Why Free-Ride YouTube Is Finally Winning Ad Dollars

Google Sells Ads Against 9% of Site's Streams, but There's a Long Way to Go

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NEW YORK (AdAge.com) -- Ford Motor Co.'s much-heralded social-media campaign to introduce the Ford Fiesta to young people shows just how deeply embedded YouTube has become in the strategies of even the straightest-laced marketers. But it is also an example of why it is such a tough business for Google.

Lucas Cruikshank, a 15-year-old Nebraskan better known as 'Fred,' last week became the first person to reach a million YouTube subscribers.
Lucas Cruikshank, a 15-year-old Nebraskan better known as 'Fred,' last week became the first person to reach a million YouTube subscribers.
The Ford campaign, which will have 100 social-media influencers upload their exploits with the car to the "Fiesta Movement" channel, includes no corresponding media buy. Ford is, in effect, using YouTube as the core of its marketing plan but not paying Google a penny for the privilege.

The nation's biggest marketers, from Geico to Samsung to Unilever to Barack Obama, have embraced the service and routinely seed it with videos. Some hire outside firms that specialize in giving videos a push to help them go "viral." Yet YouTube suffers from the same challenge as its social-media brethren, whether it's Facebook, MySpace or Twitter: Marketers don't necessarily have to pay to use their platforms.

Many do back, and sometimes effectively enhance, their campaigns with some sort of media buy, whether it's a branded channel, a "promoted" video slot or a placement on Google's AdSense ad network. There is, after all, little point in putting legwork into a campaign on YouTube without some corresponding media spending (online and offline) to guarantee someone sees it. Indeed, the bigger YouTube grows, the more marketers find they must couple a campaign with spending.

A year ago, front-page placement as a "featured video" was worth about 105,000 views. Today, the average "featured" video -- which is selected by YouTube staff and is not a media buy -- gets 54,000 views, a 48.2% decrease, according to video analytics firm TubeMogul.

"What we mostly see are advertisers doing both," said YouTube spokesman Aaron Zamost. "Take advantage of the communal and viral nature of the site, and integrate those techniques with other paid opportunities."

Relatively cheap buy
Geico, for example, spent a few hundred thousand dollars on YouTube as part of its online-video campaign, which spoofs some of the biggest viral hits of all time. For its video with Gary Brolsma (The "Numa Numa" Guy), Geico took over the YouTube front page for the day April 2, and then bought YouTube search keywords such as "numa numa." The rate card for a YouTube front-page roadblock is $175,000 a day, plus an incremental $50,000 in spending on Google or YouTube. Of the video's 1.3 million views, 500,000 were achieved that first day on the YouTube home page.

You can't just throw a video up on YouTube and expect consumers to find it, "because it's a needle in a haystack," said Taylor Valentine, director-digital services for Horizon Media, who implemented Geico's digital-media strategy. Still, the YouTube campaign represents just a fraction of the $558 million Geico spent on all measured media in 2007, according to TNS Media Intelligence.

As central as it has become to marketers' plans, YouTube is still Google's toughest sell. Estimates on how much of Google's money YouTube will burn in 2009 vary. Credit Suisse estimated YouTube's streaming costs alone are $1 million a day, and pegged its 2009 losses at $470 million. Another former YouTube exec said that estimate is too high; according to the exec, YouTube will break even at $320 million in revenue. YouTube declined to comment on either figure.

YouTube, however, is having more success in selling advertising against its more than 1.2 billion videos that it streams each day. The company confirmed that it is selling ads in the U.S. against more video views than its nearest competitor, Fox Interactive, meaning 9% of its total U.S. views, up from 6% last year.

Because it provides bandwidth and hosting for much of the world's video, it's a struggle to stay ahead of its costs. YouTube estimates that 15 hours of video is uploaded to its system each minute, the vast majority of which represents costs for YouTube and very little revenue. That and about 70% of YouTube's traffic comes from outside the U.S., making it more difficult to sell to advertisers.

High-profile content
To stock up on video it can sell to advertisers, YouTube has vigorously pursued studio and label deals. Last week, YouTube finalized a deal with Universal Music Group to create a site, Vevo, which has the added benefit of keeping UMG videos on YouTube, where it operates the video sharing services' most-subscribed channel, with 3.5 billion views.

But Shishir Mehrotra, YouTube's director-product management, downplays the impact of high-profile content deals such as those signed with Disney, CBS, and, in the works, Sony Pictures. "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."

Core to YouTube's dreams is the rise of a generation of professional-amateur content that costs YouTube nothing to acquire, but which adds advertiser friendly inventory to the system. That's perhaps best represented by 15-year-old Nebraskan Lucas Cruikshank, better known as Fred F1ggelhorn, or just "Fred," who last week became the first person to reach a million YouTube subscribers.

"Fred" gets tens of millions of views on his videos a month, and YouTube says the helium-voiced comedian is also making "tens of thousands" of dollars each month via text overlays and display ads on his YouTube channel. But he's just one example of how advertising can work on the video-sharing site.

Mr. Mehrotra stresses there is no magic bullet to making YouTube the business Google hopes it will be. "We want to be a platform for all types of content, all types of users and all types of advertisers."

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