order embedded below). UMG wanted a summary judgment against Veoh, arguing that it could not hide behind the safe harbor provisions of the DMCA, which state that Web services are not liable for the copyright infringement of its users if it takes certain steps to prevent it.

This is the second time a summary judgment has been denied to a company trying to sue Veoh for copyright infringement. (The last time it was a porn company). These orders are setting important legal precedents not just for Veoh, but for YouTube and others also facing DMCA lawsuits.

The safe harbor of the DMCA states that Web services are not liable for copyright infringement if the content is stored “at the direction of a user.” UMG tried to argue that Veoh should not be covered by the safe harbor because it did a bunch of things with the music and video content after it was stored on its servers, including converting it into Flash, breaking it up into chunks for peer-to-peer distribution, and allowing other users to stream it or download it.

The judge, A Howartd Matz, didn’t buy the argument. He found Veoh’s position to be “more persuasive,” noting that user’s must agree to Veoh’s Terms of Service before uploading a video, and that the terms of service clearly prohibit uploading copyrighted material. In other words, the initial act of uploading is considered to be user-directed storage under the DMCA, and whatever Veoh does to process the video after that cannot be used to get around the letter of the law.

If you live by the DMCA, be prepared to die by the DMCA.

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The writing is already on the wall. YouTube is resorting to selling off video search results to the sexiest bidder and just today announced that it is extending overlay ads in YouTube Partner videos to embedded videos on other sites (previously these would only show up on YouTube itself). It is pulling out all the stops to try to get those revenues flowing. Meanwhile, smaller video startups such as Veoh and Revsion3 have already cut back on staff and shows in order to survive. So you can throw this slide out the window:

There is plenty of video inventory, just not a lot that advertisers want. Although YouTube streams more than 5 billion videos a month, estimates bandied about are that only 3 to 4 percent of those videos have ads. That is still a lot of videos, but it means that much smaller competitors such as Hulu that focus only on professionally-produced, advertiser-friendly videos are much closer in revenues to YouTube than the raw number of video streams would suggest.

But even the videos produced and distributed online by the TV networks are bringing in only a fraction of the advertising dollars that they do on regular TV. NBC CEO Jeff Zucker’s fear that the Web will turn “analog dollars” into “digital pennies is coming true. According to Dean Denhart, the CEO of BlackArrow (a company that provides an ad-management system for on-demand video across both cable and the Web), mainstream video fetches an average of about 50-cents per thousand viewer per hour watched on broadcast and cable TV, compared to 5 16 cents per thousand viewer per hour watched for the same video on the Web. [Correction: I got this slightly wrong. The BlackArrow comparison between the value of video on TV and the Web is not per ad impression, but rather per hour of video watched, and has been amended in the preceding sentence. The correct comparison is 50 cents per viewer for TV versus 16 cents per viewer for the Web].

In other words, TV and media companies can make ten times as much by putting a video on TV than they can by putting it on the Web, even if that video attracts the same size audience. Online video startups can look at that as an opportunity to close that gap, but they should also realize that the Web is not the only game in town. In fact, cable companies are striking back by gradually shifting up their video-on-demand channels to a bigger mix of free, advertising-supported video. Cable’s answer to Youtube will be more video-on-demand channels with better videos that advertisers will line up to buy ads for at ten times the price they are willing to pay for ads on YouTube, or Hulu for that matter.

Here’s a slide Denhart likes to show that puts things into perspective. In 2008, he estimates that people in the U.S. watched 389 billion hours of plain old TV. That compares to 95 billion hours of on-demand TV, which he breaks up into live DVR (59 billion hours), time-shifted DVR (23 billion), cable and satellite video-on-demand (6 billion hours), online video (7 billion hours), and digital downloads (800 million hours). So of all 484 billion hours people will spend watching video in the U.S. this year, only 1.4 percent will be online video.

By 2010, Denhart thinks the overall viewer-controlled portion of the video pie will increase from 20 percent of all time spent watching videos to 32 percent. And both online video and video-on-demand will both grow to 2.7 percent of time watched, or about 14 billion hours each. Which segment do you think will be making more money from advertising in two years?

Last month, I co-moderated a Beet.TV roundtable on online video where we discussed some of these issues. It was clear that the budding online video industry is still trying to figure out the best way to proceed to profitability. Below are two clips from that event.

