This Halloween, teenagers won't have to flock to the theater to see the latest horror flick, they can instead sit with their laptops to watch Tara Reid in “Incubus,” a new full-length feature film AOL is distributing exclusively on the Web.

The sudden explosion of Web-based video is providing a whole new range of viewing choices and very possibly changing the entertainment world going forward. AOL is a prime proponent, as its video portal now looks like an electronic programming guide with a range of free and paid programming that includes everything from classic TV shows like “Welcome Back, Kotter” to “Chapelle's Show” to the latest in Hollywood scandals on TMZ.com, the AOL service that broke the story of Mel Gibson's post-arrest tirade this summer.

But other companies — including AT&T, with its 20 broadband channels for its DSL customers, and ABC with an online streaming service due out in October — are getting into the act, offering consumers not just more video choices but also the opportunity to create their own video programming.

VON founder Jeff Pulver built his Fall VON keynote around the video trend, chronicling a summer spent exploring the many current Web video alternatives, which are listed by the dozen on his blog.

“Video is now an application,” he said. “We are seeing change and disruption happening — TV over the Internet is changing the way we experience television. This isn't IPTV — IPTV is solely out there to empower incumbent phone companies that have fiber to compete with cable companies. Over time that will be a rather large lucrative place. But TV over IP is not IPTV — it is a world that exists when you don't have any constraints. You don't get bogged down by digital rights; you get to set the rules.”

As Pulver and AOL Vice Chairman Ted Leonsis told the VON crowd, anyone with a decent video camera and reasonably priced editing software can now make their own movies and find a place for them on the Internet.

The real challenge, however, comes in developing a business model for Web-based TV and determining how it fits into the broad scheme of video and whether it competes with traditional video services and newer IPTV offerings.

Leonsis said AOL is already seeing a new industry grow up around Web video.

“Video is allowing the birth of a new mega industry,” he said at VON. “Convergence is finally really happening. The bandwidth is there, the audience is there — we are getting 113 million customers a month and 14 million simultaneously on our servers. The ad market is exploding.”

Companies such as blip.tv have sprung up to give average consumers a platform for developing their own TV shows and delivering them over the Web. Unlike YouTube, which posts user-generated videos for maximum short-term impact, blip.tv features episodic content that attracts a regular audience and includes advertising and sponsorships.

“We provide the infrastructure to help people distribute these shows,” said Mike Hudack, blip.tv CEO. “They worry about the creative content, and we have the software that lets them put content on the Internet. Plus we sell the ads, sponsorships, etc.”

At VON, blip.tv announced a deal with Akimbo that will put the IP content onto TV sets as well, through Akimbo's set-top boxes. Five major television set manufacturers — Hitachi, Masushita/Panasonic, Sharp, Sony and Toshiba — have formed a joint venture to develop common standards for enabling TVs to access Web video.

If Web video threatens Hollywood-created content, Pulver warned, the Web folks should expect a fight. “If you are about to disrupt a sector, be prepared for that sector to fight back.”

VC MONEY DIPS

Source: Pricewaterhouse Coopers/Thomson Venture Economics/National Venture Capital Association Money Tree Survey

BY THE NUMBERS

33
Percentage of businesses planning to upgrade their phone systems in the next 12 months

56
Percentage of businesses whose phone systems are less than 4 years old

60
Percentage of businesses impacted by major deals in electronic or voice communications within the last year

8
Percentage of businesses that said communications delays would be catastrophic

33
Percentage of businesses experiencing security attack in the last 12 months

91
Percentage of businesses that want to own or lease their communications hardware and software

Source: CompTIA survey of businesses with between 20-500 employees, conducted in the summer of 2006