Say Hello to the Newest TV Powerhouse: Google

Is YouTube Really Worth $1.6 Billion? It Is If You Can See Convergence Coming

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NEW YORK (AdAge.com) -- When Mike Seal, a New York-based human-resources executive, realized his TiVo had failed to record the Oct. 4 premiere of ABC's "Lost," he simply pulled up his PC, connected it to his TV and streamed the show via ABC.com. That's just the kind of consumer behavior that is fueling talk of Google becoming the de facto sixth broadcast network.
Some broadcast and cable TV executives are eyeing the Google-YouTube marriage with some trepidation.
Some broadcast and cable TV executives are eyeing the Google-YouTube marriage with some trepidation.

For early adopters like Mr. Seal, the ability to play online video on a TV screen is today's reality. "It's so easy to do; there's no technical savvy," he said. "It's literally treating your flat screen as if it was a computer."

When it was announced last week that Google would buy YouTube, Microsoft CEO Steve Ballmer said: "If you believe it's the future of TV, it's clearly worth $1.6 billion. If you believe it's something else, you could write down that maybe it's not worth much at all."

Convergence around the corner
While we aren't yet at the point where consumers feel like curling up on the sofa and downloading "LonelyGirl15" or "Geriatric1927" to their flat-screen TVs, it does feel like the convergence of broadband video and TV is right around the corner. And that has broadcast and cable TV executives eyeing the Google-YouTube marriage with some trepidation.

Albert Cheng, exec VP-digital media at Disney-ABC Television Group, is watching the future of Apple's iTV product and Microsoft's next-generation media player to see if the two technologies will further web-TV convergence. While he doesn't think this latest Google deal is as much of a game changer as the networks' own moves to online streaming, he notes that whoever controls the sales relationship with advertisers is best positioned for the future.

"When Google has enough scale, it will have an impact on the type of inventory they sell and what content," Mr. Cheng said. "The next issue then becomes to what extent its ad sales intersect with those of professional content."

Google's stark advantage
Others believe the deal gives Google a stark advantage. "Google will become the new mass-medium advertising vehicle. Trouble is, they'll be selling everyone else's content," said one digital executive at a major media company, clearly miffed at the prospect of "GooTube" gaining such a big toehold in the online-video business at a time when the networks are also ramping up their content online.

One cable ad-sales executive last week was panic-stricken at the prospect of Google deciding how the entire online-video world might be priced given its newfound status as the biggest online-video operator. That would be like the broadcast networks commanding pricing during the TV upfront market. And what do those networks have to lose? Only that big fat premium advertisers are willing to pay to appear around such targeted online-video clips: At a CPM of $40, it's more expensive than airtime on a broadcast network.

One executive with a major media company offered a more upbeat view of what the Google-YouTube combo had to offer, suggesting it was akin to local network affiliates who are given airtime to sell. Google will offer up new mass audiences and bring a host of relationships with smaller advertisers that don't threaten network relationships with big marketers such as General Motors Corp. or Procter & Gamble Co. So long as Google isn't a content producer, it isn't a competitor, the executive said. Google CEO Eric Schmidt was making the rounds to media companies last week, including Viacom, Time Warner and CBS, to assure them Google does not want to get into content creation.

Automating ad sales
While Google has yet to launch its video AdSense product and YouTube's ad offering is still emerging, some -- such as Rob Petty, CEO of Roo Networks, an online-video ad server -- believe Google's entry can't help but change the game. Ad sales, he said, "will become far more of an automated process. One thing Google has shown the market is that they have generated a large proportion of their ad dollars through small advertisers -- the small stores and the small websites. It's really not the Fords and the GMs and the Pfizers."

Google entering the video-ad-sales market could in the short term create more confusion for advertisers. Digital-media-agency executives such as Jeff Ratner, a senior partner with MindShare Interaction, are already frustrated with the multitude of players selling the same content on different platforms. That became a major issue during the upfront, when clients thought they were buying properties across numerous channels only to find they were being offered only network-TV programming.

Still, that's not to say GooTube doesn't have some hurdles to get past. Mr. Ratner is watching how YouTube's plans for brand channels will play out, whether they will look more like broad network content or niche cable offerings. "We're looking to see how the ad models go on," he said. "We don't recommend getting close to content that Google and YouTube can't control. We appreciate the massive reach, but there's a need to protect the clients, and there are plenty of other places that don't have the same inherent risks."
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