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Is Yahoo Set to Build YouTube's Competitor?

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After failing in its attempts to acquire Dailymotion, a video streaming website, for around $300 million last year, Yahoo! Inc. (YHOO) is apparently planning its own video platform reports Re/code. However, Yahoo! has not yet commented on the speculations.

Google Inc. (GOOG) is up and away in the video segment with its user-generated YouTube platform. Reportedly, Yahoo! intends to carry out its plans by poaching YouTube’s big star talent and famous networks by offering them better money than Google. Yahoo! appears to be taking advantage of content providers’ dissatisfaction regarding the money they make from YouTube.

Reports also indicate that Yahoo! is trying to attract YouTube producers by promising them better ad revenues or assured ad rates for their videos. It is also offering enhanced promotion on its homepage along with the privilege of vending their advertisements through its sales division.

In the initial phase, Yahoo! will only allow popular content providers to broadcast videos on its website for a limited time frame, unlike YouTube where anyone and everyone can post their content. Gradually, Yahoo! will either build up its own content administration structure or buy an existing video service provider like Vimeo to increase its availability to a larger audience.

But Yahoo! faces a number of challenges when it comes to launching its own online video platform. Yahoo! requires a huge amount of cash to meet the cost of poaching YouTube’s talent. When Alibaba Group, a Chinese Internet company, finally makes its Initial Public Offering (IPO), Yahoo will earn around $37 billion after selling its share in Alibaba, which it can invest to buy the talent.

YouTube is a leader in both the video and music streaming segments with websites like Pandora Media Inc. (P), Spotify and others lagging far behind.

If the rumor turns out to be true, Yahoo! might soon have a competing platform, but whether it is viable or not will depend on traffic.

Currently, Yahoo! holds a Zacks Rank #3 (Hold).

A better-ranked stock in the same sector is Facebook (FB), carrying a Zacks Rank #2 (Buy).

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