NOW IT ALL MAKES SENSE: GOOGLE TRIES OUT ADS ON YOUTUBE (WSJ, NYT)

By Nancy Vialatte

Google will roll out its first approach at selling ads within YouTube videos, it has been announced. The move comes nearly 10 months after Google Inc. agreed to buy YouTube for $1.65 billion and answers speculation concerning Google's formula for mining revenue from the site.

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. (WSJ)

�What we have come up with is a user-controlled ad format that is engaging,� Eileen Naughton, Google�s director for media platforms, told the New York Times. �We want our users to be able to accept and choose what type of advertising they engage in.�

YouTube plans to sell the 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, says the Wall Street Journal. YouTube has established revenue-sharing deals with more than 50 partners, including Ford Models and Warner Music Group Corp. but wouldn�t be led as to what percentage of videos on its site comes from its content partners.

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. (WSJ)

The NYT notes that, if successful, the video ads could persuade more media companies to license their content to YouTube as a way to make money from it, analysts said.

�Today, YouTube is a sunk cost for Google,� said Darren Aftahi, a securities analyst with ThinkEquity Partners speaking to the Times. �If they can couple the proper advertising with the proper content, there is a tremendous opportunity for the company.