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IAC the latest big player to eye video

After expressing "strong interest" in, Barry Diller's InterActiveCorp walks away from acquisition talks.

Barry Diller's InterActiveCorp recently expressed "strong interest" in video-sharing site before walking away from acquisition talks, according to two sources familiar with the negotiations.

IAC representatives last month completed a review of Break before the talks stalled, the sources said. Representatives from each company said they don't "comment on rumor."

Barry Diller Barry Diller

Founded in 1998, Los Angeles-based Break streams games and user-generated videos, and tries to attract a higher grade of filmmaker by offering to buy the most popular videos submitted. The company then attaches ads to those clips.

IAC's interest in Break comes as media and Internet companies continue to rummage around the online-video sector, some still reluctant to plunk down any bets.

Two months ago, Microsoft completed a "walk-through" of video-sharing site Revver, sources told CNET, and Yahoo late last year. But the sector has gone without a major acquisition since Google paid $1.65 billion for YouTube five months ago. The only other significant acquisition in the market was Sony's purchase of Grouper last August for $65 million.

User-generated content is supposed to be white-hot with the public, but some analysts think YouTube's recent clashes with notable entertainment companies, as well as a sectorwide lack of profit, may be hurting valuations.

YouTube has struggled to convince Viacom and NBC Universal to agree to license their content. Viacom demanded last month that YouTube remove from its site 100,000 video clips that feature Viacom-owned material, such as snippets from The Daily Show and The Colbert Report. Some YouTube critics have predicted that YouTube could struggle to keep its audience happy without professionally crafted content.

Skeptics have for a long time questioned video sharing's ability to cash in on its popularity. Blue-chip advertisers have been slow to throw big dollars behind it, and nobody has proven that presenting amateur-made clips online is a profitable business.

"You have to rely on people (whom) you can't control to make entertaining videos," said Josh Martin, a Yankee Group Research analyst. "These people have to consistently create content that brings people back to the site. How do advertisers bank on that?"

As for IAC, Diller said at the Media Summit conference in New York last month that he thought now is the perfect time to invest in content sites. Diller, however, hasn't shown much interest in video sharing. The billionaire said he thought the public would quickly tire of home movies and would eventually demand high quality.

Diller said he believes that the exchange of amateur videos on the Web is never going to be as interesting or successful as videos "produced by professionals that know how to make you laugh or cry--that is where this will develop."