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Lines in the Online Video Sand are Drawn ... Analyst Concern About Disney ... China Rising

Wednesday, 13 Dec 2006 | 12:01 PM ET

Now we know why ABC didn't join the other entertainment companies to launch a new video content site: ABC is becoming Yahoo! News main content partner. Expanding a 2005 deal for ABC News to provide ad-supported video to Yahoo! users, this new deal will provide twice as much content to Yahoo! News, including breaking news stories and features from ABC's blue chip content - stuff from Good Morning America, 20/20 etc.

They say that this won't just be a flow of news, but that there will actually be a dialog between ABC's newsroom and Yahoo. In the battle for video content is it better to team up with the other old-school content providers? Or, is partnering with the also-ran, number two in the battle for online video viewers a better tack to compete with all-powerful Google and YouTube?

ABC's parent company, Disney , is getting some serious flack from analysts despite the fact that Bob Iger aggressively cut back on studio overhead, slashing hundreds of jobs and cut back on the number of movies from the studio each year. But that can't help the fact that the other parts of Disney's businesses are struggling.

Bernstein Research's Michael Nathanson writing in a report today on U.S. Cable networks about Disney: "We remain concerned that earnings growth is set to decelerate in the coming year, driven by several factors". They're rating Disney a market-perform (aka: "buy") because of concerns about theme park revenue growth slowing, ESPN's struggling with rising sport costs, and tough comps for ABC.

Morgan Stanley's Richard Bilotti also had a hold (they call it an "equal-weight") though Bilotti increased his price target. He wrote, "Disney will experience a gradual deceleration in its growth rate" - noting the same issues, but also giving the assumption that Pixar will add an incremental $100 million of EBIT in the next 12 months. Not bad.

The biggest issuees -- the nets as well as cable channels (ESPN) -- face high margins, and it'll be hard to change that, and it'll take a long while before partnering with Yahoo will be able to make much of a difference there.

The problem with domestic advertising revenues brings me to China -- where all roads seem to lead these days. This year, China is likely to overtake Japan to become the second largest ad market in the world. As the fastest growing ad market with $37 billion in 2005 ad spend, China is well on its way to overtake Japan's ad spend this year, and it looks likely that China will overtake the U.S.

One surprise: online ad sales are less than 1% of the total, just $230 million annually. But with a fast growing internet audience -- 160 million as of now -- that number is likely to explode, making Madison Avenue numbers look like peanuts. Can all the ad men go work in Beijing?

Questions? Comments? MediaMoney@cnbc.com

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.