Online BusinessThe treatment
YouTube movies: Google is taking YouTube to Hollywood. The film business might help address the internet video site’s biggest problem – it loses money. Sure, it generates huge amounts of traffic. But it costs serious money to set up and run the server-farms that allow anyone anywhere to watch that adorable cat play the piano. And advertising revenues have been in short supply.
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The site’s increasing popularity in poor countries, where the hopes of recouping mounting costs with ad revenues are slim, exacerbates the problem. So it’s discussing a different approach: releasing films on the site – for a fee – as soon as they are widely released on DVD, or even before. This will generate much needed revenues. But it’s unlikely to staunch YouTube’s losses. The problem is that consumers already have lots of other options.
Competing sites such as Netflix already stream many movies for free to customers who pay a monthly fee. In the US, cable and telecom companies offer video-on-demand for the same $3.99 per video price that YouTube is thought to be considering. And Redbox, with its $1-a-night automated DVD rental machines, is cheaper for customers who can muster the energy to get off the couch. Moreover, as newspaper websites have shown, it is difficult to convince users to pay up for a site that has long been free. Also, YouTube is widely considered a place to watch amusing short videos, not long films, although some sort of exclusive window on hot films might change that perception.
But the studios will be wary of letting Google get too much exclusivity. They wouldn’t want to let the company duplicate its dominance in the search business, a dominance which generates the vast cash flow that fuels loss-making escapades like YouTube.
So while film studios will encourage YouTube to offer their wares, they are likely to try to keep it in line by licensing film rights broadly, without exclusivity. That will give Google something to sell – but is far from an assured path to making YouTube a profitable business.