In the first clip, Brightcove exec Adam Berrey suggests that focusing too much on video advertising inventory per se (pre-rolls, post-rolls, etc.) is the wrong way to think about it. Instead media companies should think more holistically about selling their audience instead of their inventory. And video is just one way to do that. Also brands that use online videos to tell stories about their products may end up creating closer connections to consumers than simply sticking a 15-second commercial on a million videos produced by somebody else.

In the second clip, MSNBC.com president Charlie Tillinghast paints a dour picture of the exit scenarios for Web video startups. Web video startups hoping to get bought by a bigger media company will likely be disappointed by the price they can get. And it is no longer enough to simply have built up an audience that a startup then can then sell to a bigger media company. The only startups that will be bought are those with “demonstrable” revenues or those that have attracted desirable audience niches that the bigger companies lack.

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Online video site Veoh is laying off 20 people, or 18% of its staff of 110. The move comes a month after Paidcontent reported layoffs in Veoh’s Russian office in St. Petersburg, which CEO Steve Mitgang says was a strategic decision rather than a financial one, as Veoh wanted to move its development staff to San Diego (where it has hired a replacement team).

This round is more of a financial move, given the new economic reality. The company insists that it is still strong on a financial front, and expects to be profitable next year, although CEO Mitgang admits profitability could be pushed out a quarter. Despite the somber news, he is confident Veoh will emerge as one of the few surviving video sites in what will no doubt be a coming shakeout.

According to comScore, visitors to the Veoh.com in the U.S. have come down from 4.5 million people in June to 3.8 million in September. And total minutes spent on the site has similarly dropped from 99.6 million minutes in June to 66.8 million in September. That drop in visitors is more than made up for in the growth in its standalone video app, Veoh TV, which reached 2.3 million people in the U.S in September. Globally, 16 million people watched videos on the site in September, and another 12 million watched via the app (see chart below).

The company has raised $70 million, including $30 million just last June. We are adding this announcement to our Layoff Tracker.

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This has been a brutal month or so for tech layoffs. According to our Layoff Tracker, there have been 19,683 job eliminations at tech companies announced since mid-September, and we’re not even counting the 24,600 people at Hewlett-Packard who are being eliminated as a result of its merger with EDS.

But only five big companies make up more than 90 percent of the layoffs: Xerox (3,000), Dell (8,900), Yahoo (1,500), eBay (1,500), and German chipmaker Qimonda (3,000). The other 33 companies are mostly startups, and collectively account for 1,683 layoffs. Although three more companies (Sony Ericsson, Nvidia, and TicketMaster) account for an additional 1,110 job losses.

After stripping those out, you get closer to a pure number of layoffs at tech startups: 573

That is the equivalent of about 57 startups with ten people each. And those are just the ones that we or other news outlets have been able to confirm. Our list of tips is much longer than that and we are working through it to confirm as many as we can. For instance, Cake Financial has laid off 30 percent of its staff, or 6 people.

Another company with unreported layoffs earlier this week was Meraki, which I’ve confirmed let go 20 percent of its staff (10 people). That makes Meraki the third Sequoia-backed company to announce layoffs this week. (The other two were Mahalo and imeem). Sequoia urged all of its portfolio companies to make cut-backs earlier this month.

At least most of these startups are already done with their layoffs, unlike Yahoo which announced a 10 percent cut is coming but won’t say who exactly is losing their jobs for another few weeks. Layoffs are bad enough, but don’t prolong the misery.

This past week alone, tech companies have laid off 13,809 people:

Company–––––––––Layoffs

Xerox————3,000
Daptiv————–21
Haute Secure———3
Cake Financial——–6
Mercent————-6
Dell————-8,900
imeem————-20
Mahalo————-6
TicketMaster——300
Eons—————8
Veoh————–15
Yahoo———-1,500
Wikia—————3
Meraki————-10
Break.com———-11

Total———-13,809

If you know of any layoffs at a tech company, please submit a tip with the name of the company and number of layoffs. If it’s been covered, also send a link to the blog post or news article.

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Without much fanfare, Joost has finally turned on the browser version of its Web video service, as we noted it would last month. The new site is all based on Flash, and lets you watch old Bruce Lee flicks, Sci-Fi movies like The Fifth Element, and clips from Barely Political and Comedy Central.

