YouTube to TV Networks: No More 'Sweetheart' Ad Deals for You!

Video Service Imposing 45% Ad Splits On All Partners, But Also Offering New Upside

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Once, YouTube begged the TV networks to put their content on YouTube and lured them with ad splits much more favorable than amateur or web-only content.

But that's about to change. As contracts come up for renewal, YouTube is treating Hollywood the same as online video producers, with 45% of ad revenues going to YouTube, meaning CBS or Warner Bros. would get the same terms as, say, Machinima or AwesomnessTV. YouTube plans to have transitioned all partners to the new split by January, said sources close to the talks.

The transition ends what the online video world referred to as "sweetheart deals," where producers of TV and film would keep up to 70% of ad revenues, similar to the networks' deals with distributors like Hulu. It's unclear whether network execs will balk at the new figure; for most, revenue from YouTube represents a trickle anyway.

A YouTube spokesperson declined to comment.

Upside in new terms
In addition to the new terms YouTube has thrown in a sweetener that could preserve, and potentially improve upon those deals by capping the amount of of the split, giving upside to those that can sell ads for higher prices.

YouTube sets minimum prices for ads it will accept and previously took a flat percentage of whatever the ad was sold for. Now, YouTube is both lowering the minimums and allowing sellers to keep 100% of revenue above that threshold. That means content partners able to sell the ads for higher prices could end up keeping a larger share of the pie.

YouTube's new model puts the onus on a network's sales teams to negotiate higher prices with advertisers than those set by YouTube. It favors major media and entertainment companies with large, experienced sales teams have an advantage because they are well suited to clear higher rates, particularly if they package those deals with non-YouTube inventory.

At the outset the reason for offering lower rates to Hollywood was to lure professional-grade content to the service to make YouTube more advertiser-friendly. The favorable splits also rankled producers of online video, which have chafed under the standard 45/55 arrangement. Inside.com's Jason Calacanis has complained publicly; others have explored other means for distribution beyond YouTube in search of revenue growth.

But along the way, YouTube figured out that content produced by the networks and studios doesn't perform as well as the stuff that's always worked well on YouTube.

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