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Google Aims to Make YouTube Profitable With Ads
A demonstration of an ad for a movie on the bottom of a YouTube video. Real ads would not reflect the content of a video.By MIGUEL HELFT
Ever since Google bought YouTube last November, it has avoided cluttering the site and the video clips themselves with ads, for fear of alienating its audience.
The strategy helped cement YouTube’s position as the largest video Web site but didn’t do much to justify YouTube’s $1.65 billion price tag.
Now Google believes it finally has found the formula to cash in on YouTube’s potential as a magnet for online video advertising and keep its audience loyal at the same time.
The company said late Tuesday that after months of testing various video advertising models, it was ready to introduce a new type of video ad, which it said was unobtrusive and kept users in control of what they saw.
The ads, which appear 15 seconds after a user begins watching a video clip, take the form of an overlay on the bottom fifth of the screen, not unlike the tickers that display headlines during television news programs.
A user can ignore the overlay, which will disappear after about 10 seconds, or close it. But if the user clicks on it, the video they were watching will stop and a video ad will begin playing. Once the ad is over, or if a user clicks on a box to close it, the original video will resume playing from the point where it was stopped.
“What we have come up with is a user-controlled ad format that is engaging,” said Eileen Naughton, Google’s director for media platforms. “We want our users to be able to accept and choose what type of advertising they engage in.”
For now, Google will place the ads only on video clips of its content partners — the more than 1,000 small and large media companies that have licensed their videos to YouTube. By doing so, YouTube will avoid the potential liability of having ads appear on copyrighted clips it is not authorized to display. And it will also prevent ads from playing on clips generated by users whose message may not be to the liking of advertisers.
The revenue from the ads will be split between the media partner and YouTube. Ms. Naughton said Google would charge advertisers $20 for every 1,000 times the ads were displayed. Google said the ads would begin appearing today throughout the site. Ms. Naughton also said advertisers would be able to take aim at specific channels and genres, as well as demographic profiles, geography and hour of the day.
If successful, the video ads could persuade more media companies to license their content to YouTube as a way to make money from it, analysts said.
“Today, YouTube is a sunk cost for Google,” said Darren Aftahi, a securities analyst with ThinkEquity Partners. “If they can couple the proper advertising with the proper content, there is a tremendous opportunity for the company.”
With 51 million users in June, according to Nielsen/NetRatings, YouTube now attracts an audience that is larger than the combined audiences of its three nearest competitors, MySpace, AOL and Yahoo. Its adoption of overlay ads for online video could turn the format into an industry standard, advertising executives said. The video ad market, which is expected to nearly double from last year to $775 million, has been projected to grow to $4.3 billion by 2011, according to eMarketer, a research firm.
But while Google may help popularize the format, it did not invent it. Smaller online video companies, like VideoEgg, a video advertising start-up in San Francisco, have been using similar overlay ads for nearly a year.
Troy Young, VideoEgg’s chief marketing officer, said the goal was to get away from forcing users to watch an ad before showing the clip they wanted to see. Those ads are known as “preroll” and are the most common form of online video advertising so far.
“On the Internet, you have a lot of short-form content, and preroll wasn’t going to work for short content,” Mr. Young said. Mr. Young said that preroll, and “midroll” ads that appear in the middle of a clip, may be appropriate for television shows, movies or other long videos. But overlays have proven effective at making money with short clips, he said. Viewers click on them at a rate roughly five times higher than banner ads, he added.
In tests, YouTube users had clicked on overlays five to 10 times more frequently than on banner ads that already appear on some YouTube pages, Ms. Naughton said. Yahoo has also been testing overlay video ads, creating further momentum for the format.
“We need to be in a place where we have standard overlays and standard measures of engagement across all portals, before the entire preroll industry can shift in any big way,” said Rebecca Paoletti, director of video strategy at Yahoo.
