YouTube Revenue Vs Pageviews

Since buying YouTube for $1.65 billion in 2006, Google has tried to turn it into a moneymaking site. It’s certainly managed to take the site to the next level, with it now managing one billion page views a day, but the revenue still hasn’t come.

There’s been some debate over whether YouTube makes money, breaks even, or loses money every year but needless to say revenue needs to be upped in order for Google to make its money back. Especially as Google CEO Eric Schmidt has admitted the company paid $1 billion too much for the online video site.

Advertising Experiments

Google has experimented with a range of advertising options on YouTube. From huge one-off banner ads to overlay ads which remain through the course of a video. From pre-roll adverts before clips to post-roll after clips. None of which has been the magic bullet required.

YouTube now carries a range of advertising, with Google clearly deciding a scattergun approach for different videos and advertisers is the right path to follow. But the company still wants to fine-tune the experience.

Skippable Pre-Rolls

According to MediaPost, Google is now testing out skippable pre-roll advertising. The ads will run on carefully selected videos from content partners who have agreed to be a part of the experiment.

Google will collect data on when the ads are skipped, on what length and kind of video they are mostly skipped on, and the people most likely to skip an advert rather than watch in full.

The results of this experiment will then be used to formulate a new advertising model.

Conclusions

Pre-rolls are already used successfully on Hulu and other sites, but the YouTube crowd hasn’t really accepted them as of yet. Whether the option to skip ads that are too long or for uninteresting products makes a difference isn’t yet clear.

Either way Google will obtain data it can then use in the future to further fine-tune and develop its advertising model. The ultimate goal, of course, is to turn a profit and make the most of those one billion page views a day.

YouTube and Channel 4

YouTube has for a while now been moving away from user-generated content and trying to entice broadcasters into providing content via the site. It’s had mixed success but it has now nabbed a major broadcaster in the form of Channel 4.

Channel 4 was the first UK broadcaster to launch a video on demand service, doing so in 2006. But 4oD failed to get the attention it deserved and the BBC iPlayer snatched the limelight instead. 4oD has gone through some major changes since then and now rivals the iPlayer for user experience.

Deal or No Deal

However, Channel 4 is keen to have its programming reach a wider online audience, and so has teamed up with YouTube. A three-year deal between the two should do just that, and provide revenue as well.

For its part YouTube will gain full-length TV shows and also take a cut of the revenue. Although the financial terms of the deal have not been made public, YouTube is expected to take a 30 percent cut of all revenue generated by the Channel 4 programming.

4oD And…

4oD will continue to provide the premium catch-up service it does currently, but YouTube will gain 50 hours of current programming soon after it airs on Channel 4 as well as around 3,000 hours of archived programming.

This includes shows such as Ramsay’s Kitchen Nightmares, Brass Eye, Skins, Teachers, Peep Show, and the Derren Brown Specials which recently had everyone in the UK talking.

Channel 4 Speaks

Channel 4 said:

“Channel 4 was the first broadcaster anywhere in the world to make all its commissioned content available online and we’ve consistently pioneered in this field. This strategic partnership is another important milestone for us and we’re delighted to be combining the power of the ‘4’ brand and the appeal of our content with YouTube’s unrivaled reach and reputation online.”

“Making our programmes directly accessible to YouTube’s 20 million UK users will financially benefit both Channel 4 and our independent production partners and help bolster our investment in quality British content. It demonstrates our ability to strike dynamic commercial partnerships to help underpin our future as a commercially funded, not-for-profit multi-platform public service network.”

Conclusions

Unfortunately, this deal only applies in the UK. And although there are 20 million YouTube users in the UK it would have been nice to see the rest of the world welcomed to the party. Those international rights licensing agreements have got in the way yet again.

But in every other way this seems a great deal. Both Channel 4 and YouTube gain from it, and the real winners are viewers who now get to watch premium quality programming online, on demand, and for free.

YouTube and Warner Music Group have now forged a new deal which will see WMG having its own branded player and able to sell its own advertising inventory.

Warner Walks Away

It was late December 2008 when Warners decided to pull all its music videos from YouTube. It happened due to a breakdown in communications while the two parties were trying to thrash out a new licensing deal. The ones that had been in place for years were coming to an end.

