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The Monetization of YouTube Begins

August 22, 2007 BY Mark Evans

Fact: People love watching YouTube videos.

Fact: People don’t like advertising when watching videos, especially if it happens before the clip begins.

Challenge: How does Google monetize YouTube so it can get an ROI on its $1.65-billion investment.

Solution: Something called an overlay that appears on the bottom fifth of the frame about 15 seconds after someone starts watching a video. If the ad is interesting enough that someone clicks on it, the ad will start and the video will stop. The New York Times has all the details.

First take: Interesting proposition that the entire video industry will be watching with great interest to see if consumers actually like the format and, most important, click on the ad videos; and whether it’s something advertisers will find appealing. So far, pre-roll ads have seen modest success while post-roll ads only works if they’re compelling – Rocketboom, for example, has used this tool often.

Clearly, there’s a lot at stake for Google, which desperately needs to find a way to squeeze more revenue out of YouTube to justify the acquisition and attract more content owners who have been sitting on the sidelines before getting into any kind of partnerships.

The other challenge facing Google is coming up with a revenue-share formula that’s enough of a win-win for everyone involved. For all the success of the AdSense program, content owners only make a small portion of the revenue generated. Google is talking about a revenue split, which, in theory, sounds far more appealing than AdSense.

The bottom line is online video has to be monetized so content producers will start distributing their best material, which will attract more consumers, which will attract more advertisers, which will generate more revenue for video service providers such as Google.

More: Deep Jive Interests said Google’s announcement is a “big deal” because YouTube sitting on an “absolute gold mine” of videos that people spending hours watching. Scott Karp makes a great point that the video ads not only need to be unobtrusive but relevant, while Andy Beal calls it “an innovative step in the right direction”.

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  • http://www.digitalmediaTORONTO.com digitalmediaTORONTO

    I was actually looking forward to seeing the ad. Unfortunately I was not able to see it. I tried both signed in and not signed in. I’m wondering if it’s a geofencing feature, that they only show the ads to US viewers.

  • http://www.wheretonext.ca/movytv Magnus

    I’m shocked it took this long. They say they only made 15 Million in advertising last year?? For a site with those kind of numbers, I find that number low.

    It will be very intersting to see the stats they report on the video ads.

  • http://www.blipd.com Ty Graham

    I have a better idea: Get Blip’d!

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  • http://laboratoryfilms.com Twowan

    To make money with YouTube, this is what Google has to do…

    On the most viewed clips (clips with, let say, already 1000 views) (doesn’t matter who posted them) YouTube automatically implements a 5 seconds overlay ad that appears over the player and blocks out (darkens) everything else. (It gives a bit of time for the clip to load in the background as well).

    This overlay is a 5 seconds spot (can’t be longer than that and it doesn’t link to a company website if you click on it. It’s like a really, really short TV spot. It can be a still picture for outfits with very little budgets…)

    Now, people don’t like ads… but they like GAMES and they like to COLLECT stuff.

    Each overlay ad is a mini 5 seconds GAME. You have three colored dots on the overlay. The viewer clicks on ONE of them. One is a winner, two are duds. If you’re lucky to pick the winner (you only have one chance) during the 5 secs, you receive a TOKEN that is automatically added to your YouTube account. (It encourages you to stay registered…)

    Now, you COLLECT these tokens. If you win a certain number of similar tokens, you can EXCHANGE them against full-length HD Hollywood Films or TV shows on YouTube. The fun part could be that you have different categorires of tokens. (Some would be for specific film genres or just for one TV show and some could be really hard to find, worth maybe ten tokens, etc.) (Tokens are generated randomly by the system.)

    Now, you have the problem of guys posting shows and seeing Google make money off their film. Well, they need to be rewarded too. For a succesful posting (ie lots of viewers) they also receive TOKENS… to be exchanged to watch high-quality HD movies or TV shows.

    Now, these HD movies or TV shows in the “HD Theatre section of YouTube” can also be sponsored with a longer lead-in spot… That’s even more money for Google.

    Now, we have the problem of big brand names not wanting to have their spots stuck on “Jimmy and his weird cat”… Well, they could “control” where their 5 Secs. spots go by teaming with content suppliers through YouTube. Example, a Coca-Cola campaign with Viacom clips… Viacom takes all the succesful shows they own like, for example, “Spongebob”. They cut out little “gems” (two to three minute clips) and they post them on YouTube to watch for free… Viacom via Google sell their 5 second spots to Coca-cola. Everybody is happy. The viewer, who enjoys these mini-clips, can even link to the full episode of Spongebob on YouTube. He can pay by redeeming TOKENS or he can pay with real money for the full episode or combine both. (It’s all streaming anyway! It’s like TV a la carte.)

    Now, what about the “Jim and his weird cat” clips. Who pays for these 5 secs ads? Well, it’s like Google’s Adsense, it’s small outfits who purchase so many spots. You can buy a thousand spots or ten thousand spots to be randomly placed on clips or based on the clip’s TAGS and on the clip’s level of viewership. The outfit supplies the spot or the still and pays Google directly up front.

    A system like this is not that difficult to implement. (If they’re real smart, they can have it work just the same on imbedded videos on other sites) Anyway, it’s fun for all involved and all get something out of it. Everybody is a winner especially Google who makes tons of money from the big guys but also… most importantly…from the long, long tail of all the little guys. Viewers are hooked to YouTube forever! Even if they’re just there to click on ads and forget about the clips… the most important is done. Money!

    Here, you have it.

    Twowan,

    (If Google wants more ideas like this one, they can contact me. I’m the guy behind laboratoryfilms.com)