MySpace puts Photobucket in the penalty box

I recently talked to a former big-wig at MySpace. He said he was very impressed with the online video/mashup site, Photobucket.

Well, maybe Photobucket was getting too big. According to a piece in CNET, MySpace has blocked Photobucket users from posting on the site.

Why? Well, users were placing ads in the videos. And that's apparently a violation of the MySpace terms of service.

From what I understand, Photobucket gets a big chunk of traffic from the News Corp. (NYSE: NWS) site. So there's probably incentive to get a deal done, right?

Maybe not. Photobucket is trying to rile up its community against MySpace's actions. You can check it out on its blog.

I had a chance to interview Mark Sigal, the CEO and co-founder of vSocial, an online video site. According to him:

"There is no question that Photobucket hugely benefits from it's plug into MySpace, although I don't know the specific percentages. It speaks to the paradox of MySpace on the one hand benefiting from the rise of social media, which is fundamentally about openness and ease of viral distribution (so-called "embed and spread"), and on the other wanting to maintain control of it's ad inventory. Similarly raises the question of how services like Photobucket, which rely on being able to monetize viral traffic, build a business."

Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.