Kazaa’s Creators Do Latest Venture by the Book

By JEREMY W. PETERS

Niklas Zennstrom and Janus Friis made names for themselves as renegade Internet entrepreneurs by taking conventional tasks like talking on the phone or listening to music and giving consumers an unconventional — and free — way to do it.

Sometimes that meant pushing legal boundaries.

But with their latest creation, a Web video venture called Joost, Mr. Friis and Mr. Zennstrom, who were behind the file-sharing service Kazaa and the Internet telephone service Skype, are doing everything by the book. Revenue-sharing agreements have been signed. Licenses have been granted.

“The reason we’re doing this is because of our history,” Mr. Friis said in a telephone interview last week. “We know how these things work. And above all, we know that we don’t want to be in a long, multiyear litigation battle.”

The two men met in the late 1990s at Tele2, a European telecommunications company then emerging as a serious competitor to Sweden’s telephone monopoly. They left in 1999 to start their own Internet company.

Soon after, they developed the technology behind Kazaa. The music industry fought Kazaa with the same fury that it fought Napster, another file-sharing service that was forced to become a legitimate pay service after lengthy court battles.

Mr. Friis, a Dane, and Mr. Zennstrom, a Swede, sold Kazaa in 2002, but their legal worries did not end there. Movie studios and recording companies pressed ahead with their lawsuits, and for years neither man set foot in the United States.

In November, Kazaa’s new owners settled the last of the lawsuits. In all, they have agreed to pay at least $125 million to the record industry and movie studios.

Today Mr. Friis and Mr. Zennstrom work out of Skype’s offices in the Soho neighborhood of London. Though they sold Skype to eBay for $2.6 billion in 2005, they remain active in the company. Mr. Zennstrom is Skype’s chief executive. Mr. Friis is the executive vice president for innovation, a job that has allowed him more time to spend developing Joost.

With the Kazaa lawsuits behind him, Mr. Friis’s feet are back on American soil. He was in Los Angeles on Friday promoting his latest endeavor.

Joost (pronounced “juiced”) said last week it had reached what amounts to the mother lode of television programming: agreements to broadcast programs from Viacom networks like MTV, Comedy Central and VH1. While the deal’s terms were not disclosed, Viacom and Joost will share advertising revenue.

“We are very happy with the Viacom deal because it spans all their big properties,” Mr. Friis said. “It has content from their biggest properties — MTV, Comedy Central — that are very good for our demographic.” (Mr. Zennstrom was on vacation and unavailable to comment, a Joost spokeswoman said.)

The Joost-Viacom partnership gives Viacom a degree of control over its programming that it has been unable to obtain so far from the video-sharing Web site YouTube. Joost must have Viacom’s approval to put a program online. In addition, Joost addressed Viacom’s concerns about piracy and copyright infringement by designing a platform that Joost says is piracy-proof.

This month, Viacom demanded that YouTube, now owned by Google, remove more than 100,000 clips of its programming because the two companies could not reach an agreement on licensing and revenue sharing. That deprived YouTube of popular Viacom content like clips of “The Daily Show.” YouTube responded by replacing some Viacom content with the message “removed at the request of Viacom International.”

Just because YouTube does not have Viacom programming, however, does not mean it is at a disadvantage, analysts said. Joost “is not a competitor to YouTube in most ways,” said Allen Weiner, an analyst at Gartner, a market research company in Stamford, Conn. “It’s a competitor to cable television.”

Joost is meant to replicate the way viewers watch television at home. It streams full-length programs in full-screen format. Users can flip through channels that offer everything from documentary news programs to videos on surfing. Programs can last a few minutes or more than an hour. (Viacom programming is not available now for the test phase, but Joost said it would be online by the time its software is introduced publicly, sometime before this summer.)

The Joost format differs greatly from YouTube’s, which allows users to upload to the site snippets of television programs or self-produced content. “It’s not Web video; it’s TV,” Mr. Friis said.

But some analysts said Joost had the potential to change how consumers watch television on the Web. It will have content that is, for now, unavailable elsewhere on the Web.

“Should YouTube worry?” said Tim Bajarin, president of Creative Strategies, a consulting firm. “I think YouTube is a legitimate channel in its own right. At the same time, I think any company that comes out there and lands big distribution deals with large content partners like Viacom is a serious competitor.”

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We Won't Pay $500 For An iPhone

Consumers aren't willing to pay what Apple Inc. may ask for the iPhone, but if the price drops they'll switch their mobile service to AT&T Inc. in order to get it, according to results of a survey released Thursday.

Online market research firm Compete Inc. surveyed 379 people in the U.S., most of whom had heard of the iPhone and have shopped for an iPod, to find out how interested they are in the device. The iPhone is a combined music player and cell phone that Apple plans to start selling in the U.S. in June.

Among the 26% of respondents who said they're likely to buy an iPhone, only 1% said they'd pay $500 for it. When Apple introduced the iPhone in January, it said it would cost $500 on the low end.

Forty-two percent of those who said they're likely to buy the phone said they'd pay $200 to $299.

The iPhone will be available only to subscribers of Cingular Wireless LLC, now part of AT&T. In a blow to the operator's competitors, 60% of the respondents who said they were likely to buy the phone said they'd switch their mobile operator in order to get it.

While the iPhone has been discussed as a competitor to other handsets like Research In Motion Ltd.'s BlackBerry, the two serve very different markets, said Andy Neff, an analyst at Bear Stearns & Co. who participated in a conference call to discuss the study results. "Even though there's talk about this as an alternative to RIM, it's not a corporate product," he said. Instead, the iPhone is an indication of a broad shift toward smart phones and the emergence of niches within the category, he said.

The analysts were split on what price they think the device will ultimately retail for. Recently, operators haven't been discounting phones in the similar price range as the iPhone, said Phil Cusick, an analyst at Bear Stearns.

However, Apple has been known to announce a product with one price and ultimately sell it for less. Apple TV, for example, was expected to cost $399 but sells for $299, he said.

The phone may start out around $500 because early adopters will pay that, said Neff. But pricing will likely drop by $100 to $200 to target the mass market, he said.

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