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YouTube and Revenue Sharing – Unanswered Questions

A story popped up on the BBC News Website a few days ago stating that the monster of all video sharing sites, YouTube,YouTube Logo was about to roll out a revenue sharing feature. This isn’t a new idea, in fact Revver has been doing it, with some success, for a while. Considering YouTube is comfortably king of the online video market, wyy would they be adopting features from one of their not-quite-as successful rivals? YouTube has built its success on the fact that it is just so easy to upload and share a video through YouTube. The difficulty increased for “Directors”, special users who are allowed to post videos over ten minutes long, and people accepted the additional inconvenience of jumping through those hoops for the benefit. I’m sure people will happily jump through just a few more hoops to get a cut of ad revenue. The benefit vs bother ratio is still favourable.

One aspect of this feature that must not be overlooked is the fact that YouTube is going to have to increase its ad revenue to support sharing. YouTube, despite its high profile buyout, is still not exactly flushed with cash generated through ads. The suggested solution appears to be running short advertisments before each, or selected, video(s). Personally, I have a problem with this. If I’m watching something on YouTube, its not likely to be Pride and Prejudice. its more likely to be of around a minute in length and of questionable quality (in more ways than one). At the moment, there is no site out there that makes it as easy to consume content of that type than YouTube. it’s interface and viewing widgets are very geared to that goal. and one advantage they certainly have over competitors, especially after the Google Acquisition, is speed. I can usually just hit play on a YouTube video and have it stream, without interruption. That is not true of Revver, for example.

Considering the type of content I usually view on YouTube, I will be asking some serious questions of whether it’s worth me sitting through a commercial first. And the length of the commercial is largely irrelevant. My attention span for a minute long video is a minute, my desire for watching it, in most cases, is fleeting. If an ad starts to roll I’ll likely just move on before viewing the content. Quite how this will translate into advertising revenue, I’m not entirely certain.

To Ad or Not to Ad…

YouTube has to be very careful not to overdo this in running advertising. I would probably keep visiting if it only appeared on, say, 1 in 10 videos. Any more and I’d be faltering. So how is YouTube going to decide which videos they will augment with advertisements? Well, one of the problems with the type of advertisements YouTube is proposing is judging its effectiveness. Its not like a banner ad where you can measure the number of conversions, although this could be done (but has been shown historically to be very ineffective on all counts). Its more liklely that a TV style model will be adopted where an advertiser pays YouTube (and thus the content creator) x amount for every viewing. The inherent problem with this is that not all content uploaded to YouTube is wholly appropriate. This immediately means you have to have some form of control in place to prevent an advertisment for a respectable company appearing next to a “happy slapping” video.

This could potentially be automated using YouTubes inbuilt features, such as inappropriate flags and ratings, but its far from flawless. One of the possible solutions comes from the upcoming “Audio Fingerprinting” technology. The interesting point about this is that it could, potentially, have multiple uses. Not only could it be used to weed out copyright infringing content, inappropriate content but also the subject matter of the video. Therefore, it would be possible to have targeted ads, Google Adwords style. Of course, if YouTube is planning this they should carefully consider the problems Google encountered in the same arena, such as trademark infringement and cross bidding on keywords.

The other option is to allow advertisers to hand pick videos, submitters or channels to target with their ads. This would come with a huge manual overhead and means that the majority of YouTube uploaders will simply not be presented with this opportunity. We’ve seen this on other sites where a two tier community is created, the haves, and the have nots. And, bear in mind that all uploaders will still generate revenue for YouTube through the existing ad streams.

The Real Story

This is where I think YouTube is heading with this revenue sharing idea. As far as I’m concerned this is aimed purely at the studios and record labels. There have been some simmerings under the surface regarding copyright holders making moves to bleed YouTube dry. Of course, in some cases thats fair enough. If you go onto YouTube and watch an entire episode of 24 and then click an advertisment to buy a 24 box set, YouTube will receive revenue. This is despite the fact they do not own the copyright to 24 nor did they invest any money in producing it. Fox, the makers of 24, would get nothing, despite having spent millions producing the show. Compare this to the very minimal outlay YouTube makes in bandwidth, and its clearly not right. Other cases are less clear cut, although the copyright holders will argue their case.

The solution seems blatantly obvious when we consider the features and technology being considered. If YouTube’s new Audio Fingerprinting algorithms can detect copyrighted material, which they are implying it can, which course of action will they take? On the one hand they can remove the video or block it from being uploaded/displayed. Or, and I think this is the key, they can put a pre-roll advertisment in and share the revenue with the copyright holder. Imagine it for a minute. you have little Jane uploading a video of her singing along to Britney Spears’ latest abomination, YouTube realises that the song being played in the video belongs to Ms Spears so it allows the upload to continue but adds a pre-roll advertisment for her new album.

Consider this from both YouTube’s and the Copyright Holder’s point of view. For YouTube, there are going to be costs associated with every video uploaded. These include bandwidth, storage space and CPU time. So if a video was discarded, it would not generate any revenue at-all, and thus constitute a big red mark on the balance sheet. The situation is similar for the copyright holder. They have to commit significant resources to find copyright infringement on sites like YouTube. When they find it, the content is usually removed (only to be re-posted shortly afterwards). Once again, a big red mark in the loss column. There is also a very dangerous game being played by copyright holders. Exposure is good, over exposure is bad and making a loss is even worse. Therefore, taking this to its logical conclusion you have YouTube making revenue from advertisments even where they do not have rights to the copyright (even where there is no copyright infringement per se, the content creator will hold the copyright). They also have an inbuilt compensation system, which will reduce costs and fend off the legal vultures. The copyright owners will get compensation for use of their IP as well as a natural amount of exposure, which is difficult to artificially manage. And the users, you and I, get the content we know and love, along with a free ad! And the lucky few of us on the inside, may make a buck or two.

This post was written on Tuesday, January 30th 2007 by Simon T and has been categorised under News , Opinion , Web 2.0. The trackback URL is here or you could add a response. If you really want to you can Digg this story  or add it to del.icio.us, Technorati Cosmos, Blinklist, furl or Reddit.

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