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EMI, which is looking less like a music label and more like a lawsuit label, is at it again. This afternoon they filed a lawsuit alleging “massive and blatant” copyright infringement by Hi5, VideoEgg and ten John Doe defendants to be named later. The core of the suit is over copyrighted EMI content that appears on Hi5, particularly music videos.

EMI is a particularly litigious company. In the recent past, they’vd sued or threatened to sue AllofMP3, YouTube, Apple, MP3Tunes, XM Radio, Infospace (can’t really blame them there) and even The Beatles.

One person close to the litigation says that the parties have been negotiating with EMI for well over a year to avoid litigation, but that they were unable to reach agreement. The shakedown attempt before litigation is standard practice these days. But what is a little different here is that EMI is going deep into the supply chain to find other deep pockets.

VideoEgg, for example, provided video functionality to Hi5 in the past, but the deal ended in April 2008, and they no longer work together. The ten John Doe defendants are presumably other service providers, and/or executives of Hi5, VideoEgg and those other companies. The fact that EMI included VideoEgg in the lawsuit shows that they care little about current infringement - they just want a payoff for stuff that happened in the past.

VideoEgg CEO Matt Sanchez says that they comply with all DMCA takedown demands, but never received one from EMI. VideoEgg also used AudibleMagic , he says, to identify and proactively removed copyrighted material.

The lawsuit complaint, which was filed in New York, is below.

EMI Music v. VideoEgg, Hi5 and others - Get more Legal Forms

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VideoEgg has just closed a $15 million series D round of funding led by Focus Ventures with WPP, Maveron, and August participating. VideoEgg cites plans to accelerate the development of their ad products and international sales network as the reasons behind the investment.

VideoEgg started off as a white-label video host, powering some notable web properties such as AOL sites, Bebo, hi5, Piczo, myYearbook, Dogster, Tagged and others. They then quickly incorporated an ad network. Like many other video startups, they did it through overlay advertisements (Yes, before YouTube). Startups are experimenting with other video ad formats “>as well. VideoEgg has been driving “significant” revenue through their overlay advertising.

Recently they applied that overlay model to Facebook as a new ad network, helping users monetize videos and applications. They reportedly pay a healthy CPM (developers have reported ~$8-10 CPM). Other Facebook ad networks include Lookery, RockYou, SocialMedia, and FB Exchange.

VideoEgg wants to continue developing their ad platform, moving from an impression model to an engagement model, while making ads more social. Although they remain tight lipped on the plans, ad networks on Facebook aim to make ads more engaging by tying virtual rewards to user’s contributions.
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When I wrote a post earlier today suggesting that YouTube was not the first to use a Flash overlay advertisement for online video, I didn’t realize I’d be getting so many emails and comments disputing exactly who first invented unit.

VideoEgg has certainly been doing this for a year or so. In a comment to that post, though, an (unconfirmed) ex-YouTuber says the idea was “discussed long ago inside the company” and follows up with:

All other video sharing websites that came out around the time YouTube emerged were still using Quicktime or Windows Media. YouTube might as well accuse VideoEgg of stealing the idea of using a Flash video player.

Next up was Adbrite founder Philip Kaplan, who emailed me to say that Adbrite has had their own overlay product for nearly a year. He also pointed out that I wrote about it. The ad unit is less sophisticated, but it is certainly a Flash video overlay ad unit.

And finally, Brightcove CEO Jeremy Allaire sent me a long email saying they’ve been doing this as far back as October 2005. He also says the ad units are not particularly popular with advertisers:

I caught your post on VideoEgg taking credit for video overlays as an ad format vis a vis the latest YouTube ad product introduction.

To reinforce this point, while I don’t want to claim “invention”, we were certainly very well ahead of the market when we introduced video overlay ads back in October of 2005, just as YouTube was getting their first pirated episodes of The Sopranos on their site. At the Web 2.0 conference that fall, Brightcove debuted our beta service and as part of that both demo’d and discussed how we wanted to changing video and television advertising with new formats that could engage the user in a non-intrusive manner while creating opt-in ‘takeover sponsorship’ units that a marketer would be excited about. We demo’d overlay ads from Coca Cola running in a MTV Networks channel that we were just launching with them. The New York Times covered this debut.

We subsequently demo’d and introduced these formats again at AdTech in New York that fall, and if you speak with any number of a major content owner brand partners, it has been part of our platform since then, along with a wide range of other innovations in video ad formats, policies and targetting mechanisms.

