YouTube Drops Price for Upfront Packages to Lure TV Dollars

The Bet: Cutting Ad Packages Into Smaller Chunks Will Bring In More Advertisers

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YouTube is taking a novel approach to winning TV ad dollars during this year's Upfront season: lowering prices.

Google's video platform -- the world's biggest -- isn't exactly lowering ad rates, the cost-per-thousand that advertisers pay, but it is re-thinking the way it structures up front ad deals for premium content on the eve of its "Brandcast," a big show for marketers and agencies in Manhattan next week.

Last year, fresh off its initial $100 million investment in original "channels," YouTube came out with ad packages that were charitably described as "aggressive." In order to sponsor one of the new channels, advertisers were asked to make commitments to spend in excess of $10 million across YouTube. A music package, for example, was listed at $62 million, according to documents obtained by Ad Age. YouTube did get several big marketers to commit in the lower 8-figures including Unilever, Toyota and GM.

This year, YouTube is dropping those requirements in hopes of luring a wider swath of advertisers to shift budgets out of TV. The new minimum this year is about $1 million for what sales chief Lucas Watson calls "Lego blocks" of YouTube content that allow bigger advertisers to buy more and smaller advertisers to buy less.

"Last year we were rigid; we got a few big advertisers with huge checks," said YouTube sales chief Lucas Watson. "We got a lot of feedback about being inflexible so now we are breaking them down into more manageable chunks."

The strategy shift comes at a critical time for YouTube and all the participants of next week's NewFronts, an organized effort by digital publishers to participate in the TV ritual where ad commitments worth about $18 billion are negotiated between broadcast and cable TV. Those commitments represent a big slice of what ZenithOptimedia estimates is a $64 billion U.S. TV market.

Digital publishers would very much like to be part of that mix, but haven't, until recently, invested in enough TV-like video content to make that a reality. That's starting to change. YouTube and Hulu heavily invested in original content last year; others like AOL, Yahoo are investing well into the eight figures. All are looking for what has come to be described as their "'House of Cards' moment," referring to Neflix's big investment in an original show that is perceived to have been a huge success.

Last year, YouTube focused heavily on selling the original content in which it had invested -- new channels and shows like WIGS, Nerdist, Vice, Machinima Prime, Jay-Z's Life & Times and others that took monetary advances from Google against ad sales. That spurred some resentment among channels that didn't take YouTube funding and had been building audiences on the platform for years.

"Last year we focused everybody's eyes on the 100 channels we had launched," Mr. Watson said. This year, he said, "forget who gave [the channels] a check and lets focus on who's building great audiences."

Rainn Wilson's Soul Pancake channel will be part of an 'intelligence' package.
Rainn Wilson's Soul Pancake channel will be part of an 'intelligence' package.

Rather than specific channels, Google is selling what it calls "media packs," or packages of programs in a genre like sports, gaming, fashion, cooking, music, comedy or education in $1 million increments. An "intelligence" package will be organized around Rainn Wilson's "Soul Pancake" and its breakout star of the past year, an 8-year-old from Tennessee, Kid President.

In a further bid to lure conservative TV advertisers, YouTube signed a deal with the Alliance for Family Entertainment, whose members include Unilever, Walmart and Subway, to create a family-friendly package across 32 channels on YouTube. Commitments from the members of AFE represent one of the bigger upfront deals YouTube is doing this year.

Advertisers will know what shows and channels they're getting but unlike last year they won't be exclusive. Exclusivity around channels sounded great last year but it caused problems in practice because the same ads were shown over and over causing them to wear out sooner than expected.

Mr. Watson described "growing pains" around one of the first exclusive sponsorships YouTube sold last year when Unilever took over Young Hollywood. "We didn't totally understand the ad fatigue," he said. That partnership was adjusted during the year.

YouTube will continue to peddle exclusive sponsorships on tentpole events like the Coachella, which was sponsored by T-Mobile.

But Google's biggest challenge to TV may be in its sheer size. WPP CEO Sir Martin Sorrell said Thursday that Google is about to become its biggest recipient of global ad dollars, unseating News Corp. in the coming year. Google has 12,000 salespeople knocking on doors of all TV advertisers big and small.

This year, they've got a secret weapon designed to attack TV's biggest weakness: the expense of reaching light TV viewers. National TV buys can pretty easily reach heavy TV users, but advertisers have to spend more on reach and frequency to find the last few when they happen to tune in.

This year, all of Google's salespeople will be armed with what they call an "Extra Reach Tool" on their laptops to show TV advertisers that those light TV viewers can be reached for less money on YouTube. "The tool sits on a laptop and ingests Nielsen TV data, mixes in YouTube and produces a customized report," Mr. Watson said. "More than half of campaigns would benefit from a 16% shift of TV to YouTube."

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