good read about youtube altering its biz model

[webmasterchecks]

excerpts below:

By adding professional content to the site's service and auctioning off search terms, the same strategy that has made Google billions, YouTube hopes it can generate profits, avoid alienating its audience, and remain a free-of-charge video hosting service.

In the past week YouTube has announced it will auction off search terms as part of an ad program, called Sponsored Videos, designed to enable anyone to expand the viewership of their videos. YouTube also said last week it obtained rights to post full-length movies produced by a large film studio, Metro-Goldwyn-Mayer. What this means is that YouTube has given up on the idea that user-generated content can be a successful standalone business.

The truth is the ability of user-generated content to generate lots of cash has been in doubt for a long time. Most of the video-sharing companies that challenged YouTube two years ago have been restructured or switched business models. The most recent evidence came Saturday when TechCrunch reported that AOL will shutter the company's lightly trafficked video-sharing service, AOL Video Uploads.

Two years ago, there were people who eyed YouTube's success with skepticism, including Barry Diller, IAC's chairman and CEO and one of brains behind Fox Broadcasting. Josh Martin, an industry analyst now with the Yankee Group, was heavily criticized by YouTube after publishing a June 2006 report that predicted YouTube would struggle to squeeze profits out of video sharing because fans would refuse to accept advertising.

"Companies are realizing it's nearly impossible to raise money from user-generated video," Martin said Thursday. "I do think both (amateur and professional made) content will continue to coexist at YouTube. They still get significant viewership on the user-generated side but they also need to start making some money."

In the two and half years since Martin wrote his report, YouTube has tried a host of different ad platforms, including overlays, which briefly appear at the bottom of the video player, and ads that appear after the conclusion of a video. YouTube also offered space on its front door where companies could post video ads.

They weren't enough to help YouTube deliver the kind of money that Google expected, CEO Eric Schmidt has said several times this year.

Some of YouTube's troubles generating ad dollars can be traced to the company's reluctance to annoy visitors. The company has always refused to show prerolls, ads that appear prior to the start of a video. YouTube argues that while prerolls make it likelier that an entire ad will be watched, it's also more likely to frustrate viewers.

Compare YouTube's approach to a site like MySpace, the nation's largest social network. One of the biggest complaints about MySpace is that there's too many ads on the site, and this may be one reason why rival Facebook is growing faster. Yeah? Well, MySpace said last month that it's on pace to make $1 billion in revenue this year.

http://news.cnet.com/8301-1023_3-100...dStoriesArea.0