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Disney-Hulu Deal is Ominous for YouTube

The deal between Hulu and Disney yesterday doesn't bode well for YouTube's revenue sharing business model, says Dow Jones' Scott Morrisson. The search giant is under mounting pressure to add more professional content to YouTube in order to attract more advertisers. Google was dealt a further blow on Thursday when the news spread that Disney would take a 27% stake in Hulu and put full episodes of its ABC TV shows on the site. Hulu can now distribute content from three of the top four U.S. television broadcasters, making it the runaway leader in the market for professional video content online.

Hulu, which is barely a year and a half old, is projected to have revenues topping $120 million this year, while YouTube, which is several years older and many millions of unique users per month larger, could reach $200 million, analysts say. Earlier this year, CreditSuisse analyst Spencer Wang said he expects YouTube, with the mountain of video it stores, to lose $470 million this year.

According to Morrison, the equity structure of the Disney-Hulu deal suggests that content creators want greater involvement in online distribution than Google has offered with YouTube. To attract more interest from premium content producers, some suggest that YouTube adopt a similar approach. "Content providers don't want to give (YouTube) content because the advertisers aren't there yet," said Edward Jones analyst Andy Miedler. "To get someone to jump, it may take some payments from Google." Forrester Research analyst Bobby Tulsiani agrees. "I don't think (YouTube) can get into the premium space with revenue-share only," he said. "They are going to have to make upfront payments or equity deals."

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