As always, it came down to money. The Warner Music Group wanted a bigger slice of the revenue pie and YouTube was unwilling to deliver. Regardless of who was right and wrong, the incident helped no one in the end.

The Vevo Factor

Talks have continued on since then, and a deal has been rumored for a few months. In the meantime, YouTube has inked new deals with the other three major record labels, Sony, Universal, and EMI.

The last nine months has also brought news of a new venture called Vevo, which is best described as a Hulu for music videos. Vevo will see many music videos disappear from YouTube only to reappear on a separate, YouTube-backed site.

Warner Welcomed Back

Yesterday saw YouTube finally confirm it had settled the argument and signed a new deal with WMG. All the record label’s many music videos, including by artists such as Green Day, REM, Madonna, U2, Red Hot Chili Peppers, and Kid Rock will make their way back on to the Google-owned site.

Warner has managed to secure an arguably better deal than the other record labels by holding out for better terms. Details are still a little sketchy at this point but there will be a Warner Music Group branded player and the company will be able to sell its own advertising inventory.

YouTube will still take a cut but the margins are clearly going to be in Warners’ favor.

Conclusions

This is good news for all parties, as YouTube gets those all-important music videos back and WMG gets another revenue stream back. Viewers, of course, also benefit as they are no longer denied the chance to watch their favorite music videos.

The only question left is where Vevo sits in all this. While the other labels are moving away from YouTube to the new site, Warner now looks to be entrenched on it.

Can Vevo be monetized successfully enough to please both YouTube and the major record labels? And will the viewers willingly move over with the music videos?

Online Music Videos

Music videos make up a large percentage of the most viewed videos on YouTube and other online video sites. Along with movie trailers and the very best viral videos, music videos are the biggest hitters by far, as Visible Measures’ viral video chart consistently shows.

This makes the decision to move music videos off YouTube and to their own domain both justified and a strange one. While Vevo has the opportunity to become a premium portal for music videos of all kinds, it’s going to leave a gaping hole on YouTube.

Vevo Forever

Vevo was first rumored in March, with unnamed sources claiming a YouTube spin-off for music videos was on its way. April saw the site officially announced as a joint venture between YouTube and Universal Music. It was then described as Hulu for music videos and that moniker has since stuck, accurate or not.

By May, progress had already been made on the venture, with Vevo naming Rio Caraeff as CEO. And now comes a further progress report, and with it, more questions being asked as to whether Vevo can actually succeed or not.

Progress Report

AdAge has compiled a progress report on where Vevo is now. Sony Music Entertainment is now on board and Warner Music Group is in talks to also join. Big news considering it was only a year ago that WMG removed all its videos from YouTube in a huff over new licensing terms.

Whoever is involved, Vevo is planning a December launch. And it’s looking at ad rates of between $20 and $40 per thousand page views. Which is a much larger CPM than can currently be commanded on YouTube. Which is why all parties are so keen to forge ahead with the venture.

Conclusions

YouTube is going to experience a major hit to its viewing figures come December. And it will undoubtedly take time for page views on Vevo to match those on YouTube for music videos, purely because YouTube is so well-known and so prevalent on the Web.

However, when the inevitable transitional period ends, everyone looks set to gain from Vevo. YouTube will be making more revenue from the music videos, the major record labels have another string to their increasingly important digital revenue streams, and viewers will have a new MTV for the YouTube generation. Fingers crossed.

Hulu – Hot and Getting Hotter

Being British, I’m jealous of Americans for one reason and one reason alone – Hulu. Yes, we get to watch BBC programming on the iPlayer, and there are a number of other online TV catch-up services either already present or about to launch in the U.K. But Hulu offers American television at its best.

Hulu is massively popular in the States, having around 40 million viewers at the last count, who between them watched nigh on 500 million video streams. Which is surely cause for celebration amongst the partners behind the project.

Viewing Figures Vs. Revenue

However, viewing figures will only get you so far, with it all coming down to revenue and profit in the end. And on this score Hulu is still failing to score big. It’s estimated that the company will make losses of around $33 million from expected revenue of $164 million in 2009.