The Flash site comes almost exactly a year after I wrote a post pointing out that Joost’s peer-to-peer software approach would not work and that it would have to switch over to Flash-based video, just like every other Web video service. People don’t want to have to launch a new piece of software to watch video on their computers. They want to watch it in their browsers (so they can quickly surf to another page when they realize how much the video they are watching sucks—or, if it doesn’t suck, quickly switch tabs when the boss walks by their desk).

It took Joost a year, but it has finally realized that the Web is where it’s at. Now all it has to do is compete with Hulu, YouTube, Veoh, DailyMotion, and the hundred other video sites out there.

Joost is all advertising-supported, and there are social elements like an activity stream showing you what all your friends are watching. Which is great, except that it assumes your friends are watching Joost. They aren’t.

(Hat tip to Gubatron).

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Specifically, the court said that online video sites are protected under the safe harbor provisions of the DMCA if they do the following (my interpretation of the decision):

• Provide adequate notice to users that uploading copyrighted material is prohibited
• Swiftly comply with DMCA takedown notices “on the same day the notice is received (or within a few days thereafter).”
• Use fingerprinting and other technology to detect copyrighted material, even if the methods are flawed.
• Take measures to control infringing users. Specifically, infringing accounts need to be terminated and the email banned from any new accounts. The court held that IP address banning was not neccesary: “…Io has presented no evidence suggesting that tracking (or verifying) users’ actual identity or that blocking their IP addresses is a more effective reasonable means of implementation.”
• Transcoding files to Flash format does not put the files in the site’s control; they are still protected by the DMCA safe harbor (see previous post).
• Sites are encouraged to spot check videos, and if they do, to remove content that is likely infringing.
• Sites are NOT required to check every video. The court said “this court finds no reasonable juror could conclude that a comprehensive review of every file would be feasible. Even if such a review were feasible, there is no assurance that Veoh could have accurately identified the infringing content in question.”
• It’s important to have lots of non-infringing content. The court noted that Veoh had received DMCA notices on only about 7% of its content. This helped its argument that it was different than Napster, which “existed solely to provide the site and facilities for copyright infringement…the sole purpose of the Napster program was to provide a forum for easy copyright infringement.”

YouTube, which is obviously thrilled with the decision, emailed us the following statement to us from Chief Counsel Zahavah Levine:

It is great to see the Court confirm that the DMCA protects services like YouTube that follow the law and respect copyrights. YouTube has gone above and beyond the law to protect content owners while empowering people to communicate and share their experiences online. We work every day to give content owners choices about whether to take down, leave up, or even earn revenue from their videos, and we are developing state-of-the-art tools to let them do that even better.

The statement by the court that checking every video for infringement isn’t realistic is an important one for Google/YouTube, which has said 13 hours of video content is uploaded every minute on YouTube. If it’s impossible for Veoh to monitor all content, YouTube is going to have an order-of-magnitude larger problem.

Before the parties break out, it’s important to note that this is a district court decision and will very likely be appealed. I imagine YouTube may be lending one or ten of its lawyers to Veoh to assist in that appeal in any way possible.

But this is still a key ruling and one likely to impact the YouTube-Viacom $1 billion ongoing litigation as well as a slew of other cases.

The full order is included below.

Veoh v IO Group – Free Legal Forms

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Finally, a judge who may have actually visited the Internet once or twice before deciding a case. Judge Howard Lloyd, a judge on the U.S. District Court in the Northern District of California, threw out adult entertainment company IO Group’s 2006 copyright infringement case against Veoh today. At the time Veoh had some user-uploaded porn on its service that belonged to IO Group. Despite quick takedowns from DMCA notices, IO Group sued anyway.

A key issue of the case turned on whether or not Veoh should lose DMCA safe harbor protection because they transcoded user uploaded videos to the Flash format, something every online Flash video site does as a matter of course.

IO Group argued that the transcoding made Veoh a direct infringer and that the materials were under their direct control. Lloyd disagreed, saying “Here, Veoh has simply established a system whereby software automatically processes user-submitted content and recasts it in a format that is readily accessible to its users. Veoh preselects the software parameters for the process from a range of default values set by the thirdparty software…ButVeoh does not itself actively participate or supervise the uploading of files. Nor does it preview or select the files before the upload is completed. Instead, video files are uploaded through an automated process which is initiated entirely at the volition of Veoh’s users.”

In other words, nice try but no dice.

