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Googles Youtube acquisition was questioned heavily when it happened, everyone and there mother was flaming them over it and how they "saved" youtube and how stupid they were. Only when they started implementing video units was it really clear the direction they were taking it. It's a triple threat - blooger + adsense + video units all integrated now. With Youtube they expanded at a cost but the Google reach now is way beyond what they could have achieved with Google video itself. For the smaller sites, they aren't losing money, metacafe, ebaums, break, etc. are all doing very well with the content they have without having to pirate and infringe. It's user driven but heavily moderated.
Stage 6 was awesome from what I saw was copyright problems just like porn is facing now, they had so much pirated shit (equiv of "full scenes" in porn) out there it was bound to close down. Stage 6 could not operate and could not evolve in a new model so left to shut down when faced with the choice for focus on other projects.
If you look at the new BIG tube sites out there Hulu and Veoh, these have adapted into a new model. Instead of using copyrighted material that is stolen...they are working directly with the licensed owners, in return they are providing advertising time between the clips and advertising space on the players itself. CBS, NBC, etc. are all contributors to these sites. Ex. You can go to Hulu or CBS and watch entire seasons of Star Trek, Twilight Zone and more...they aren't losing money doing this. The consumer reach isn't in DVDs and traditional syndication...it's online.
The direction is now using an old Syndicated TV model but delivered in an online format with commercials and all, very targeted commercials also. Veoh started and was based off a P2P and served up Warez, Mp3s, etc. They adapted to a legitimate company and are backed heavily with their model. Both sides adapted....the tube sites and the licensed owners and are making money together.
If you look at the direction that the major VCs are headed and investing in you will see this is a hot commodity now, not just the small VCs but Redwood Partners and Sequioa Cap (who backed start-ups Apple, Youtube and Atari when they started)
I follow the logistics behind it because used to be in that space.
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Jimmy James  ATKingdom/AMK Empire Since 1996 - My Movies
Home of ATKGirlfriends - Where we take pornstars on trips...and fuck them. 
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