Interestingly, despite having been 18+ months “ahead of the market”, to our disappointment, there has been extremely limited uptake by the advertising community around these formats. There are a lot of factors behind this limited uptake, including:

- the advertising community buying video have been very focused on leveraging existing creative and buying patterns in the online video space
- most content publishers and media owners have been focused on getting the ‘basics’ up and running, and also responding to the RFPs from marketers and advertisers, which are almost 100% focused on basic short-form video commercials
- for premium brands and content, the basic pre-roll and companion banners are yielding extremely attractive CPMs and there is little evidence that :15 ads have any negative impact on end-user viewership behavior — in fact, our own metrics show that sites that run without any ads, and then introduce :15 pre-rolls and banners achieve identical usage and performance (e.g. no drop-off in users because of ads) on their content.

Nonetheless, we remain very bullish about ‘composite’ video advertising formats that combine overlays and unique and non-intrusive calls to action with deeper interactive marketing experiences. We’ve been pushing this for years and only now are starting to see the publishers and media owners that we work with begin to take an interest in these formats. I believe this is because we’re now entering a phase where content companies are looking at ways to maximize yield and revenue within their content, and they are introducing more mid and long-form content which require, by economic necessity, a different suite of formats to deliver a good user experience.

So where does that leave us? Maybe none of these startups did - Om says it all goes back to old school television. We’ll see if VideoEgg’s patent filing is unique enough to be issued. But they’ve already said they won’t be using it offensively to stop others from doing this. The market will sort it all out.

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VideoEgg’s overlay advertising system has been in the market for a year and is driving “significant” revenue for the company. it’s so successful, in fact, that they recently launched a Facebook advertising network based on the same technology.

The idea is to use a Flash overlay advertisement with some basic information and graphics that takes up a small part of the viewable video area. Users click the ad and get a more in depth video ad. It’s less intrusive than a pre or post roll ad, and has far better performance than ads placed around a video. It’s likely to become the standard way ads are placed on video, even potentially on normal television as the thirty second ad spot continues to decline.

Given VideoEgg’s success with the unit it’s no surprise that YouTube has adopted the same format with their advertising. But it is surprising that YouTube failed to give even a passing mention to the company that invented the unit. VideoEgg also claims to have a patent application on this - something YouTube will certainly have to deal with down the road.

Nick Carr points out that much of the early press on YouTube was written by people who failed to do their homework. Carr trashes a CNET article that he says was basically an ad for YouTube. CNET subsequently changed the title of their article but there is still no mention of VideoEgg’s invention of the unit

Meanwhile, VideoEgg seems to be handling the situation well and taking advantage of the publicity. They added the graphic above to their home page, and are talking to press about their product. Suddenly, everyone is interested.
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VideoEgg has been exceptionally good at thinking ahead in their business and changing strategies when it made sense.

They launched in September 2005 as a way to publish video to the web from mobile and other devices. Soon they were allowing people to publish videos directly on the site, like YouTube. And they then aggressively pursued partnership deals to power the video feature on social networks and other sites. Today, they power video on 14 of the 20 largest social networks. And they also monetize those videos with a number of innovative ad units, sharing the revenue with partners.

Today VideoEgg is powering 680 million video plays per month, from 23 million unique users. They’ve built a large ad sales team to sell into those videos with flash pop-up ads that don’t disrupt video play but get in front of the viewer.

That ad sales team now wants more inventory. And so VideoEgg has morphed yet again. Their video business remains in place. But now they are leveraging that ad sales team to sell their flash ads directly into Facebook applications.

EggNetwork, A Facebook Ad Network

There are already at least three advertising networks aimed at Facebook applications - Lookery, fbExchange and a RockYou product. VideoEgg now jumps in the mix with EggNetwork, and they have an immediate and distinct advantage: a huge ad sales team with experience selling into big brand advertisers.

They’ve been quietly active for weeks, testing the platform and gathering data. The Flash ad units (example) don’t do much until you mouse over it, and then text is displayed along with a video clip or interactive game of some sort. CEO Matt Sanchez says that they are selling at above $10 CPM. And they will split revenue from the ads 60/40 with the application providers (60% to the application).

These ads will eventually be targeted demographically based on user data. For now, though, Facebook has put a use of most of this user information on hold as it figures out its strategy. When Lookery launched they had one set of rules in place in their terms of service. Now, they are taking a hard look at what data can be used by ad networks for free, and what should be used at all.

EggNetwork is clearly going to be an attractive option for larger application providers who don’t want to sell ads themself. VideoEgg already has a bunch of them using the service: Rock You, J. Squared Media, Graffitii, Renkoo and Flixster have all incorprated the ads into their applications. Early advertisers include Discovery Networks, Electronic Arts, Fox Searchlight, FX Channel, Paramount Pictures and Universal Pictures.

App-Camp 2007

VideoEgg is also hosting an event, called App-Camp2007, in San Francisco in late October. They’re promising a fun and informative environment for people to learn about application creation and monetization, and will be bringing in marketers and venture capitalists to make connections and provide further device.

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