TV-style branded content could aid YouTube's monetisation conundrum

Forget space jumps, YouTube’s biggest mission is to make money. This week YouTube joined Facebook in the fairly exclusive 1 billion members club, but it still has some work to do to convince those on the guest list to pay to get into the party.

Lara O'Reilly

Google’s online video sharing site has enjoyed a meteoric rise since its launch in 2005 - with usage spiking recently as its users increasingly visit YouTube from their smartphones or via social networks.

YouTube’s monthly viewership is the equivalent of roughly 10 Super Bowl audiences and in the UK that is only likely to increase further following the rollout of 4G services, which in principal will mean smartphone users can watch videos on the move without fear of buffering.

Brands have taken note too: with YouTube claiming all of AdAge’s Top 100 US advertisers have advertised with the site. Psy’s Gangnam Style alone has reportedly generated $8m in advertising revenue for the site.

The numbers are monolithic but the figures noticeable in their absence when Google reports about YouTube’s success are its financials.
Google never breaks out whether YouTube is actually profitable; whether the millions of ads it serves to users offset the millions of dollars it has to invest in data centres to hold its vast library of videos.

YouTube is reportedly looking to introduce subscriptions, reaching out to a number of the professional content producers that host their videos with the site, asking them to submit applications to create paid-for channels.

The news is bound to be welcomed by big content publishers who at present are subject to a major cut from YouTube from the ads sold around their videos. A report by All Things D found that after YouTube takes its 45 per cent share, it also frequently keeps up to $10 for every 1,000 views thereafter.

By focusing on more professional style content, YouTube hopes not only to generate a new revenue stream via subscriptions but to command ad dollars more akin to TV spend. ZenithOptimedia predicts online video advertising is increasing by 30 per cent each year, but even internet advertising’s entire share of the total market (23 per cent) will still be half that of TV (40 per cent) by 2015.

Brands of merit don’t want to appear next to buckarooing donkeys, dimly lit bedroom confessionals or racist ranters on tube trains, they want to be associated with high quality video - hence why only about one in 10 YouTube videos have advertising attached.

In order to attract the biggest brands to spend more it will need to take big bets on movie-quality video and pit itself against the likes of Netflix, LoveFilm and Hulu. It must also convince brands that its hub is a media where they should fork out thousands of pounds in production, not just their 30-second TV ads - perhaps using the reach of Red Bull’s Stratos as its best trump card in these negotiations.

The online video space has moved from becoming a home for shakey camera phone shots to the cinema consumers can take everywhere with them in their pockets. Ubiquity can only count for so much in this highly competitive space: it’s the quality of content that will really get the tills ringing for YouTube.

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