In a potentially game-changing move for Hollywood, YouTube is increasing the number of full-length studio films it provides to users.
The site announced Thursday that it has made deals with a number of the major studios, including Sony, as well as CBS, Lionsgate, Starz and the BBC. Several minor players will also be providing long-form content, according to knowledgeable industry executives.
Late Thursday, YouTube put up a blog post outlining the partnerships and confirming that it will introduce two new tabs to its design, allowing users to search for content, or log in and subscribe to one-click updates from "favorite creators." YouTube also revealed that it would be placing more "in-stream ads," something it's been exploring since October. The announcement was met with a torrent of comments, some outraged, but many acknowledging YouTube's precarious finances.
"YouTube really wanted high-quality content, and in return we’re getting traffic," said Paula Askanas, a spokeswoman for Sony Pictures Television in Los Angeles.
Overall hundreds of films and thousands of TV shows will be offfered. In Sony’s case, some 15 films initially will be made available to YouTube, which has created a Shows channel that segregates premium content from so-called user-generated, hopefully to attract advertisers who have shied away from the site because of its free-wheeling subject matter.
The films will all be free, and they will be library films, not recent releases. They will not be hosted by YouTube; instead, users will be redirected to studio sites that would serve up the films as well as ads. By hosting the films themselves and serving the ads, studios retain control, collect traffic and avoid sticky copyright problems.
Sony's films will play on its Crackle video player. Crackle currently has 60 Sony movies, such as “Wild Things,” “Groundhog Day,” and “Stripes.”
Last month, YouTube announced a pact with Disney to run clips from ABC and ESPN. The site currently has a separate channel for MGM.
Among the smaller companies participating in the deal is Wasington, D.C.-based SnagFilms [1], an online distributor of documentaries. “YouTube is a tremendous phenomenon,” said CEO Rick Allen. “The question is, Can they take a phenomenon that was designed for one purpose and back into a business model that will sell? We very much believe they can.”
Askanas wouldn't reveal details of the financial arrangement between Sony and YouTube, but she indicated that an ad-revenue split was likely. YouTube needs to allow premium-content providers control over their advertising environment in order to get additional content from studios such as Sony in the future.
YouTube can then combine its massive traffic with the ability to function as a portal for premium Hollywood content -- and sell that combination to advertisers at higher rates.
Smaller studios and distributors will have a different arrangement, according to one executive involved in the deal. In this case, YouTube will place ads in their content, but share advertising revenue.
YouTube has been getting more aggressive recently in its dealings with the studios, especially in its bid for more mainstream advertisers, who prefer professionally produced content.
Despite its surging popularity, YouTube has been a money-drain for owner Google, which bought the site for $1.65 billion in 2006. At the time, YouTube was growing rapidly based on often illegally posted content and viral video.
YouTube has since eliminated much of the pirated content and has been aggressively pursuing a more advertiser-friendly strategy that hinges on premium content of the sort that major Hollywood studios can provide, but jealously protect.
The site doesn’t have many options other than to court Hollywood and play by its rules. A Credit Suisse analysts recently estimated that YouTube would lose close to half a billion dollars in 2009.
Furious growth has created tremendous bandwidth demands, forcing YouTube to spend more on maintaining the site than it takes in.
In 2008, Google CEO Eric Schmidt said that figuring out a business plan for YouTube that would make money is a top priority.
In comments on Thursday, following first-quarter profits reports, Schmidt also speculated that Google might explore micropayment or subscriptions models for YouTube.