Veoh Networks, a company that markets a kind of populist web TV broadcasting network, said Tuesday it raised $12.5 million in second-round financing from Michael Eisner, the former chairman of the Disney Company, Time Warner, and Spark Capital.

Mr. Eisner, who was forced out of Disney in a bruising shareholder scuffle and now heads his own investment firm, The Tornante Company, will join Todd Dagres, managing partner of Spark Capital, on Veoh’s board.

Veoh, which offers broadcast-style video content via the Internet, sits squarely in a rapidly emerging market that has gained immense attention from established content providers such as television networks and from independent enthusiasts.

The San Diego-based startup provides an upload platform and distribution method where every content provider gets a dedicated full-screen “channel” with its own business model. The firm served 1 million videos to over 400,000 users last month, according to Veoh CEO Dmitry Shapiro. That’s up from 10,000 users in December.

“In the past, distributing television programming required an enormous broadcast infrastructure,” said Mr. Eisner. “Veoh enables anyone with an Internet connection to distribute and receive programming in the highest quality.”

As the former head of one of the world’s largest entertainment conglomerates, Mr. Eisner brings immense resources to Veoh.

Disney Symbolism

Last week Mr. Eisner’s former company, which owns ABC, said it would attempt to stem the flight of advertisers from television by offering top TV shows such as Desperate Housewives on the web for free. The company will rebroadcast the shows on the web, along with skip-proof advertising, starting next month (see Disney Gets Online Makeover).

A week later, Mr. Eisner announced a significant investment in a TV-broadcasting system aimed at the mass market for video entertainment. Veoh sees its system eventually reaching hundreds of millions of broadband-connected users around the world “without financial, geographical, or capacity restrictions found in traditional broadcasting systems.”

In February, Verizon Communications said it would air programming from ABC News, Disney Online, ESPN, and Movies.com on its consumer broadband network (see Verizon, Disney Team on TV).

The immense popularity of video entertainment on the Internet and on mobile video devices has taken the TV industry by storm. The industry is witnessing a growing transition of advertising dollars away from TV and over to emerging video media such as the web.

As a result the networks are scrambling to get their content in front of the rapidly growing numbers of web viewers (see Fox Joins TV's Internet Rush).

But the opening of the TV distribution market to individuals changes the dynamics of the traditional TV business model from one where the content owner also owns the distribution network to more of an open market.

“Cable and satellite fundamentally changed the way television was distributed by creating the capacity for greater choice in programming,” said Mr. Eisner. “Veoh revolutionizes television again.”

Secure Client

Veoh’s software client makes it different from popular aggregator sites such as YouTube and Revver, which also both recently completed second rounds of funding, of $8 million and $8.7 million, respectively (see YouTube Adds $8M). It is more similar to the Participatory Culture Foundation’s Democracy Player or, to some extent, Apple’s iTunes (see Jumpstarting the TV Web Race).

Brightcove, which also raised big money from within the media industry—$16.2 million from Time Warner, IAC, Hearst, and Allen & Company—is somewhat akin to Veoh with its focus on content providers. Startups such as VideoEgg, Guba, and Veodia are also emphasizing uploads.

The question, for all these firms, is how closely they will attend to the concerns of the content owners—primarily those in the entertainment industry. YouTube tries to avoid infringing copyright by streaming low-quality versions of video from its web site, limiting them to ten minutes and not allowing downloads. That company is exploring deals with content providers, whereas VideoEgg, another venture-funded young player, is avoiding the problem by focusing exclusively on user-generated content.

Veoh, for its part, has a strong background in security, with an engineering team from instant messaging and peer-to-peer security firm Akonix. The company recently cleared up a flap with video bloggers when it agreed not to broadcast content from RSS feeds without the permission of the feed owner.

Mr. Shapiro said his firm was also building up its strength in addressing each user individually, both in terms of highly targeted ads and recommendations based on information about similar users. Veoh has hired Ted Dunning, an artificial intelligence expert who built the MusicMatch recommendation engine.