And this clearly isn’t pleasing the head honchos at NBC, News Corps. or Disney, the last partner to join. In particular, and rather unsurprisingly, News Corps. chairman Rupert Murdoch doesn’t seem to enamored with the current situation. And NBC Universal CEO Jeff Zucker agrees.

Content Partners Speak

According to Multichannel News, both spoke at the Goldman Sachs Communacopia conference on Sept. 15. Murdoch started by suggesting that Hulu is being eyed with alternative forms of revenue channels in mind. He said:

“Are we looking at it with a view toward adding subscription services and pay per view? Yes we are. No decisions have been made yet.”

While Zucker seemed less sure pay models were the future but also didn’t rule them out, particularly in the long-term. He said:

“I don’t think anyone predicted we would be this far along after 18 months. We are ahead of plan and we have more than 200 advertisers at Hulu.”

“We are going to continue to be as innovative as anyone on monetization of the ad-supported model, that’s really where our focus is today.”

“Whether there are other ways to monetize Hulu down the road, it is something that we are open to, something we will explore, but there are no plans at this time.”

Could A Pay Hulu Work?

There are clearly people out there willing to pay for content over the Web, with streaming rentals and digital copies selling well across the Internet. However, that’s not how Hulu has been set up and I can see a lot of people dumping the service without a second thought if they were suddenly asked to pay for the privilege of using it.

It’s likely to be many years before online video advertising catches up with TV revenue, if ever. But does that mean the advertising-based model should be abandoned? Especially as top-rated shows such as The Simpsons and CSI can command higher CPM advertising rates on Hulu and the like than they can on traditional TV.

The Revenue Issue

The problems Google has had turning the massive popularity of YouTube into a massive and repeating payday are well-known. OK, so it’s not as though YouTube is a failure or anything but its revenue is certainly struggling to justify that huge $1.65 billion Google paid for the site.

Part of the problem is the sheer number of videos on the site that either can’t or aren’t monetized. The “can’t” is due to concerns over making money from copyrighted clips while the “aren’t” stems from YouTube’s unwillingness to monetize videos which have no chance of making any money – most of the videos uploaded to the site every day.

Preferred Partner Program

In May 2007, YouTube started sharing advertising revenue with selected video producers. These Preferred Partners were content creators such as Fred and LonelyGirl15 who had a known brand and a selection of very popular videos already on the site.

Since then, these lucky few have been making money from every video they upload to YouTube, and although we’re talking just a few cents per video view, this can soon add up to thousands of dollars. But what of those content creators who only ever manage to produce one viral video hit?

Viral Video Payday

Today saw YouTube announce that those people are, finally, going to get the payday they’ve been craving since they saw their videos go viral. A post on the Official YouTube Biz Blog spells out how the YouTube Partnership Program is being extended to include those one-off viral video hits we all know and love.

Over a thousand established viral videos will be invited to the program immediately. These include the two-year-old ‘Battle At Kruger‘, which has racked up 45 million views and is still gaining thousands every day.

From here on in, new viral videos will be invited to participate in the program based on a rapid accumulation of views, how viral YouTube considers the video to be, and a compliance with the YouTube Terms of Service.

Conclusions

This is something YouTube should have done years ago. Just imagine all those millions of video views that could have been paying out, not only to the individual producer of the video but to YouTube as well.

Interestingly, despite having the biggest viral video of the year so far, the ‘JK Wedding Dance‘ video is not eligible for inclusion in this program because Sony has already monetized it due to the use of Chris Brown’s Forever. I’m guessing JK wish they had used an original composition now.

Online Video Advertising

Online video is forever increasing in popularity with viewers, and the TV companies are starting to realize there’s a need for a cross-platform strategy, with the days when the television was enough well and truly over.

But to truly grow, and more importantly be able to compete with the television set in our living rooms, advertising rates, both in terms of quantity and the monetary value, are going to have to increase.

Video Advertising Results

EMarketer recently published a detailed look at online video advertising spending results along with projections of how growth will occur over the next four years. The results show how small a share of total Internet advertising money goes in to Web Video.

Even more startling is how little is spent on online video advertising compared to television advertising spending. Online video accounts for 4.3 percent of total online ad spending and just 1.6 percent of television ad spending.

Projecting Growth

Growth is already occurring, with online video ad spending increasing from making up just 1.5 percent of total Internet ad spending in 2007 to 4.3 percent in 2009. That kind of growth should continue or even accelerate over the next four years until it reaches 11 percent in 2013.

