YouTube Ad-Serve Play Opens It Up to Big Media Content Players

FreeWheel Test Could Draw CBS, Warner, Up Ad Ante Past 9% Mark

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NEW YORK ( -- After years of playing mostly aloof to the concerns and dramas of Hollywood and New York, YouTube is showing a new flexibility with Big Media as it builds its brand-advertising business.

Today, YouTube begins a test with another outside technology, FreeWheel, a video-ad server founded by ex-DoubleClick execs. YouTube has long allowed partners to sell their own ads, but with FreeWheel, they'll be able to serve the ads as well, meaning the same ad could appear in the same content no matter where it is, on YouTube or elsewhere.

That opens up YouTube to a host of big media companies such as CBS and Warner Bros. that are using FreeWheel, as well as web-only content companies such as Demand Media and Next New Networks. The technology allows YouTube to be part of a greater network of distributors, which is a strategy many content owners are adopting, or at least those not working exclusively with Hulu.

In just the past few months, YouTube has allowed studio partners such as Sony Pictures and ESPN to place their own video players on YouTube, integrated with non-YouTube or Google technology for the first time. This lets Sony and ESPN/Disney insert their own ads and attribute the traffic to their own networks, which they can measure with third-party firms such as Nielsen and peddle to advertisers.

With the new players has come ad formats once anathema to YouTube's free culture, such as pre-rolls. YouTube itself has started to experiment with pre-roll ads, the most invasive type of advertising for web video, but one favored by Madison Avenue because it's the easiest way to repurpose creative from existing TV ads.

'Giving up some control'
YouTube Product Manager Phil Farhi said the latest deal with FreeWheel is about "helping partners that have embraced broad syndication."

"The old way was you either sent the ad hardcoded or let YouTube pick the ad," said FreeWheel CEO Doug Knopper. "Now they are giving up some control over what ads appear in content in order to get more ad revenue."

More ad revenue is what YouTube is about these days now that it is expected to deliver to Google's bottom line in relatively short order. YouTube has long been cagey about giving out stats, but has indicated that the percentage of "monetized views" in the U.S. is over 9%.

"In the not-too-long-distant future, we will actually see a very profitable and good business for us," said Chief Financial Officer Patrick Pichette in Google's last earnings call. Shishir Mehrotra, YouTube's director-product management, said on a global basis the number of monetized views has tripled in the past year.

YouTube once was run by the same tight philosophy as Google's search business, as a self-serve tech platform that accommodates the world's video. In response to the industry's early legal threats (and a $1 billion Viacom suit) YouTube implemented Content ID to screen out copyrighted material, but that had a self-serve aspect to it as well, in that content owners could claim their video and allow YouTube to place ads on it.

Equal treatment
Now there's a realization that a lot more handholding and flexibility is going to be necessary to get the kind of video that brings brand ad dollars with it. YouTube execs will tell you it's not about favoring one type of content over another; that YouTube wants to give small providers the same treatment as a web-only producer such as Machinima or a big studio such as Disney. But it's clear YouTube is reinventing itself from a one-size-fits-all machine into something else.

"We are the most flexible distribution outlet that content partners have," Mr. Mehrotra said. "We're flexible in how we sell and serve ads; we're flexible in ad formats. The more flexible we are in helping them reach their needs, the more successful they can be and the more successful we will be."

YouTube has even formed a joint venture with the biggest music label, Universal, in a bid to generate more revenue from its biggest source of views, music videos. Vevo, as the venture is called, is headed by former UMG digital exec Rio Caraeff and is hiring a direct sales force to sell music videos exclusively, a big shift from prior efforts. The labels haven't traditionally had ad sales forces, meaning they previously relied on YouTube to sell ads against their videos.

Earlier this year, YouTube even started allowing partners to sell videos via download, an indication that it might implement a pay-TV option similar to "TV Everywhere," which is cable's great hope to preserve its pay model on the web. While that isn't yet a priority, CEO Eric Schmidt said "a fair number of subscription services, [including] micropayment systems" will coexist with ad-supported models on the web.

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