Why Fox, Paramount, Disney Are Holding Out on the YouTube Deal

Exclusive: A divide has opened among Hollywood’s major studios over whether to join YouTube’s initiative to rent movies on demand – which is holding up the launch of the service

EXCLUSIVE

A divide has opened among Hollywood’s major studios over whether to join YouTube’s initiative to rent movies on demand – which is holding up the launch of the service, TheWrap has learned.

Fox and Paramount have both confirmed to TheWrap that their intention is to “not move forward with any deal at this time” with the largest video site in the world, as one executive put it.

Disney has not made its intentions clear but is also believed to be holding out on striking a deal with YouTube.

Meanwhile, Warner Bros., Sony and Universal all have just concluded deals to license content to YouTube for rental at launch; Warner’s closed in the past day or two.

Read also: YouTube Finally Goes Hollywood With New Movies on Demand Service

“We will be a launch partner,” said a senior executive at that studio. “But they’re trying to get everybody, so it’s taking a little longer.”

No one would speak for the record since the studios are under nondisclosure agreements. YouTube has not denied plans to launch the service, but in a statement to TheWrap placed it in the context of the site's limited, year-old rental service.

But in fact, YouTube has never rented mainstream movies on this scale during the traditional DVD window. The major studios, who were once leery of the video giant, now see it as a potentially lucrative platform as DVD revenues continue to plummet. 

Executives at the hold-out studios have a common reason for doing so — they believe that YouTube and its parent, Google, have not taken adequate steps to stop supporting piracy sites.

Their senior executives have told the internet behemoth that it needs to stop supporting pirate sites by linking them in searches and advertising on them, according to an individual with knowledge of the discussion.

For its part, Paramount has taken a step back from aggressively seeking new media partners, and has in recent months leaned back toward cable and satellite partners.

More important may be that Paramount's parent, Viacom, is in a legal war of the titans with YouTube and YouTube's parent, Google. The issue is alleged piracy of Viacom's cable networks. Viacom lost the first round, but appealed in federal appeals courts. The case may well end up in the Supreme Court.

Meanwhile, the majors in favor of the YouTube service have their own priorities and reasons why they want to push ahead.

The most obvious is that YouTube, with its 130 million monthly users, represents a massive new potential audience for renting movies.

Sony in particular is eager to find a way to tap YouTube’s youthful audience that has grown up in the digital age, is unaccustomed to paying for content and is getting out of the habit of going to the theater.

YouTube is not a slam dunk, by any means, said one executive at Sony. “It’s unproven as to whether this audience through this medium will pay for content. But it’s a huge audience. And it’s an audience that pays for video,” the executive said.  

All three majors believe that Google will help develop technology to eventually lead to a sell-through model, where consumers can buy – not just rent – movies and store them in digital lockers.

They also believe that working with YouTube and Google will help develop mobile technology for watching and renting movies, since Google has put huge resources behind its Android phone.

Universal has an additional incentive. Its parent company Comcast signed a consent decree with the federal government in which it promised to embrace new models for the entertainment business – and this one qualifies.

The service is the biggest studio VOD deal since all the major studios signed on to Apple’s iTunes rental service in January 2008. Fox, Disney, Warner Bros., Paramount, Universal, Sony, MGM, Lionsgate and New Line were all on board for that initiative. Apple charged as low as $2.99 rental fee for that service.