Did you hear the one about the Israeli inventor, the New York media mogul and the Bollywood film distributor?

It's no joke: NBC Universal Inc.'s dotcomedy.com online TV channel is using a system from Hiro Media Ltd. of Tel Aviv to embed short advertisements in downloaded comedy clips and profit from the viral spread of good jokes, while pay-to-view movie site Bollywood.tv is evaluating the same technology as a way to cut its distribution costs.

Dotcomedy offers downloads of comedy video clips that will play in Windows Media Player, but some of them can only be viewed using Hiro's codec. Hiro's software periodically downloads fresh advertisements from Hiro's servers, and each time a video clip is played using the codec, it splices some in, reporting tracking information back to the server so that the content owner can be paid. Advertisements can also be tailored to the interests of viewers who fill in the optional registration form.

Hiro doesn't aim to limit distribution of video clips: only the viewing of them, so there's no problem even if protected content slips out onto P-to-P (peer-to-peer) networks or is burned onto CDs and handed around, according to Hiro's co-CEO Ariel Napchi. However a potential viewer receives the content, whether by direct download, over a P-to-P network or burned onto a CD, recently downloaded ads can still be spliced in by the media player.

At Opus Media Ltd. in London, CEO Darren Hop sees Hiro's system as a way to reduce distribution costs at his Bollywood.tv channel. Each time someone pays to download one of his movies, he pays for the bandwidth they consume. The movies often run well over two hours, and involve the download of over a gigabyte of data. Revenue could be as high with Hiro's advertising-supported system as for pay-per-view, he said, but costs will be much lower, as each film downloaded can be watched multiple times, bringing in revenue with each viewing.

For now, Opus is only testing the waters: Hop has just received the first movies encoded with Hiro's software, and will soon begin evaluating how customers react to the system.

One problem is the scarcity of video advertising inventory for companies like his. While established media outlets such as terrestrial broadcasters can turn to their existing advertisers, there are not yet many companies or advertising networks ready to work with smaller players like Opus, he said.

The IDG News Service is a Network World affiliate.