A similar growth compared to TV ad spending is also forecast. Having already risen from 0.5 percent in 2007 to 1.6 percent this year, 2013 could see it hit around the 5.5 percent mark.

Which is better but still not exactly an exciting prospect for companies looking to forge ahead with plans for Web TV offerings. If they have to choose they’ll clearly still choose traditional television until the figures start equaling out.

The Good News?

The slightly better news is that online video advertisers spend more per hour than they do when advertising on television – $0.17 per hour compared to $0.13 per hour. Unfortunately, eMarketer expect those figures to move closer together next year and beyond.

Conclusions

In answer to the question in the title of this article I’d have to conclude it will either never happen or it’ll take a very long time. And that’s probably because the average Internet user is a different animal than the average couch potato who watches hours of TV every day.

Online video is currently seen as a free alternative for people, and they don’t want to watch adverts or pay a subscription to watch TV on their computers. The key then could be turning online video into a living room style pastime. Only then will the viewing figures swell and the advertising dollars with them.

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Early Days Experimentation

Despite now being a few years old, the online video sector is still in its infancy, especially in terms of premium content provided by the traditional TV networks. But these companies face a problem – making money from the venture. They aren’t in it for any other reason than profit and where that profit comes from is a huge dilemma.

There’s a feeling at the moment that the big American television networks are really only experimenting with online video. They know there’s a demand there, one that’s growing as quickly as Broadband speeds increase, and they don’t want to miss out on being a part of what will likely take over from traditional TV one day.

Free Ads Or Paid For?

However, the experiment will only continue if these companies can figure out a way of making money from having their shows available to watch online. If it’s unprofitable then no matter what the demand is, most will likely cease to provide for it.

There are currently two options open to the providers of premium content: a free service supported by advertising, or a paid-for service with either a one-off fee, a monthly fee, or a per-item charge. In the States both Hulu and CBS currently operate a free, ad-supported model, as does the BBC iPlayer and similar services right across the Web.

CBS Vs. Hulu

The approaches to advertising are very different across the sector. As Business Week reports, Hulu and CBS are both trying to find the right strategy to achieve profitability without annoying viewers too much.

CBS is taking a similar approach to the one it uses on traditional TV, inserting as many adverts and advertising breaks as viewers will put up with before switching off. The network is apparently using infrared beams fired into testers eyes which can detect when each individual zones out from being bombarded with too much advertising.

Hulu, meanwhile, is taking a different approach, aiming to show fewer ads than traditional TV but charging advertisers more per slot in order to turn a profit. Execs use Twitter to gage whether its strategy is being welcomed or not, reading Tweets for an indication of viewer annoyance.

Conclusions

There’s no guarantee either of these strategies will work because finding that line between making money from advertising without bombarding viewers so much they turn off is obviously a tricky task. If advertising-based models fail then in the same way online newspapers are starting to talk about keeping content behind a pay wall, then so will TV networks and content creators. Needs must.

If that happens then the number of viewers using online video sources such as Hulu and the CBS Web site is likely to drop massively, so timing is probably key. At this relatively early stage of proceedings the networks have a chance to form the relationship they want with their viewers. If they push things too much, either by going over the top on advertising or charging for content then I fear a viewer backlash.

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Competition For BBC iPlayer

The online video streaming sector in the UK is suddenly exploding, perhaps fueled by the popularity of the BBC iPlayer or perhaps because online video has finally gone mainstream in a big way. The iPlayer continues to dominate but in the aftermath of the decision to quash Project Kangaroo, competition is increasing.

Arqiva has bought the technology behind Kangaroo and plans to use it to launch an online video streaming service within months. Then there is Hulu, the free premium video service in the States which has plans to move into other territories, with the UK being first on the agenda. Hulu UK is therefore likely to become a reality in a few months time.

MSN Video Player Launches

First out of the gates is the MSN Video Player, a new UK-only online video streaming service from Microsoft. The project is being overseen by Ashley Highfield, who took the wealth of knowledge he acquired from being in charge of the BBC iPlayer to Microsoft. The MSN Video Player launched at the beginning of this week in its experimental pilot form.