Viacom-YouTube and a host of other Internet video related lawsuits continue to rage on, but the good guys won this one. But those of you thinking you’ll find a little adult content on Veoh now that they’ve won the case will be dissapointed. Veoh banned it permanently back in 2006. This case was about nothing but money.

The full order is included below.

Veoh v IO Group – Free Legal Forms

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Veoh groups viewers into these interest groups based on their past viewing, searching, browsing, tagging, and commenting activities on the site. The ad-targeting technology uses some of the same underlying algorithms as its recommendation engine, and were both developed by chief scientist Ted Dunning. He previously built the recommendation engine at MusicMatch (later bought by Yahoo) and credit-card fraud detection algorithms at ID Analytics. The company claims that during the beta, ads that were behaviorally targeted performed twice as good as ads that were not.

Everyone’s trying to figure out how to make ads work on Web video—from YouTube to VideoEgg. A big issue is the quality of the video inventory out there. Many advertisers don’t want to risk associating their brands and products with user-generated video. That includes a large portion of the 100 million videos a month watched on Veoh.

Also, for behavioral targeting to really work, it needs to be done at Internet scale. Veoh not only needs to prove that it can provide better response rates to its video ads, but that it has a large enough inventory of advertiser-safe videos to matter. To do that, it would have to somehow monitor video-watching behavior beyond its own site (which it could do via partnership agreements) and become more of an overall video ad network. It would then have to make sure it doesn’t get tangled up in some of the privacy issues that behavioral targeting for display ads are running into.

Veoh raised $30 million in June (bringing its total capital raised to $70).

Update: Here’s a video interview from BeetTV with Veoh founder Dmitry Shapiro. It is from last month when Veoh announced its last round of funding, but about 1:45 in he starts talking about advertising and how they do targeting. Like everyone, Veoh is experimenting with a lot of different types of ad units (display banners, pre-rolls, post-rolls, overlays, sponsorship, etc.), but says “you just need to be smart about what you show to whom. I think that is really the key in advertising.”

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Today, Intel Capital announced new investments in eight startups totaling $60 million. Below is each company, along with the size of the round they just raised. (Not all would disclose when I asked during the conference call). And while Intel led most of the investments it was not the sole investor, so the total adds up to more than $60 million.

Accertify (fraud management for online transactions): $4 million round.

Grid Net (energy management and smart grids for consumers): size not disclosed, but GE Capital and Catamount Ventures also invested.

HealthiNation (online health videos): did not disclose.

Internet Mall (Czech-based online retailer targeting Central Europe): $45 million (28 million Euros).

TOA Technologies (mobile workforce management): $13 million

Veoh Networks (Web video): $30 million

Vostu (Ning-like social network for Latin America): $1.3 million seed round.

Vriti Infocom (education marketplace in India): did not disclose. Intel was the only investor

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Is there room for a video-sharing site besides YouTube? Intel Capital, Adobe Systems, and media investor Gordon Crawford are placing their bets on Veoh, which is announcing a $30 million series D financing. Intel Capital is leading the round, and previous investors Shelter Capital, Spark Capital, Goldman Sachs, Time Warner, Michael Eisner and Jonathan Dolgen also participated. This brings the total Veoh has raised to a whopping $70 million.

Veoh wants to move beyond the PC to mobile devices, and is putting a lot of resources behind developing its behavioral ad targeting platform for video.

The announcement also comes a day after Veoh started blocking access to all but 33 countries (plus U.S. territories) in an attempt to focus on the most lucrative markets (and, no doubt, reign in some costs—video streaming is expensive). The countries being blocked, including many in South America, Eastern Europe, and the Middle East, represent less than 10 percent of Veoh’s audience.

That audience, globally, is growing at a nice clip. The company claims 28 million monthly unique viewers, who on average spend 100 minutes a month on the site. And the avreage length of videos watched on Veoh is 10 minutes.

ComScore counts 18.5 million global unique visitors, as of April, and another 8.7 million who watch on the startup’s P2P software client, VeohTV. If you add the two together (the red and purple lines in the second chart below), it comes to 27.2 million, which is about the same as the total reported by the company. That combined total would put Veoh’s audience right below Metacafe’s (28.9 million) and DailyMotion’s (34.6 million).

And it is growing much faster than either one (538 percent over the past year, versus 70 percent growth for DailyMotion and 50 percent growth for Metacafe).

Of course, Veoh and all of these second-tier video sites still pale by comparison to YouTube, which boasted 300 million unique visitors worldwide in April.

