YouTube May Face Challenge With Single Revenue Stream

How long will it be before YouTube finds that advertising alone won’t be able to support its heavy investment in establishing a slew of original channels? It could be a while because of Google’s philosophy and deep pockets – or should deep pockets come before philosophy? -- that give it enviable flexibility and a long-term approach.

“Frankly, it looks so far that Google doesn’t really care about its quarter (pleasing investors every three months), it cares about its life,” said Yahoo’s Ross Levinsohn.

With all its recent turmoil, Yahoo hardly has that luxury and when it comes to online video, Levinsohn was pretty clear Monday: ad dollars can’t be the tug boat alone. Whether it’s through some sort of one-time fee, subscription or one-day pass, top-tier Web content needs a funding partner.

“We have to come up with that second revenue stream,” he said at the NATPE event.

Which is a rather stark portrayal of how the economics of online video are still uncertain this many years in. Yahoo, after all, has assets of a global audience of some 730 million and a large sales force, but that alone can’t support the “premium” content Levinsohn, who serves as executive vice president of the Americas, says the company is now focused on.



(With their push for payments from pay-TV operators, broadcast networks have been claiming the same need for a cable-style double payment recently. “Without reasonable revenues, broadcasters will simply not be able to compete with cable channels,” News Corp. Chase Carey told a Senate hearing in late 2010. Apparently, it feels confident enough that’s coming with Fox’s massive commitment to retain NFL rights.)

Yahoo announced earlier this month a deal with Tom Hanks to launch its first original scripted series, an animated sci-fi show. Besides the Hanks gambit, Yahoo has launched a recent partnership with ABC News.

Levinsohn reiterated Monday what many large media players have said before: that homemade clips of animals riding skateboards and similar stuff have little advertiser appeal – which is likely the reason YouTube is moving aggressively into long-form content.

“Television isn’t a screen,” said News Corp. Chief Digital Officer Jonathan Miller, who joined Levinsohn on stage Monday. “Television is content and it goes on any screen. That’s a fundamental consumer behavior, people love television … so you have to figure out how to keep that going."

At News Corp., Miller oversees the company’s stake in Hulu, which has recently followed the trends Levinsohn envisions for Yahoo. It’s developed a pay-subscription service and begun pushing deeper into original content.

Netflix does have a single revenue stream, but perhaps since that is subscription-based, it may be able to buck the need for a second. “Nobody should be writing any epitaph for Netflix just yet,” Miller said.

Still, he added being in a singular-stream business could be a hurdle. Netflix spends an increasing amount on content acquisition. Even if Amazon or Google do, the content can be a backbone for other operations.

Speaking just about ad dollars and the endless discussion when loads of dollars will move from traditional platforms to Web video, Levinsohn said he thought it might have moved faster by now. Yet, he said within the next two or three years, there could be a double-digit percentage shift.

“I think it’s coming,” he said. “I don’t know that we’ll get a year where we’re going to see this dramatic hockey stick."

Miller, who has seen the Web video arc up close, said measurement and other standards are still needed to make the medium more compelling to advertisers.

That shows how unpredictable the future of online video is -- something YouTube will certainly grapple with by going with the single-dollar stream.

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