Will YouTube's Hollywood Experiment Pay Off?

11:27 AM PST 11/03/2011 by Paul Bond, George Szalai

Experts are skeptical of the Google company's new initiative featuring 100 TV-style video channels.

This story appears in the Nov. 11 issue of The Hollywood Reporter.

YouTube ran around Hollywood for months trying to convince content creators to join its effort to launch 100 TV-style video channels on the Internet. So when the official announcement of the initiative finally came Oct. 28, many were underwhelmed by the mixed bag of celebrities (Madonna, Jay-Z, Ashton Kutcher, Sofia Vergara, Shaquille O'Neal ), established web-video outfits (BermanBraun, FremantleMedia, the WWE, Ben Silverman's Electus), niche sites (Young Hollywood) and news brands (Reuters, The Wall Street Journal) that Google hopes will eventually generate the premium ad revenue it covets.

"I'm generally skeptical of these original content deals on the web," says Steve Birenberg of Northlake Capital Management. "I subscribe to the couch-potato theory that American TV viewing habits change more slowly than industry analysts and observers fear."

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Most content partners are receiving very little upfront cash, but some have been advanced a portion of the estimated $150 million that YouTube has allocated to the overall project. If successful, YouTube hopes to meet its goal of driving the price of online advertising beyond what is commanded by, say, Charlie Bit My Finger, a 56-second YouTube video that was viewed 384 million times but took in only an estimated $500,000 in advertising. When the channels debut next year, partners will receive up to 55 percent of the ad revenue (generous, in TV terms) after advances have been recouped.

"It's like being a network executive," says Amy Poehler, whose Smart Girls at the Party hub with Meredith Walker and Amy Miles aims to provide funny and educational content from a female perspective. "You have more creative control, you are producing faster, and people see things quicker."

STORY: Analyst: YouTube Channels No Immediate Threat to Entertainment Companies

The initiative also is providing a platform for traditional media producers to try out a new niche, such as the animal-oriented channel to be launched by FremantleMedia. "This is one of the first steps as we look toward more digital opportunities," says Olivier Delfosse, vp interactive, mobile and digital content at Fremantle. "This is a category of content that already does well on YouTube." That YouTube can attract an audience isn't in dispute, given that 3 billion of its videos are viewed each day. And Forrester analyst James McQuivey believes there is so little money at risk that the upside far outweighs the down. "If this succeeds -- even if only as a promotional platform for the celebrities involved,- then it will be a winner," he says. "Celebrities can afford to risk their brand capital on this because they can turn their backs on it the moment it appears to fail."

Tom Taulli, founder of IPOPlaybook.com, figures that the YouTube initiative is Google's answer to video initiatives at Apple and Amazon. But, he warns, "to keep engagement high on the site, it will be important to have higher-quality content."

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