June 9th, 2008

YouTube: You Created the Content, Now Sell the Ads

By Abbey Klaassen
Advertising Age

Google, Looking to Monetize Video Site, Is Letting Content Producers Sell Advertising on Their Branded Channels

Google has struggled to find the best way to monetize YouTube. The latest idea: Let content creators sell ads.

Professional content producers—those who come equipped with their own ad-sales teams—are now able to sell advertising on their YouTube channels. That includes the click-to-expand overlays that run across the bottoms of YouTube videos and display units on the page that hosts the video player. The revenue is split between the content creator and YouTube, just as it would be if YouTube sold the ads.

YouTube is by far the largest video site, with more than 4 billion videos viewed in March, according to ComScore, but it has not been able to translate that audience into significant dollars. Google CEO Eric Schmidt has said better monetizing of YouTube is priority No. 1 in 2008. Bear Stearns analyst Robert Peck pegs YouTube’s revenue at about $90 million this year; other estimates have it as high as $200 million. Even at the high end, that would be just a touch more than 1% of Google’s total revenue. (YouTube’s head of monetization, Shashi Seth, recently left the company to join a Silicon Valley start-up.)

For many professional content creators and producers, being able to control the inventory that surrounds their videos is an important factor when they consider where and how to distribute content online. Revision3, the online-video-production company behind shows such as “Diggnation” and “Techzilla,” is selling advertising on YouTube, starting with GoDaddy, a sponsor that’s regularly integrated into the content of its shows. Many Revision3 shows have integrated sponsors, and the company’s CEO, Jim Louderback, said the ability to pair companion YouTube advertising in and around the videos is appealing.

Targeting
For YouTube, such deals give the site’s sales force additional representation within ad agencies and a carrot to dangle when trying to get high-quality-content creators to distribute on the site.

“They’re really interested in packaging together all their distribution potential, including YouTube, and using that to surround their anchor and tell a story just like our sales force would sell on our platform,” said Shiva Rajaraman, product manager at YouTube. “So we’ve started to work with these partners that do have that capability, essentially enabling them to sell their own inventory on YouTube.”

YouTube targets advertising by channel or vertical, such as comedy or music, rather than around specific videos. Because of that, there should be less channel conflict, Mr. Rajaraman said.

“We tend to do the bundled-audience sell,” he said. “They tend to do more sponsorship sales.” He wouldn’t address specific deals.

It’s easy enough to envision where YouTube could go from here: Content creators could not only sell ads that would appear next to their content but also extend the reach of those ads to third-party-created videos on YouTube. One hypothetical: Revision3 sells ads to GoDaddy to run not only on YouTube pages showing “Diggnation” videos but also on other third-party, tech-focused videos. Under such a deal, revenue could be split three ways: among Revision3, YouTube and the producers of the third-party content where the ad ran.

Good partner
60Frames CEO Brent Weinstein, who produces online-video content that is syndicated across a variety of partners, including YouTube, said the Google property has been a “very collaborative” partner that has helped video producers discover nuances in the environment and see trends. He didn’t elaborate what kinds of distribution deals he’s struck with the site, other than to say it has been easy to work with. “With their market leverage, you’d expect them to have diva quality, but they don’t,” he said.

Mr. Rajaraman said YouTube will conduct a series of brand-effectiveness tests, and it’s not finished experimenting in the ad space.

“We’ll be trying new formats, new ways to engage users,” he said. “No one knows quite how to crack video advertising yet.”

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