• by Ashkan Karbasfrooshan , Op-Ed Contributor, September 8, 2010

When we launched WatchMojo in 2006, one of the first things we did was email YouTube to find out if we could leverage their traffic to promote our videos. One day, we got an email back from Steve Chen, who along with Chad Hurley co-founded the site in 2005. 

Since then, Steve and Chad have probably bought a few islands; we're still trying to make sense of this online video thing. 

After YouTube was acquired by Google in October 2006 for $1.65 billion, the site made enormous strides in better monetizing the inventory. According to an article in the New York Times, "Analysts say YouTube will bring in around $450 million in revenue this year and earn a profit. Revenue at YouTube has more than doubled each year for the last three years, according to the company."

From UGC to Torso Content

Indeed, YouTube exploded through user-generated content (UGC) and pirated media.  After its sale to Google, executives focused on "torso" content: the premium segment made up of new-media producers and nestled in between UGC and super-premium programming (which the traditional media companies were holding close to their chest).  Over time, it continued "upstream" by courting traditional media companies, too, to varying degrees of success.  In fact, it has since launched many tools to better identify pirated media to turn views into dollars. 

What Can YouTube Do?

YouTube's director of content partnerships Chris Maxcy is correct in saying that content "partners we are working with get checks that get bigger every month," but the company can easily generate.

YouTube's main problem remains the massive supply of inventory that pummels sale-through and ad rates.  Back in 2006, YouTube's users were adding about 5 hours of videos every minute.  Today that number has soared to 24 hours of content each minute. 

Here are four things YouTube should do immediately:

1.  Allow producers to represent third-party producers, which can manifest in a number of ways:

·     A traditional media company could work with mid-sized publishers and sell their inventory.  This could allow traditional companies to sell out inventory around their own super-premium content (on YouTube and/or their own property) and also monetize incremental third-party content.

·     A mid-sized new-media company could represent smaller niche producers that are not selling any campaigns directly and solely relying on YouTube for sales, thus augmenting the size of the ad deals they close.  This automatically increases the net revenue the smaller producer gets, adds incremental revenue for the mid-sized companies, and in turn increases the sell-through rate and eCPM for YouTube in aggregate.

This addresses the super-premium and premium segments, and the prosumer segment with massive inventory that YouTube cannot pitch  as easily to Madison Avenue and traditional media companies won't go near. However, the ad-repping firms that took on the blogs and smaller online magazines would welcome the inventory because the editorial is not all that different from the blogs where they sell display banners and sponsorships.  The challenge for many of the ad rep firms is to make the margins worthwhile, but since the prosumer shops are generally one-person shops, they would be more flexible with lower margins if it means higher revenues in their pocket.

2.  Provide producers some visibility into the kind of campaigns and CPMs that YouTube itself is selling.  This allows a producer to sell at incrementally higher CPMs, thereby increasing the revenue generated.

Right now YouTube sells its site based on categories and keywords, selling campaigns at a given CPM.  A content partner can sell its own channel and generally command a higher CPM.  But if  content partners can see what the average CPM yield is for campaigns sold by YouTube, they would not out-price themselves in proposals and incrementally price proposals higher to the average yield the YouTube dashboard would indicate.  The result of this is a systematic increase in sell-through, average/eCPM and overall revenues for YouTube and the partner.  Right now, we're shaving in the dark at times.

3.  Align its ad formats with industry standards. YouTube has improved a lot and proven to listen to partners. It needs to continue on that path and continue to align themselves with industry standards when they don't adversely affect the user experience.  Yet when it comes to monetization, YouTube seems to resist what marketers want, which hinders sales.

4.     Add comScore and Nielsen tracking at the producer level. This, my friends, is the nuclear option that will change everything.  YouTube has already opened up its platform to content partners.  It can go one step further and outline individual producer metrics on comScore or Nielsen.  This is not fundamentally different from how:

·     an ad rep firm like Gorilla Nation or Glam Media can get a website it represents to assign them their traffic, or

·     you see sub-domain traffic on large portals.

In other words, if comScore and Nielsen could display what a content producer's reach is on YouTube, then it would open up a whole new stream of RFPs from the larger ad agencies and marketers.  This, we believe, is a holy grail for both producers and YouTube.

These are just some of the things that YouTube can do to both increase sell-through and revenue on the site. 

Ultimately, YouTube is part of the solution -- not the problem.  And these suggestions would -- to quote a famous politician -- have a trickle-down effect on smaller producers, and since YouTube shares in all of the revenues with producers, have a trickle-up effect that might start moving the needle at Mountain View.