Taking a Page From TV, YouTube Makes a Pitch to Advertisers

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What started out seven years ago as a dinner-party experiment, where some friends wanted to create a way to share their goofy home videos, has burgeoned into one of the biggest media companies in the world.

YouTube now gets four billion views a day, and that’s the audience parent-company Google will be pitching to advertisers Wednesday during the YouTube Brandcast at the Beacon Theater, where agencies and marketers will get a first-look at YouTube’s new, original programming.

Last year, YouTube – the company made famous for its user-generated content – invested $100 million in 100 new so-called Original Channels to spur the creation of high-gloss content produced by TV bigwigs and Hollywood pros designed specifically for the site.

More than 50 of these new channels have premiered since the start of this year – among them a horror, thriller and sci-fi channel from “CSI” franchise creator Anthony Auiker, and a dance channel partnered by Madonna.

YouTube has not revealed the cost of establishing each new channel, but sources say it ranges from a few hundred thousand dollars up to around $5 million.

Once that initial investment has been made back through advertising revenue, YouTube and the channels’ creators will revert to the traditional revenue-sharing model used by the site and its content creators, according to the company.

In many cases, some much-sought-after, big-time advertisers are already beginning to bite.

In the past few months, Unilever, GM and Toyota have all signed on to sponsor individual channels, or groups of channels, in what are understood to be multi-million dollar deals, sources said.

But all of this is in addition to the millions of channels that already exist on YouTube, many of which already generate advertising income both for YouTube and their partners – the people who make the content.

YouTube currently shares ad revenue with more than 30,000 such partners – some of whom earn more than $100,000 annually, doing anything from dishing out make-up application tips to parodying music videos.

Advertisers pay a set amount per thousand views. Exactly how much they pay is worked out via the Google auction method of price-setting.

“If our thesis is that YouTube is the programming platform of the future, we really want to see a huge variety of producers finding success,” said Tim Shey, Director of YouTube Next Lab.

Because YouTube wants to see a channel for every niche interest – something, they say, television cannot provide.

“TV is not going to go away, but there are a lot of roles that TV can’t fill – audiences that are too small. And it costs too much to start a TV show,” he said.

Digital media analyst James McQuivey of Forrester Research said “significant advertisers” are now paying more attention to what’s happening on YouTube, and more broadly across the web.

As a result, the major digital players are now trying to copy the television model whereby cable channels and networks showcase their fall line-up every spring to get advertisers to buy ad time upfront.

Known as the upfronts (because advertisers pay upfront), the digital version is being called the digital newfronts. Although Google has been doing this for a number of years, McQuivey says this is the first time companies like Hulu, AOL, Yahoo! and Google have combined their efforts in an attempt to take some attention away from traditional TV.

But he also says the success of YouTube’s initiative will depend on how many viewers come back to the site, and how long they stay watching.

“Once we see enough consumers coming back and bringing their friends… that’s when advertisers are going to say ‘We need to lock this in… so let’s pre-buy’. And that’s exactly what happens in the world of television," he said.