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Will News Corp. blinkx first? - May 12, 2008

Shares of London-based video search-engine developer Blinkx, PLC road a brief spike last week on rumors of a takeover bid by News Corp. The fun started with a report by Investec analyst Philip Rodrigs suggesting that "News Corp. may be looking to bolster its exposure in this [video search] area," through an acquisition. Piper Jaffray analyst Rajeev Bahl then added fuel to the story by telling Reuters that talk of a News Corp. bid for blinkx "does not sound ridiculous." All told, the normally lightly traded shares shot up 26% on Friday before blinkx pricked the bubble by issuing a statement denying any knowledge of a bid, or any "bid-related reason" for the stock movement.

Which I'm sure is true, at least in the legal and regulatory sense of "knowledge." But as Bahl implies, it would be ridiculous for News Corp. not to be interested in blinkx, at least conceptually.

Apart from the strength of blinx's technology, which Bahl called "one of the better video technologies out there," News Corp. has a lot at stake in the future of video search. Currently, it's a key player in online video discovery through MySpace. As Paramount Pictures senior VP of digital entertainment Derek Broes noted at last week's Digital Hollywood conference in LA, "MySpace and Facebook is how people discover online content. They find out about it from each other. Very few people go to YouTube and type in a search term unless someone has told them to."

So far, however, MySpace's role in video discovery has not translated into a significant revenue opportunity for News Corp., in part because it as yet lacks the technology to marry MySpace recommendations with appropriate advertising. Leveraging blinkx's video content analysis technology could be one way for News Corp. to unlock the power of MySpace recommendations.

Another factor that could be (or ought to be) motivating News Corp., however, is fear of Google. One reason more people don't, as Broes noted, simply go to YouTube and type in a search term is that that YouTube's video search technology is still fairly rudimentary. Like most video search systems today--but unlike blinkx's--YouTube's search function relies on reading text-based tags attached to particular pieces of content. While that might get you in the ballpark of the results you're looking for, the indexing won't be anywhere near as refined as Google text searches produce, and is certainly not good enough for meaningful contextual advertising insertion.

YouTube isn't standing still, however. Thanks to the copyright filtering system it is building at the behest of content owners, YouTube is rapidly compiling a huge database of digital video fingerprints--helpfully provided by the content owners themselves--along with the a growing capability to identify content based on those fingerprints.

In other words, it's learning how to search video, and is likely to end up with the most comprehensive (and proprietary) database of index-able video around.

News Corp. is certainly aware of what YouTube is up to because, like most of the major content companies, it is cooperating with Google in developing the YouTube filtering system. If it's thought at all about the implications of the database YouTube is amassing--as I'm sure News Corp. has--it must understand the challenge it poses to MySpace's position in the video discovery value chain.

That's more than enough reason for News Corp. to be interested in blinkx.
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