The MSN Video Player has initially launched with 300 hours of content from BBC Worldwide and All3Media. Shows on offer include Hustle, Mock the Week, Dead Ringers, That Mitchell and Webb Look, How to Look Good Naked, 10 Years Younger, and Peep Show. Which are all great shows but are limited to only being available at least 180 days after being originally aired.

MSN Video Player Review – First Impressions

So, it’s all older content but there is still a lot of shows available on the MSN Video Player that I’d like to watch. In the same way that Dave is one of the my favorite British television channels, new content isn’t the be all and end all. However, video quality is and in that department the MSN Video Player is severely lacking.

On first visit, the site looks nice, with images of some of the content available on the homepage. However, the design is also messy and confusing. the shows are divided into genres from Comedy to Documentary, some being better represented than others.

MSN Video Player Review – Viewer Experience

A lack of content and tatty design could be forgiven if the viewer experience was great. But the MSN Video Player doesn’t get that right either. The titles of each episode are too small to see in full, meaning you have to click on it to actually see what it is. Doing so starts the video on the same page, which is fine. But the poor video quality immediately shows.

Even in its default small size the video is pixelated, but switch to fullscreen and it becomes virtually unwatchable. The quality is much worse than the BBC iPlayer, 4oD, ITV Player, and only just compares to YouTube SD. At the moment, MSN Video Player delivers video in Adobe Flash rather than Microsoft’s own Silverlight. But I suspect that will change before long. At least I hope so.

The adverts were inevitable for a free service such as this, and they’re as well implemented as they were ever going to be. But that doesn’t make it any more palatable to have a BBC show which was originally broadcast without any adverts be segmented by regular commercial breaks.

Conclusions

The MSN Video Player has promise as being an online repository for classic shows. It is almost like an online version of Dave. However, to really take off, it needs more varied content, a more user-friendly layout, and above all better video quality. If that doesn’t happen then I’ll stick with the BBC iPlayer and 4oD until Arqiva and Hulu UK turn up.

The JK Wedding Dance

The JK Wedding Entrance Dance video has been a phenomenon in the same way the Susan Boyle on Britain’s Got Talent clips were. Literally overnight, fame has been foisted on previously unknown, ordinary members of the public, with millions of people around the world watching them strut their stuff on YouTube.

I’ve already spoken about the JK Wedding video once because I see it as a blatant attempt at gaining fame. I don’t believe for a second that Jill Peterson and Kevin Heinz just did this to entertain their friends. They staged it, videoed it, and uploaded it to YouTube because they knew there was a chance it could go viral. Which it then did.

Chris Brown Forever

The dance down the aisle is obviously set to a track by Chris Brown, the guy accused of beating up his then-girlfriend Rihanna (he has since admitted and apologized for the incident via YouTube). The song, Forever, is a big part of the video as without it the dance would be an entirely less interesting affair.

The video is quite clearly copyright infringement. Forever is played in full and is the main focus of the video rather than an incidental, in the background, type thing. Rather then demand the video be removed, Brown’s record label Sony instead chose to latch on to the popularity of the clip and monetize it for its own ends. As is the company’s right.

In The Money

As documented by Google itself, Sony started running text ads on the clip and added Click-to-Buy links underneath the video in an attempt to persuade viewers to purchase the track on Amazon or iTunes. It obviously worked because the previously out-of-favor Brown suddenly shot up the iTunes chart, and the year-old Forever is now in the Top 10.

The click-through rate from the video to the featured advertising is supposedly very high, and interest in both the Forever music video and other Chris brown videos on YouTube also increased in wake of the JK Wedding Dance video. Which all adds up to a bumper payday for YouTube, Sony, and Chris Brown himself.

Interestingly, it’s unlikely that Jill and Kevin will actually see any money from all this increased spending, even though it’s as a direct result of the routine they planned and executed on video. But seeing as they chanced their arm in using the track in the first place I guess that’s the way it should be.

Conclusions

I still don’t like the video or the way we’ve all been suckered in by it. But the JK Wedding Entrance Dance video does show that a viral video on YouTube can be great news for the people involved, even if they didn’t plan to be involved. Now if YouTube could only develop a strategy for further utilizing the power of viral video, it would soon make a profit.

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