Rupert Murdoch's News Corp and NBC Universal will challenge Google's YouTube for online eyeballs and advertising dollars by launching a video-streaming website by the third quarter.

Through a promotion deal with AOL, Microsoft's MSN, MySpace and Yahoo, the new site will reach 65 million viewers, accounting for 96 percent of US unique online users on a monthly basis, the company said.

To keep those viewers, NBC and News Corp will offer free viewing of TV episodes by supporting the business with advertising from the likes of Cadbury Schweppes, Cisco, Intel and General Motors. The partners will also try to create an interactive web community by inviting users to create personalised video playlists, mashups, online communities and a video-search function.

NBC and News Corp could also eventually use the site as a virtual channel, licensing and producing original programming in addition to the standard network material including programmes like ‘24’, ‘My Name is Earl’, ‘The Simpsons’ and ‘Prison Break’.

In contrast to the amateur clips available on YouTube, the new site will give consumers professionally produced video, said News Corp president Peter Chernin. The site will offer a library of premium content from a dozen networks and two film studios. The partners have not announced the site's name or management, but said that its transitional leader will be George Kliavkoff, who is currently NBC Universal's chief digital officer.

Rather than pull viewers away from its partner portals like AOL, the site will feed its video to them. That design will allow viewers to play videos without leaving AOL's site or even opening additional web browser windows, according to AOL spokeswoman Anne Bentley.

AOL also played down the brewing rivalry with YouTube, saying that YouTube owner Google also holds a five percent stake in AOL. So both companies will benefit as AOL draws a portion of the advertising revenue generated by the new site, Bentley said.

Likewise, MSN parent Microsoft said the new site could create a major new revenue stream through advertising dollars.

"Our investments in MSN Video and SoapBox over the past couple of years have shown us that video is an amazing driver of user engagement and excitement, both for consumers and for advertisers," said Kevin Johnson, president of Microsoft's platform and services division.