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Now that I have your attention, Compete has released a list of the fastest-growing (and fastest-declining) sites of 2007. Some of the fastest growers include Veoh, LinkedIn, Reddit, StumbleUpon, Six Apart, and WordPress. Some of the notable sinkers are Bolt, Xanga, Netscape, and Autobytel.

TechCrunch has the distinct honor of taking the No. 5 spot in the fastest-growing list, right behind YouPorn and in front of DateHookup. I am not exactly sure what to make of that. I guess Compete thinks we’re hot.

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Viacom obviously wants to strengthen the hand of other video Websites against Youtube by spreading its videos everywhere except on YouTube. Viacom has a $1 billion lawsuit against YouTube for copyright infringement and yanked its videos from the site last year. As Comedy Central’s own Jon Stewart said last night regarding his parent company’s lawsuit against YouTube, “A billion dollars? What are they four-year olds?”

I’ve embedded the clip below (which is mostly about the Hollywood writer’s strike) from The Daily Show’s Website. The comment is about four minutes in:

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Web based proxies have been around for a long time, but most don’t work with video, and even those that do don’t provide decent enough bandwidth from which to view content from sites such as Hulu.

One alternative service that has been in use for business for a long time now are Virtual Private Networks (VPNs). VPN’s offer a secure pipe from where you can access the web, and in turn disguise the location of the user on the end connection.

There’s quite a few paid VPN services available, many at reasonable cost ($5-$20/ mth were a few I found on Google) but one service doing the rounds at the moment offers a VPN connection for free.

HotSpot Shield is a plugin for Windows or OS X that offers a free VPN service. There is a catch, it rather annoyingly adds a banner ad to the top of every page you visit, but at the ultimate price point of $0 most people will be able to live with it…well, at least whilst getting access to sites that were currently blocked, and the ads can be switched off on each page, but only after they have appeared.

Does it work? From Western Australia I’m currently listening to Pandora for the first time since May (still a great service.) Earlier this weekend I caught up with a new Simpsons episode, complete with ads from Hulu, then watched archival footage of the Nixon Resignation just for good measure. The only thing it didn’t work on was Joost which told me I should stop using a proxy…no matter, the blocked stuff is mostly on CBS.com anyway, and yes CBS.com works as well.

The speed wasn’t always great, but it was enough to watch video, varying between 600kbps and 1.3mbps on my 2mbps Cable connection.

I hesitated in writing this post because the more people who use services such as HotSpot Shield, the more chances we might end up killing them, or worse still Hulu and others might get smart and find ways of blocking it. Even if we lose HotSpot Shield today I’m betting given the strong demand services like this will have that others will offer VPN services as well, and hopefully free ones at that. At least I hope so, now I have Pandora again I’m really going to struggle if I’m forced to give it up again

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It looks like becoming a hyper-aggregator of video is becoming hyper-popular, and won’t necessarily be a point of differentiation. Meanwhile, Hulu’s focus on getting hyper-distribution of its videos on other Websites first, and launching its own public Website second looks to be paying off already. Everyone wants to distribute those NBC and Fox videos.

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Founder Dmitry Shapiro tells me this is part of his strategy to turn Veoh into a “hyper-aggregator” of video on the Web, something he already does with his downloadable client, VeohTV, which can show (and download) Flash video from anywhere on the Web. Now he is embedding video players from other sites, such as Hulu, on Veoh.com proper. Says Shapiro:

That is the tip of the strategy—to become the hyper-aggregator. We will continue to provide a breadth of content. Embedding third-party players will be extended to other offerings, including other video-sharing sites.

He even plans on adding videos from rivals YouTube and MetaCafe because he thinks the way to survive is to become the one place where people can find videos from allover the Web. Shapiro also shared some internal stats with me.

—From November, 2006 to November, 2007 worldwide unique monthly visitors to Veoh.com grew 760 percent from 2.5 million to 21.5 million. (comScore measures 3.5 million in the U.S. and 13.4 million worldwide for November, 2007. Quantcast measures 6.7 million in the U.S., and 18.4 million worldwide).
—In November, 2007, Veoh served more than 30 million hours of videos.
—The average user watches 80 minutes per month, even with advertising.
—VeohTV has 2.5 million active viewers (also, as of November).
—Only 40 percent of Veoh’s audience is in the U.S.
—40 percent watch during early evening and during prime time (i.e., Veoh is stealing attention away from traditional TV).

