Can Google make YouTube pay its way?

by Andrew McCormick, Media Week 13-Nov-07

YouTube's bottom-of-the-pile rating in a recent IPA survey of digital media owners is the latest blow for the embattled video-sharing website.

Andrew McCormick gauges its long-term prospects.

Google-owned video-sharing site YouTube is viewed by agencies as the worst performing digital media owner on sales service performance.

That's according to last week's Institute of Practitioners in Advertising survey that asked agencies about their experience of dealing with media owners. Just 17% of survey respondents found the experience of dealing with YouTube a good one.

Such poor performance is not a good sign for Google. Generating significant advertising revenue represents the main route by which the internet behemoth can dream of recouping the $1.65bn it paid to buy YouTube last year. And now that theory is being put to the test.

Against this backdrop, Google has to contend with irate media firms over copyright issues, while also staying ahead of the raft of online video platforms emerging in recent months.

However, Google is upbeat that its ad solution will succeed.

"We're investing in YouTube's ad offering to ensure that we get the balance right between the community of users and our advertisers to provide a mutually useful and valuable experience for both," says a Google spokesman in response to the IPA survey results.

"It is still very early days for the YouTube advertising platform and contact with agencies will increase as we build a dedicated infrastructure to meet the needs of the market."

Multiple launches

YouTube's contact with agencies and content owners has certainly increased in recent months. BBC Worldwide, Conde Nast, ITN, BSkyB and thelondonpaper are just some of the companies to have launched professional content in the form of video channels on YouTube this year.

However, some of these branded video channels have failed to gain subscriber numbers of even three figures. And Paul Wright, director of sales at Sky Digital Media, says the big test for YouTube will come next year when content owners start looking for a return on investment.

"For content owners that have linked with YouTube, this year is about distribution, while next year will be about looking to make money out of it," he says. "But in the long run, the ad platform should mean that there is money to be made."

While YouTube has succeeded in boosting its appeal to users - and therefore advertisers - by signing on a number of professional content partners, many content owners are unwilling to play ball with YouTube.

In May, the Premier League announced that it is taking legal action against the company over illegal postings of football clips.

Perhaps the biggest shadow hanging over YouTube is its battle with Viacom. The broadcasting network, which owns pay-TV channels MTV and Nickelodeon, claims that 160,000 unlicensed Viacom clips have been uploaded to the video-sharing site and is taking YouTube to task in a lawsuit worth a reported $1bn. The case is currently in "discovery phase", according to US lawyer speak.

"There is no question that YouTube and Google are continuing to take the fruit of our efforts without permission and destroying enormous value in the process," Viacom claims. "This is value that rightfully belongs to the writers, directors and talent who create it, and to companies like Viacom that have invested to make possible this innovation and creativity."

Not all content owners have such a dire relationship with YouTube. It is worth noting that MTV is directly competing with YouTube in trying to build its own video-sharing community on MTV Flux, which launched in late 2006. Given MTV's viewership, it is crucial that it builds an online video presence to protect its future.

Expanding market

When Google bought YouTube last year, the online video market was much smaller than it is today. In recent months a host of both professional and user-generated video sites have launched, including Blip.tv, Joost, Babelgum, Dailymotion, Grouper, Jumpcut, Revver, Videoegg, Metacafe, VideoJug, Zattoo, Azureus and Veoh.

The result is that YouTube has to work harder than ever to stand out.

Nick Burcher, board director at Zed Media, believes YouTube still rises above the rest and is beginning to endear itself to agencies by making it as easy to book ads on YouTube as it is on Google.

"Regardless of whatever else is out there, YouTube is ahead in numbers and brand recognition," says Burcher. "People confident in promoting their brands will become more willing to advertise once there are more examples up there. It helps that it has become really easy to book ads since YouTube was integrated with the Google interface"

Sky Media's Wright says 2008 will decide the fate of online video sites and YouTube, despite being the largest and best known in the sector, will have to stand up and be counted.

"There's a bit of a gold rush going on in video platforms at the moment and next year these companies will have to prove their business models," says Wright.

"These businesses will come under close scrutiny and I'm not convinced all of them will prove their worth, as you have to get a lot of video views to get the model to work."

CONTENT LAUNCHES 2007

- Media owner: BBC Worldwide

URL: Youtube.com/bbcworldwide

Launched: February 2007

Subscribers: 21,483

Channel views: 1,190,811

- Media owner: Chelsea FC

URL: Youtube.com/chelseafc

Launched: February 2007

Subscribers: 5,796

Channel views: 761,283

- Media owner: ITN