Google, YouTube Seal Deal
- by Mark Walsh @markfwal, October 10, 2006
Exactly what type of ad model will emerge from the Google-YouTube deal is not yet clear. But in a conference call Monday announcing the acquisition, Google co-founder Sergey Brin called video "a great medium for advertising."
Google CEO Eric Schmidt went further, saying that the deal marked "the next step in the revolution of the Internet."
Hyperbole aside, only recently have both Google and YouTube taken significant steps to monetize their respective video content. Universal--which recently threatened to sue YouTube for multi-millions--has agreed to make its videos available to YouTube in exchange for a cut of ad revenue. Sony BMG will also offer videos on YouTube, and will allow users to include some tracks in their own videos.
CBS, meanwhile, has agreed to offer short clips for its own CBS channel on YouTube. Content will include news and sports clips as well as clips from prime-time TV programs like "Survivor." CBS will share in revenue from any streaming ads that run adjacent to its content. Previously, TV network NBC and music label Warner Music struck their own deals with YouTube.
Google announced its own video deals on Monday, which will allow it to stream ad-supported music videos from Sony BMG and Warner Music. Whether the ads that will start appearing in a few weeks will run as pre-roll spots before videos or next to them has not yet been determined, according to a Google spokesperson.
Top executives at both Google and YouTube likewise offered few details on what types of advertising they plan to jointly develop. In response to a question about whether YouTube will adopt pre-roll ads, the company's founder and CEO Chad Hurley said they "will explore a lot of options," without giving specifics.
In its deal with CBS, Hurley also pointed out that YouTube is introducing a new automated system for protecting intellectual property rights. It will allow media partners to identify and remove copyright-infringing material from the site. The system is also intended to assure marketers that their ads won't be linked to pirated or otherwise inappropriate content.
"Google must have some plan in place for checks and balances for copyrighted material," said Tim Bajarin, president of technology consultancy Creative Strategies. Otherwise, the newly merged company won't be able to fully develop an ad-supported business model for video.
Internet billionaire Mark Cuban said a couple of weeks ago that only a "moron" would buy YouTube because of the torrent of copyright lawsuits it would face for material posted illegally to the site. Google has recently begun to pursue video advertising more aggressively. Earlier this year, the company began offering click-to-play video ads along with text-based ads on the network of content sites for which it provides contextual advertising. Last week, it began advertising for the newly created position of director of video advertising, who will be responsible for building a dedicated video ad sales team.
"Google knows it's had phenomenal success with text-advertising and now it wants to expand that into new forms of display and brand advertising," said Nick Nyhan, CEO of marketing research firm Dynamic Logic.
YouTube already offers advertising through banner ads and sponsorships. Nyhan surmised that Google would be able to strengthen its relations with brand advertisers, which tend to favor video and display ads, through the YouTube deal.
By integrating Google search technology, YouTube co-founder Steve Chen said the company would be able to better help viewers find relevant video content. Whether video search results will be accompanied by text or video ads remains to be seen. "There's a great deal more experimentation and trials to be done here," said Google's Brin.
Google opened a video "store" in January, which sells clips from major networks and offers clips for free streaming, but the site has failed to capture much market share. Currently, Google video commands just 11 percent of the market, while YouTube garners 46 percent of all traffic to online video sites, according to research firm Hitwise.
Meanwhile, other video-sharing sites on Monday were expecting the YouTube deal to trigger a buying binge. "I think you'll see more independent acquisitions, and you'll also see consolidation of the video sites," said Aaron Cohen, CEO of video site Bolt Media. In addition to Bolt, he mentioned popular video sites aimed at the young male audience--such as Heavy and eBaumsWorld--as potential acquisition targets.
Veoh Networks founder Dmitry Shapiro agreed that more video sites are about to get snapped up. "This space is very young, but it's going to be an extremely, extremely valuable space," he said.