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Time for another roundup, and this one coincides with a notable first-year anniversary: that of Google’s $1.65 billion acquisition of YouTube, confirmed on October 9th, 2006.

Since then, the name “YouTube” has become virtually synonymous with “online video sharing”. According to Comscore, the website maintains a sizable lead over competitors with 205,593,000 unique visitors per month. Second-place Yahoo Video trails with 48,026,000 visitors. But must YouTube remain the clear winner in the online video space? While they have certainly captured the largest audience – which may in the end be all they had needed to do to secure their position – we shouldn’t underestimate the many other companies vying for mindshare.

Even if YouTube remains the destination of choice for the vast majority of consumers, producers ought to take a serious look at the alternative services. They often support more file types, bigger uploads, and higher resolutions. They also place fewer restrictions and provide an array of features simply overlooked by YouTube. That said, a few of these services are mere YouTube clones and hope to follow in YouTube’s footsteps by providing very basic features.

These are the services we looked at: blip.tv, Brightcove.tv, ClipShack, Crackle, DailyMotion, Sony eyeVio, Google Video, Megavideo, Metacafe, Motionbox, Revver, Spike (ifilm), Stage6, Veoh, Viddler, Vimeo, Yahoo Video, and YouTube.

Since they are all about 80% the same, I’m not going to go through each of them one-by-one at length. However, there are some overall trends that ought to be pointed out, as well as some key differentiators. To get into the details as to how all of these websites differ, check out the comparison chart we’ve provided above. You’ll notice that there are some gaps, so please email me if you can help us fill in the holes.

First of all, only YouTube, DailyMotion, and Metacafe appear to place any hard restrictions on video length. With the rest, video lengths are determined indirectly by file size restrictions. While YouTube and several of these sites place the file size cap at 100mb per upload, others place it higher at 250mb, 500mb, or 2000mb. Veoh places no limitations on file size, but they recommend you use their desktop player for files over 100mb. If you’re willing to fork over some cash for a premium membership, Brightcove.tv and Motionbox will also let you upload files of any size.

While YouTube allows users to upload files only formatted as .WMV, .AVI, .MOV, or .MPG, other services accept a much greater range of file types. If you want to make your life easier, however, get into the habit of encoding in .MOV (Quicktime) and you’ll be welcome at almost all of these sites.

When it comes to video quality/resolution, it’s not perfectly clear how these services compare, because most of them don’t state their video bit rates or explain their transcoding processes. However, several of them clearly blow YouTube out of the water. Stage6, a DivX-based service, and Sony’s eyeVio, a Japanese-only service, support the most stunning video quality. Videos hosted by Veoh and Crackle also look very sharp.

Out of all these alternative services, blip.tv stands out as the most professional video sharing solution. The website and player are cleanly designed, they accept perhaps the widest range of file formats, they will automatically syndicate your videos to many other websites, and you can choose to place midroll, postroll, adjacent, and overlay advertisements in your uploads. Additionally, you can track your shows’ statistics quite closely and allow users to download your videos. I could go on and on about blip.tv’s useful features. The only major bummer with blip.tv is that you can’t seek ahead to points in a video using their Flash player.

It’s no surprise that shows like Rocketboom have decided to migrate over to blip.tv. We even decided to use them for our TechCrunch40 conference. And PC World agrees with us that blip.tv tops them all.

While we have a strong preference for blip.tv, the others have their own peculiarities that may make them more attractive to you. ClipShack, while mostly a YouTube clone, has an area where you can use a webcam to add movie, book, video game, and TV show reviews directly to the site. Crackle serves as a talent discovery system through which amateur producers can win a chance to pitch ideas to Sony and other media executives.

Dailymotion, Metacafe, and Megavideo support a wide range of languages. Sony eyeVio, which unfortunately doesn’t plan to roll out an English version, enables users to download videos straight to their PSPs, Walkmans, iPods, and mobile phones. Metacafe and Megavideo both have programs with which they pay content creators according to how many people view their videos. Motionbox, the most private of the services, has a video player with a unique filmstrip that can be used to visually locate segments in a video (they also provide a simple online video editor).

Revver provides a WordPress plugin so that video bloggers can upload and manage their content more efficiently. Veoh lets you both upload videos to other sharing sites and watch videos from all over the Web in its download client. Vimeo sports the best-designed website and a strong community feel. And Viddler’s player packs in a bunch of features, including the ability to leave comments in videos at particular points.

