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Wednesday, October 19, 2011

A Fresh Look At You Tube

Just over five years ago (October 9, 2006), Google announced that it had agreed to purchase You Tube for $1.65 billion in stock. Patiently, many of us waited to see if this would lead to Google making big inroads into television advertising budgets. But, actually, to date, little has happened. As best as I can determine approximately 40% of total U.S. advertising budgets remain on some form of television (network and spot, network and local cable) and barely 1% on online video. Recent developments indicate that the lopsided ratio of TV to online video advertising revenues may finally begin to shift.

My interest really picked up recently when Google hired Lucas Watson. He had been Procter & Gamble's director of digital business strategy. Now, he is V.P. of Online Video Global Sales at You Tube. When a packaged goods pro is recruited by You Tube it looks as if they want to make a serious run at pulling significant funds from the TV advertising arena.

Interestingly, some media friends of mine at agencies say that they have tried to pull the rest of their shops into You Tube tests but they are meeting stiff resistance, especially from creative chiefs. In a long e-mail thread with an old friend and creative whom I really admire, I found the same answer my media buddies are experiencing. My friend wrote and I quote with his permission, "to sum it all up, I don't want my team's beautiful work running next to some horrible video that a 15 year old boy might have captured on his cell phone".

My friend has a point but I encouraged him to give You Tube another look and meet with a sales rep along with his shop's media team. Not many people have deep experience in an emerging medium such as online video. Things are changing quite quickly and a notion held a year ago might not hold water today.

To date, music, technology and some entertainment advertisers dominate You Tube placement. Other categories should give it a shot. Also, there is a huge local ad window open to them as You Tube serves their videos to one person at a time. Local retailers could benefit if you targeted certain types of videos viewed in specific locales. This window of opportunity is open now but we all know that Comcast and Time Warner have products in development that will be able to send customized commercials to several homes on the same street. Agencies and advertisers comfortable with local cable will go there without blinking if You Tube does not pick some of them off first and develop a track record of success.

Take a hard look at the quality of You Tube videos. Yes, it is largely homespun material. And, some are in questionable taste. But professional videos are growing and you can confidently place commercials around them.

Importantly, You Tube, by definition, allows an advertiser to ask people to become part of the message. Yes, you lose some control with mash-ups of your spots but it really can easily become a new kind of promotional platform if done right. Also, there are some nice promotional opportunities as well.

If you are a major player with multi-national support, do remember that Google has the deepest pockets in media history. If they produce original programming (Google Tube?), it would have a GLOBAL audience overnight. They now attract almost 800 million unique viewers per month. Even 81 year old Warren Buffett admits to watching You Tube for 90 minutes at a stretch to relax. What if you saw a brief promo for their new programming or series when you went to You Tube? The audience could grow as fast as some of their popular viral videos. And Google can fund it forever if it does not turn a profit initially.

An investment newsletter that I recently read says that You Tube is perhaps marginally profitable now and may add close to a billion dollars a year to Google's outsized revenues. So, the upside for You Tube is huge if Google monetizes it properly. Consider You Tube as a small hedge in your 2012-2013 video allocation. Two years from now you may thank me.

If you would like to contact Don Cole directly you may reach him at doncolemedia@gmail.com

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