YouTube Moving Toward Paid Content

Google (NASDAQ: GOOG) appears close to inking partnerships with several major Hollywood studios to offer streaming movie rentals on YouTube in what would be the first foray toward paid content on the world’s largest video site.

The negotiations are laying the groundwork for a three-month trial that would see YouTube begin offering streaming movie rentals ahead of the title’s DVD sales date, with the studios receiving about 60 percent of the revenue, the Associated Press reported.

Google spokesman Chris Dale declined to comment on the negotiations, but reiterated the company’s interest in building partnerships with the entertainment industry.

“We hope to expand on both our great relationships with movie studios and on the selection and types of videos we offer our community,” Dale told

Google CEO Eric Schmidt told analysts in April that the company planned to introduce micropayments or some other monetization variant to YouTube “very, very soon” as it looked for revenue streams outside of advertising.

Google is reportedly negotiating the rental agreements with each studio independently, with the talks farthest along with Lions Gate Entertainment Sony, MGM and Warner Bros.

The proposed deals follow similar arrangements movie studios have struck with online services such as Amazon and Apple’s iTunes.

In a research note, Lazard Capital analyst Barton Crockett suggested that these types of deals are signs of a secular shift in the entertainment industry as “studios to attempt to get a fatter slice of online economics,” a trend which poses a “long-term challenge for every company specializing in physical DVD rental, including Netflix,” which offers a limited catalog available for streaming to its DVD subscribers.

For Google, the talks represent both its efforts to expand premium professional content on YouTube and another stab at solving the economic riddle that has plagued the still-unprofitable site it shelled out $1.65 billion to acquire in 2006.

If page views were dollars, YouTube would be an unmitigated success story.

Google’s sites served up nearly 42 percent of all videos U.S. users watched online in July, according to online metrics firm comScore. That translated into 8.95 billion videos viewed on Google sites for the month, 99 percent of which were served up on YouTube.

But the site has proved famously difficult to monetize. Google has been tinkering with multiple ad formats, and has struck numerous partnerships with entertainment companies, including the movie studios involved in the video-rental discussions, to license professional content for distribution on YouTube and split the advertising revenue.

Those negotiations haven’t always come easily. YouTube’s ascendancy as a platform for uploading and sharing videos on the Web was met with considerable angst by many entertainment industry heavyweights, concerns that saw their most dramatic illustration in Viacom’s $1 billion copyright infringement lawsuit against the site that is still working its way through the courts.

But Google has been slowly wading through the thicket of copyright issues as it courts premium content on the video site, most recently adding CNN, Cartoon Network and ESPN to its list of entertainment partners.

Another indication of Google’s commitment to professionalize its video property came last month with the acquisition of On2 Technologies, a firm specializing in video-compression technology for the PC and mobile platforms.

Google had previously offered a paid-content option for video sales and rentals through its own Video service, but discontinued the feature in August 2007, citing, ironically, the promising early signs of an ad-supported model on YouTube.

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