Janus Friis and Niklas Zennström say that the new business, which is codenamed The Venice Project, will be based on a peer-to-peer (P2P) network, like Kazaa. Kazaa was a file-sharing network widely used to pass unlicensed copies of music tracks around the internet, but Venice will only distribute licensed content, the founders said.
According to a posting at The Venice Project's blog: "we're fixing TV; removing artificial limits such as the number of channels that your cable or the airwaves can carry and then bringing it into the internet age; adding community features, interactivity, etc."
The posting, by Dirk-Willem van Gulik, continues: "But we're also bringing something back from that old TV – of having a shared experience with your friends, something you can talk about, rally around and enjoy with others."
Venice will offer full-screen television content on computers which will be provided by traditional content owners and will be paid for by advertising. The company will take a slice of the advertising revenue.
Users will have to download software to use the service and content will be streamed with the protection of encryption but reportedly without additional digital rights management (DRM).
A P2P network is one where content sits on all the computers connected to a network, tagged so that it can be found by others. Rather than all the content being downloaded from one massive server, it is taken from whatever computer has the file a user is looking for.
In a P2P system, each computer becomes a mini-server on the network. Proponents argue that that not only makes the network cheaper to run but also more stable, since the network is not reliant on one server or connection.
The venture is funded by Friis and Zennström who made significant sums last year when they sold their internet telephony company Skype to eBay for £1.3 billion.
Skype had been a huge success, making previously difficult-to-use internet telephony services much more usable for consumers and connecting users all over the world by net phone for free. The two men are hoping to perform the same feat in the world of internet television.
"At the time we launched Skype, broadband capacity was extremely ripe for communication," Frederik de Wahl, the chief executive of the business, told the Financial Times. "Now, three years later, it's the same thing for video: you can do TV over the internet in a really good way."
UK telco BT recently announced an ambitious internet television, or video on demand, service, while the BBC and Channel Four have services planned where UK residents can watch previously broadcast content.
Friis claims that the market for Venice, which will go live in 2007, is tens of millions of users, with each receiving near high-definition quality video.
The launch will follow a year of staggering success for internet video clip site YouTube, which dominates internet video and was bought by Google earlier this year for $1.6 billion in shares. YouTube's is a different market, since it shows clips that are often user-generated and not whole shows of professional content, but it is the current internet video bellwether.
"This could solve two of the main problems with existing video services like YouTube," said Gavin McGinty, an e-commerce specialist with Pinsent Masons, the law firm behind OUT-LAW. "First, something like this is expensive to run – YouTube pay a fortune in hosting and bandwidth just to keep the site up and running. Second, because they host the content themselves, they risk having some liability for illegal content posted on the site."
The venture is being closely watched, since both of Friis and Zennström's last two projects severely upset established market forces and had a profound impact on the music and telecoms markets respectively. "In all reality up till now the public have had very limited details of what the service will involve. The real reason this is being talked about so much is because of who is involved," said McGinty.
