August 22, 2007; Page B3
Nearly 10 months after Google Inc. agreed to buy YouTube for $1.65 billion, the video-sharing Web site is rolling out its first approach for selling ads within videos. The anticipated move, announced last night, answers speculation concerning Google's formula for mining revenue from the site and is expected to start to bring standardization to the growing ad market for Web video.
Resembling a popular ad model cropping up on a number of other video sites, YouTube's new format is a semitransparent ad that appears on the bottom 20% of the video. The ad shows up after a video plays for 15 seconds, and disappears up to 10 seconds later if the viewer doesn't click on it. Viewers can either click to close the ad right away or to watch the commercial. If a viewer chooses to watch the ad, the main video pauses until the commercial stops.
During a video from Ford Models Inc. about how to create an evening hairstyle, an animated ad promoting Time Warner Inc. unit New Line Cinema's film "Hairspray" pops onto the bottom fifth of the video player. When viewers click on the ad, the Ford Models video pauses and a trailer for the film appears. Viewers can click on a link that takes them to the "Hairspray" Web site.
YouTube, a subsidiary of Mountain View, Calif., Internet company Google, plans to sell these ads only on videos from its select content partners, whose original videos include professionally produced clips and user-generated content. The partners will earn a share of the ad revenue. The system is similar to Google's AdSense network, which matches ads to the content of a network of Web sites, and gives those sites a cut of the profits. YouTube, of San Bruno, Calif., has established revenue-sharing deals with more than 50 partners, including Ford Models and Warner Music Group Corp. YouTube declined to say what percentage of videos on its site comes from its content partners.
YouTube started testing its in-video ad format in June and July on more than 200 videos from 20 content providers, and found that 75% of viewers watched the entire ad. The ads had five to 10 times greater click-through rates than standard display ads that appear on Web sites, YouTube said. Other ad models are in the works. In the past month, BMW AG has started testing in-video ads on YouTube. Before the German luxury-car maker commits significant ad dollars, it needs to see how the results compare with other forms of online-video advertising and how users respond, says Rinku Mahbubani, interactive-media supervisor at GSD&M, the ad agency representing BMW.
While YouTube's announcement could pave the way for more ad dollars to go into online video, marketing executives say a number of hurdles remain. Right now, producing advertising for Web video is a logistical headache. If an advertiser wants its ads to run on two different video networks, it usually has to negotiate deals and create different ads for each of the different sites. Marketers also are hesitant to advertise during unpredictable user-generated content, which makes up a large portion of videos on these sites. YouTube says that ads will appear only during "brand friendly" videos, and that marketers have the ability to target their ads to specific genres.
One format advertisers won't see on You Tube is the "pre-roll" ad, the video ads that viewers must watch before viewing a clip. With 55.1 million unique visitors who spent an average of 49 minutes and 59 seconds on the site during July, YouTube is the most popular online video site, according to Nielsen/NetRatings NetView. YouTube has spent months testing different ad formats to figure out which models wouldn't alienate its viewers. It found that viewers abandon videos that include pre-roll ads at a rate of more than 70%, so it ditched pre-roll commercials.
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