YouTube's Premium-Content Strategy Starts to Take Shape

Talks of Providing $2M-$5M Seed Funds to Agents and Producers Who Commit to Episodes

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How do you get professional video if you don't want to do big money deals with Hollywood studios? You go straight to the creators.

In recent months YouTube has held talks with producers and agents in Hollywood, some known for producing web video, such as Ben Silverman's Electus, and some not, about providing seed funding for content. They'd provide the money -- $2 million to $5 million, according to those briefed -- to those willing to commit to producing content channels with a certain number of episodes or frequency of episodes over time. New York magazine first reported on those talks in February.

While that sounds like a lot, one person who has heard the pitch says it works out to a production fee of about $4,000 per minute at the high end, big money by web standards but a pittance for TV. YouTube would get the premiere and an exclusive window, and would recoup its investment through revenue sharing of ad sales.

The Economics of Online Video 2011
The Economics of Online Video 2011
Online video and TV content are set to converge on a range of platforms, from Hulu to Google TV. An Ad Age Insights white paper on the contenders for consumers' attention and marketers' dollars.

YouTube execs cautioned that the talks have been exploratory; no deal has been completed and it's just one of many different initiatives to help content creators bring their video to YouTube. But they underscore YouTube's need to attract experienced content creators and to better package higher-quality content so advertisers spend more of their growing online-video budgets on the site.

The question is how to provide initial cash flow to producers who commit to building channels on YouTube, without actually paying for the content itself. "They are exploring all types of models to ignite the system," said Allen Debevoise, CEO of Machinima, one of YouTube's biggest video producers. "How do you get creative people to create better-quality programming on the platform to drive a better user experience and more ad revenue?"

Google, as a rule, is about building platforms and ordering the world's information with algorithms; it is fundamentally not about paying for content. But YouTube execs are realizing that video is different from search or even display and that getting critical mass of premium content -- for which advertisers are willing to pay a premium rate -- requires a human touch, and, in some cases, an open checkbook. Soon there will be more bodies on the case. YouTube plans to expand its 600-employee workforce 30% in 2011.

While YouTube is still feeling its way in Hollywood, it's becoming more aggressive about luring the independent video producers that have long been its biggest source of premium video, including advancing startup funds against future ad revenue and even offering $1,000 coupons for camera equipment.

"These types of producers are the backbone," said Tom Pickett, YouTube's global director of content. "The content gets better and better." These are video producers like Machinima, YouTube's fifth-most popular partner; Phil DeFranco, who video blogs as sxephil; and Ray William Johnson, YouTube's second-largest partner, whose manifesto says a lot about the size of audiences these videos are now entertaining: "I don't promote things in exchange for money, nor do I care to be on television. Thank you."

This economy of video producers didn't exist before YouTube and probably wouldn't exist without it. They're also YouTube's biggest source of so-called premium video that they can sell to advertisers. The goal for all their efforts is to find more talent and help promote their work. "We have hundreds making over six figures," Pickett said. "We are literally creating a new industry here. If you are the kind of person who can create video and build a sizable audience, then you should be able to make a living on YouTube."

Last week, YouTube closed a deal to acquire Next New Networks for its expertise in working with small web producers, as well as programming channels of content for advertiser-friendly audiences. NNN will also work on helping guide users to what's already on YouTube.

YouTube execs stressed there is no single new strategy to bring higher-quality content into the YouTube ecosystem; rather, they're trying many different approaches to widen the sphere of prolific creators who are making money on the platform.

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Contributing: Andrew Hampp

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