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YouTube To Sell Music And Games With New Advertising Formats

Posted on: Wednesday, 8 October 2008, 11:45 CDT

Executives said on Tuesday that online video leader YouTube will start to sell music and video games and experiment with new advertising formats to grow revenue.

The new service will have buttons under YouTube videos to offer viewers a chance to buy music, movies, TV shows, concert tickets and other products featured or mentioned in a particular clip.

The YouTube viewer will then click on a link and be taken to another Web site like Amazon.com or iTunes that's selling a desired song or other product. YouTube will receive a commission for each completed sale.

EMI Music and Universal Music Group are also selling merchandise through YouTube. But it hopes to persuade studios to peddle movies and TV shows alongside video clips.

YouTube users will also be able to buy video games, such as Electronic Arts Inc's sci-fi game "Spore" through the Amazon link.

Shishir Mehrotra, YouTube's director of product management, said this is just the first step in this adventure.

Eventually, YouTube plans to expand the sales channel outside the United States, but didn't specify a timetable for the international expansion.

YouTube has mostly relied on advertising sales as its main source of income. It is still experimenting with a range of formats to take full advantage of the massive popularity of the site, which has nearly 13 hours of video uploaded every minute.

The sites "click-to-buy" links are part of an intensifying focus on figuring out how to profit from its popularity without alienating an audience accustomed to watching clips without the commercial interruptions that fill television airwaves. YouTube also has had to navigate thorny copyright issues that have restricted its ability to show ads.

YouTube hopes to eventually expand beyond entertainment sales to create a shopping bazaar. For instance, a home-care how-to clip on YouTube might include a sales button for a lawn mower.

Google has received some pressure from investors on when it would start to generate meaningful revenue and earnings from YouTube, for which the Web search leader paid $1.65 billion in 2006.

Analysts at Piper Jaffray Research estimated that the video site would earn about $200 million in revenue in 2009, compared with estimates of around $27 billion for Google.

"There'll be lots of different solutions for lots of different problems," said Mehrotra. "We've tested a lot of things already, and we're going to be testing more in the future. Some will work, some won't.

YouTube is experimenting with a new format called InVideo advertising, which runs text ads along the bottom of videos as they play. Other formats include contests sponsored by advertisers and home page video ads.

Pre-roll advertising, where a 10 to 20 second ad runs before a video starts, is not always the best format for some of the shorter video clips on YouTube, executives said. But they did not rule out using pre-roll ads altogether.

They’re hoping the video ID system will help drive advertising. Video ID enables content owners, such as music and TV producers, to know when users upload copies of their video clips to YouTube. The content owners can then share in advertising generated around that copied clip or remove the clips from the site.

Still, Google Chairman Eric Schmidt has been promising YouTube will become a huge moneymaker once it finds the right advertising formula.

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On the Net:

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Source: redOrbit Staff & Wire Reports

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