Since embeddable video players are the faces of these services, we have placed screenshots of them below (click to enlarge). We are also in the process of uploading a sample video to each of these websites so you can compare their video qualities. Links to these videos can be found in the comparison chart.

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Pixsy’s appeal to Veoh is the ability to deliver near-real time search results, allowing Veoh users to search videos and images with content updating to the minute.

Dmitry Shapiro, Founder and Chief Innovation Officer of Veoh Networks said “Pixsy’s vast index and ability to organize their breadth of video and image content in a way that maps to our users’ interests will meaningfully enhance the viewing experience on Veoh.”

Since taking an additional $26 million in funding back in June, Veoh has seen an increase in traffic whilst facing an increase in lawsuits as well. According to Alexa, Veoh has now broken into the Top 100 sites online, and is edging towards the Top 50. On the other hand their popularity has come at a price, with Veoh being sued by Universal, Viacom and NBC, and perhaps just to keep the lawyers busy, Veoh filed a counter suit against Universal in August.

For Pixsy, the deal will see their technology being used by Veoh’s more than 18 million monthly viewers, validation that their search capabilities not only work, but can scale as well.

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Universal is suing the startup for copyright infringement, using some strong language in an L.A. court hearing today. Universal said, “Veoh follows in the ignominious footsteps of other recent mass infringers such as Napster”. Adding, “Veoh’s rampant infringement will not stop until Veoh, and those who own, control, and run it, are enjoined and held financially responsible”.

The suit joins a heap of lawsuits UMG had launched against MySpace, Grouper (Crackle), and Bolt (since deadpooled).

Veoh is partly financed by Time Warner and Michael Eisner’s Tornante Co.

Update: Veoh CEO Steve Mitgang has delivered an official response:

“UMG’s action is not surprising and reflects their limited understanding of Veoh and of the online video space as a whole. Veoh is recognized by many media companies as a DMCA-compliant company and is committed to respecting the rights of content owners. In fact, we’re currently working cooperatively with major media companies and the MPAA to develop standards for copyright protection. It’s unfortunate that UMG prefers to continue their pattern of litigation rather than contribute to the important discussions going on within our industry.”

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Last week Viacom and NBC petitioned to file a document known as an Amicus Brief in a little known case between Veoh and an online porn site called IO Group. Amicus briefs are a way for people or entities not involved in a given case to let the court know what they think – they are usually filed by those who have some interest in the outcome of a case because it affects their business in some way. Courts often welcome them because they amount to free research and can be used to help them come to a decision.

Does this mean Veoh can soon add Viacom and NBC to the growing list of companies they are fighting in court? Probably not. Veoh is fighting to keep the brief out of the court’s hands, but is also making it clear that they don’t want to end up with new litigation with Viacom and NBC. In fact, the two companies continue to negotiate on a distribution deal. Veoh CEO Steve Mitgang says:

This is a critical juncture for both service providers and content holders and, ultimately, users. We do not see Viacom’s brief as an indication of lack of interest to work with us; in fact, all of our conversations withthem and other studios have become increasingly positive. That said, we do think this move reflects the importance of our case to the studios and the industry.

The cases being litigated now are crucial in determining what level of freedom video sites have in letting their users upload and distribute content. Content owners are not happy with the protections provided under the DMCA – they want video sites to be far more proactive in stopping uploads in the first place. The outcome of these cases will guide how much freedom these video sites have to continue current practices, and ultimately determine the value of these companies down the road.

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Given that the lawsuits tend to flow one way against the video startups, this is a major surprise.

In the press release, Veoh says they acted based on “unreasonable threats” from Universal and filed the lawsuit under the safe harbor provisions of the DMCA. In a phone call a few minutes ago, Mitgang told me that the two companies met recently, and that Universal made it clear that they would be suing Veoh for copyright infringement in the near future. These kinds of threats are not idle – Universal tends to follow up with actual lawsuits.

When a company feels that a lawsuit is imminent, they can strike first to head it off. Since Veoh feels it has protection under the DMCA for its business model, they are striking first.

Mitgang also mentioned to me that Universal Music has never sent them a DMCA take down notice of any kind. He says that they would have complied immediately.

Story in progress, check back for more.

Complaint is below:

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