The Internet company is finalising deals with well-known personalities, such as skateboarder Tony Hawk, and major media companies to produce original content for its popular video website, as it seeks to become a next-generation cable provider that oversees dozens of free online “channels” with professional-grade shows, people familiar with the matter said.
YouTube, the world’s largest video site, is putting up more than $100 million in cash advances to get some of the content produced, said the people. YouTube will recoup the funds from advertising revenue it sells against the content, later splitting ad revenue with the partners, these people said. YouTube hopes the new channels, which are expected to roll out sometime next year, will draw in big money from advertisers, they said.
So far, Google has reached agreements or is in late-stage talks with parties including pro-skater Mr. Hawk, as well as media companies such as Warner Bros. and News Corp.’s ShineReveille unit, which has been involved in TV shows such as “Ugly Betty,” these people said. News Corp. also owns The Wall Street Journal.
Also among the expected YouTube partners: RTL Group‘s FremantleMedia Ltd., which produces “The X Factor”; BermanBraun, which has produced shows for SyFy and other cable channels; and IAC‘s Electus, which produced VH1’s “Mob Wives.”
Additional potential partners include Everyday Health Inc., which produces content with the likes of celebrity trainer Jillian Michaels; Iconic Entertainment LLC, started by former Sundance Channel chief Larry Aidem and former VH1 executive Michael Hirschorn; “CSI” creator Anthony Zuiker; and DECA, which creates online-video content for women.
Verso Entertainment, formed by National Basketball Association player Baron Davis and Cash Warren, may produce content for YouTube related to sports, said a person familiar with the matter. The Wall Street Journal may also produce news content for a YouTube channel, another person familiar with the matter said. Several other partners for the new initiative already create popular content on YouTube, people familiar with the matter said.
A YouTube spokesman said in a statement, “We don’t comment on rumor or speculation, but we’re always talking to content creators and curators of all kinds about building audiences on YouTube.”
With its channels initiative, Google—which has been under pressure to turn YouTube into a profit center since buying the site for $1.6 billion in 2006—is aiming to position the site for the rise of televisions and cable set-top boxes that let people watch online video in their living rooms, said the people familiar with the matter. More people are also watching videos on their smartphones and tablets, pressuring traditional cable and satellite operators to make content available on smaller screens.
YouTube had more than 600 million unique visitors world-wide last month, according to comScore Inc., and it is expected to generate more than $1 billion in net revenue this year, up from more than $500 million last year, according to Citigroup Inc. analyst Mark Mahaney.
Google wants to convince big advertisers that it can create a safe environment to showcase their brands on a global scale, and to divert some of their $60 billion in annual broadcast and cable ad spending to YouTube. Some of Google’s competitors privately say they are rooting for the YouTube initiative because it could bring new ad dollars to other Internet companies that show videos.
YouTube has had informal talks with some advertisers about sponsoring the original content, these people said. In some cases, YouTube may allow its partners to sell ads for their channels, said one person familiar with the matter.
Many brand advertisers were previously scared off by the large amount of user-generated, lower quality content on YouTube, said David Cohen, an executive vice president at Universal McCann, a media-buying agency owned by Interpublic Group of Cos. But in recent years, YouTube has accumulated higher-quality video and its new channels strategy “is a clear signal of its commitment to creating immersive and engaging original content,” he said.
YouTube also currently gets lower ad rates than Hulu LLC, which is owned by and carries content from Walt Disney Co.’s ABC, Comcast Corp.’s NBCUniversal, and News Corp.’s Fox networks. Hulu charges advertisers $25 or higher to show an ad 1,000 times on its site, Mr. Cohen said, while YouTube can command a fraction of that price for its best content.
But with YouTube’s new channels initiative, Mr. Cohen said, “there is nothing preventing YouTube from getting Hulu-type ad rates assuming the final content is as engaging as we anticipate.”
The effort doesn’t mean YouTube will abandon the way it has made money to date: identifying popular user-generated videos and offering to share ad revenue with the creators. YouTube has 20,000 such content partners.
At the same time that Google invests in programming and upends the way entertainment is created, it has signaled it is willing to pay large sums to license it. People familiar with the matter have said Google has expressed interest in buying Hulu. The companies previously have declined to comment.
Other partners for the new channels initiative include longtime YouTube content producers Machinima Inc., which creates content about videogames and other topics for young men, and Maker Studios, known for comedy videos from personalities such as “KassemG.”
The channels initiative will pair well-known individuals such as Mr. Hawk with existing YouTube content partners to create new kinds of programming, said a person familiar with the matter.
Some partners will be in charge of producing multiple channels that fit into one of 20 or so categories such as food, comedy, health and news, these people said.
YouTube executives are asking partners, who will retain ownership rights over the content, to produce unique shows that don’t just mimic those on TV, they said.
Hollywood has been abuzz ever since YouTube began reaching out to potential partners earlier this year with promises of cash advances. YouTube received more than 150 pitches from content creators before settling on a few dozen with which to start, people familiar with the matter said. Most partners will receive hundreds of thousands of dollars or multimillion-dollar deals to produce several hours of content per month, these people said.
Source: Wall Street Journal October 2011