YouTube Moving the Needle on Ad Sales

Site Now Selling Against More Videos Than No. 2's Total Views

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NEW YORK (AdAge.com) -- YouTube is still Google's toughest sell to advertisers, but the video site is doing better by one measure than most people think: YouTube is selling ads against about 9% of its video views in the U.S., up from just 6% a year ago.

Content ID lets copyright holders allow YouTube to place ads on a video once it is uploaded.
Content ID lets copyright holders allow YouTube to place ads on a video once it is uploaded.
YouTube declined to comment on the exact rate at which it is selling ads and keeps the exact percentage a closely held secret. But Shishir Mehrotra, YouTube's director-product management, told Ad Age that the company is selling ads against "hundreds of millions of views" each month. More important, he said, YouTube is selling ads against more videos than its nearest competitor has total views.

A YouTube spokesman confirmed that the social site is placing ads on more videos than Fox Interactive Media, parent of MySpace and IGN Entertainment. Fox Interactive ranks No. 2 by ComScore's measure, with 463 million views in February, or about 8.7% of YouTube's 5.3 billion views in the U.S.

More content agreements
The gain in YouTube's U.S. business is the result of a number of factors, including more content agreements with partners such as CBS, MGM and, more recently, Disney, expanding YouTube's partner program to thousands of indie and small producers and successfully guiding YouTube visitors to content it can sell to advertisers.

But Mr. Mehrotra said YouTube doesn't necessarily need more studio film and TV content to make money. "We're not saying we don't want them; we're very proud of our agreement with Disney. But we aren't hinging our strategy around it. If it's great for our users, it happens to be good for monetization as well," he said.

Mr. Mehrotra said the company gets too much credit for headline-generating content deals and too little for dozens of other innovations such as Content ID, which allows copyright holders to let YouTube to place ads on video once it is uploaded.

Next week YouTube will open text overlays to its over 600 Content ID participants. That means MondoMedia will earn ad revenue from this unauthorized upload of a "Happy Tree Friends" episode, even though a user put it on YouTube without permission.

Still no 'significant revenue'
While the increased rate of monetization in the U.S. helps, it doesn't necessarily make YouTube a better business than MySpace or Hulu.

Estimates for YouTube's ad sales range from $120 million (Screen Digest) to $500 million (Jeffries & Co.). In its 2008 annual report, Google said it "has yet to realize significant revenue benefits" from its $1.65 billion acquisition.

YouTube users upload 15 hours of video every minute of the day; in a real sense, the company is providing bandwidth and hosting services to much of the world for free, at a cost Credit Suisse estimates at $1 million a day for bandwidth alone. Further, about 70% of YouTube's views come from outside the U.S., a much tougher sell to advertisers, and many of its premium-content deals cover U.S. audiences only. Globally, YouTube is monetizing at a much lower rate.

Last summer, a YouTube exec told an industry group the company was selling ads against fewer than 3% of its total views; The Wall Street Journal pegged the number at between 3% and 4%. YouTube has long disputed those numbers, and Mr. Mehrotra called them "grossly inaccurate."

High-profile studio deals won't be enough to boost the overall percentage of views monetized and to realize YouTube's potential. Viewers are watching many more short videos on YouTube -- an average of 54 a month -- than on any other site, but YouTube is exposing those users to more low-cost-per-thousand ads than, say, Hulu, which is selling 15-second spots in TV shows. Like Hulu, YouTube shares a majority of ad revenue with its content partners.

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