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TheStreet Open House

YouTube Outfoxes TV Foes

Imagine if WalMart (WMT) decided to end shoplifting by giving away the store.

Far-fetched? Well, a crude, digital equivalent of that scenario may actually be playing out.

General Electric's (GE - Get Report) NBC Universal entertainment division and News Corp.'s (NWS - Get Report) Fox unveiled a huge partnership Thursday aimed at creating an online video site.

The move has been portrayed as old media's latest bid to gang up on Google's (GOOG) YouTube.

NBC and Fox, after all, signed deals with major technology players including Yahoo! (YHOO), Microsoft (MSFT) and Time Warner's (TWX) AOL. And Google already is under attack on the YouTube front, thanks to last week's $1 billion lawsuit from Viacom (VIAB).

But a look at the sums at stake in online and TV advertising suggests the big TV networks will feel the effect of this deal far more acutely than Google.

By offering their high-quality content online, NBC and News Corp. are giving consumers a way to watch their programs while avoiding their television broadcasts altogether. Indeed, while the grainy, minutes-long clips posted on YouTube may well have served as teasers for TV shows, what NBC and Fox are planning on offering could stand in as a good reason to avoid tuning in.

The online ad revenue the companies are banking on is a far cry from the amounts spent on TV ads. In 2006, video and graphic display ads -- the type News Corp. and NBC will likely rely on to generate revenue from their content -- garnered $4.9 billion in spending. But large advertisers alone spent $65.4 billion during the same year on TV ad spending, according to TNS Media Intelligence.

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