Video Content Battle Ready for Prime Time

The long-promised marriage of TV, the Web and wireless devices has become inevitable.
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The next time somebody gets the idea to stick a bunch of Internet egos in the same place, they should think hard about what happened last week in Las Vegas.

That was when Larry Page, Terry Semel and Bill Gates -- leaders of the Internet's Gang of Three that has come to be known as GYM --

Google

(GOOG) - Get Report

,

Yahoo!

(YHOO)

and

Microsoft

(MSFT) - Get Report

-- descended on Vegas for the Computer Electronics Show. Somehow, the combination of their powerful visions and formidable net worths conspired with the blinking lights and all-you-can-eat prime rib to cause all hell to break loose.

Since that event, the $140 billion market cap of Google, a single company, surpassed that of

Berkshire Hathaway

(BRK.A) - Get Report

and all its myriad companies and investments -- proof positive that the market has, for the second time in seven years, abandoned the principles of Graham and Dodd.

Stock analysts also grew unhinged, with the maximum price target on Google rising from $550 to $2,000 in less than a week. Rumors even spread that Bill Clinton will replace Steve Ballmer at the helm of Microsoft. Seriously.

This, apparently, is how a generation weaned on television is taking the news that the boob tube, as we know it, is dying. That is: not well. Not well at all.

For investors, all this is interesting because it means the eventual and wholesale disruption of yet another industry -- a very lucrative, very powerful industry. It isn't license to buy a stock, even Google, at a triple-digit P/E multiple. And it won't happen right away, which means there is plenty of time for companies to stake out, and then lose, their place in the fast-evolving market of video-content distribution.

Much of the news that came out of CES on this front was hardly new or surprising. What's new is in the details, which are starting to make clear that the long-promised blending of television programming and the Internet and wireless devices is more than just a pipe dream -- it's inevitable.

Yahoo! and Google, for example, have both talked about their search services on mobile phones before, but partnerships with

Motorola

(MOT)

introduce features, such as one-click Internet access, to make using the Internet on phones a much easier process.

Or take Page's much-anticipated announcement on Google Video. While the project itself was announced early last year, Google's pricing plan is enticingly disruptive: When a content provider, say CBS or the National Basketball Association, retails its programming through Google, it not only names its own price, it gets to keep 70% of the revenue. Not only are independent producers going to find that 70% very attractive, but cable companies, say, are going to find it very tough to compete with those prices.

What it means is this: The TV set that receives one-way transmissions of programming according to a network schedule will become as ubiquitous as the transistor radio is today: good to have in a pinch, but gathering dust most of the time. Instead, the apple cart will soon be violently tipped over and many industries -- Internet, wireless providers, broadcasters, cable companies and new entrants -- will scramble to put it together.

In other words, the GYM boys will be competing with

Comcast

(CMCSA) - Get Report

,

AT&T

(T) - Get Report

,

Time Warner

(TWX)

,

Apple

(AAPL) - Get Report

,

TiVo

(TIVO) - Get Report

,

Verizon

(VZ) - Get Report

,

Sprint Nextel

(S) - Get Report

,

News Corp.

(NWS) - Get Report

, the other owners of the broadcast networks and maybe even the owners of movie theater chains. All these companies will survive the coming turmoil in some form. But some of them are likely to merge or be bought out by others: There's just not room for them all.

These companies are already in competition right now. When Verizon and other telcos, as

The Wall Street Journal

reported last Friday, saythey will start charging content providers for fast access to their networks, they aren't striking a blow for fair play, they're trying to give themselves a leg up as content providers.

Others are taking a spaghetti-on-the-wall approach: Throw everything up there and see what sticks. Hence Yahoo! Go, Semel's broad plan to push his company's content and services on PCs, TVs and mobile devices. Or the new tendency to release movies in theaters and on DVD on the same day. You know things are changing when companies, unsure which strategy is right, choose any and all options.

Given this uncertainty, how can investors keep a scorecard on who's winning and who's losing in the race to dominate video? That, and the complications that are sure to arise, will be the topic of a future column. The immediate danger that uncertainty presents to stocks is the speculative trading that attempts to provide a quick answer. Is Google worth $550? Maybe. Is it worth $2,000? It's way, way too early to say.

It makes me wonder who the first analyst will be to send out a Google price target of a googol, the number (it's a 1 with a hundred zeros after it) from which the company took its name.