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Years After Giant Flop, Online Media Take Hold

This time, audiences and advertisers are buying into the digital video and audio evolution.

June 30, 2005|Chris Gaither | Times Staff Writer

To watch most of his favorite programs, James Finn doesn't turn on the TV. He boots up his computer.

The 25-year-old manager of a Baltimore movie theater spends as many as four hours a day on, checking out music videos, extreme sports highlights and short films streamed over the Internet.

"I used to watch TV three or four hours a day," Finn said. "Now I'm down to about two hours of TV a week."

Five years ago, at the height of the dot-com boom, entrepreneurs and visionaries predicted that new online venues would overtake traditional media as viewers like Finn enjoyed shows and other content tailored to their tastes and schedules.

It didn't happen.

High-speed Internet connections were rare, and few people were willing to wait hours for a 10-minute video clip to download. Plus, most people's idea of on-demand entertainment was a drive to the local video store. The brutal tech bust seemed to close the book on the aspirations of those who envisioned the Internet transforming the way news and entertainment were produced and consumed.

But it turns out the dot-com crash may just have been the prologue. After licking their wounds, a rash of companies -- including small players such as ManiaTV, Web giants such as Yahoo Inc. and traditional media titans such as Walt Disney Co. -- are again investing heavily to bring more audio and video to the Internet.

This time, though, few people expect a crash because the companies are making money, capturing audiences and, yes, transforming the way news and entertainment are produced and consumed.

Technology has improved. People have grown accustomed to getting news on their BlackBerries and watching video on their computers. And old-media giants are working with the new-media leaders to make changes more soberly.

More than 20% of people who read newspapers rely primarily on online editions. Consumers watched 2.9 billion music videos, live performances and interviews on the Yahoo Music website last year. Apple Computer Inc.'s iTunes Music Store sells 40 million songs a month.

Google Inc., which sells online ads, vies with Time Warner Inc. as the world's most valuable media company. Advertisers spent $9.6 billion to place ads online in the U.S. last year. That's still only 6% of all ad spending, but it's growing fast.

Rather than supplanting traditional media, the Internet is viewed as a way to support and expand it.

"The competitive arena is only going to expand," said Patrick Mahoney, an analyst who follows consumer technologies for research firm Yankee Group. "I don't think consumers are completely shifting away from traditional entertainment, but they are starting to shift the time spent and money spent" onto the Internet.

Traditional outlets -- newspapers, magazines, radio, television -- still dominate most people's media diets and soak up most advertising dollars. And analysts caution that it will be a long time before new media rival the old. Among the challenges: increasing broadband penetration, making home networks easier to set up, getting devices from different manufacturers to work together better, ironing out thorny copyright issues and figuring out new business models.

But big media companies, which are likely to dominate online entertainment, are acquiring Internet upstarts at a furious pace. The most recent: Viacom Inc.'s MTV Networks last week snapped up youth website for $160 million. The following day, Time Warner's America Online began offering free ad-supported music and short films once available only to its subscribers.

Those who survived the dot-com bust largely agree that their vision of the Internet transforming media wasn't wrong, just a little early.

"People have realized it's not going to happen overnight," said Steve Wadsworth, president of Walt Disney Internet Group. "It's more of an evolution than a revolution."

What's changed? A lot.

* Half of U.S. homes with Internet accounts are connected at high speed. Last time around, Internet companies had to force content down dial-up connections, meaning it could take hours to download even a short movie. With fast connections, people have become more used to watching video online, and software advances have made the images much crisper.

* Living-room devices such as TiVo Inc.'s personal video recorder and Microsoft Corp.'s Xbox video game console are bridging the gap between the Internet and the television. With wireless networks, photos, songs and video files can be moved around one's home and watched on the most convenient screen.

* Mass entertainment is being fractured into thousands of customizable programs that can be watched or listened to anytime and anywhere. TiVo's recorder and Apple Computer's iPod blew up the traditional methods for delivering media and gave consumers a taste for getting personalized content on their own terms.

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