Rentals are a reach for YouTube

Commentary: New video venture will test Google

YouTube's modest foray into the movie rental business couldn't find a more fitting launchpad than the wintry Sundance Film Festival: What might seem the size of a snowball today could turn into an avalanche.

Or it just might melt away.

It didn't exactly send shock waves through the film world when YouTube announced Wednesday that it will stream five indie titles to users for a day or two at $3.99 a pop. Google execs will be at Sundance to sign up more filmmakers for the service.

Sure, it was the first entertainment product to come with a price tag on a Web site where everything is free, but fare such as "The Cove," the 2009 Sundance winner for best doc, isn't going to move the masses.

But despite the inauspicious start and the numerous obstacles that stand in YouTube's way, underestimation could be a mistake. Even a baby step is a big deal when you have a footprint the size of YouTube, which generates 1 billion page views every day.

To some degree, this Sundance experiment is a bit of a letdown given the way YouTube had been dropping hints that paid product was on the way. David Eun, Google's vp content partnerships, was telegraphing such a move as recently as last month.

Last year, the whispers of YouTube rentals spurred Think¬Equity analyst William Morrison to gush, "If Google is able to offer access to newer movie titles to its roughly 400 million users globally, we believe that it could become a billion-dollar business for the company within a few years."

Other estimations of the potential for online movie rentals are more sobering.

A Digitalsmiths survey in September found that 43% of online video viewers polled were either unlikely or unwilling to stream a rented movie for $2-$3. Piper Jaffray found that only 1% of total movie rental revenue in 2009 came from the Internet, compared with 54% in retail and 13% for VOD.

Getting into the rental business is tacit acknowledgement that YouTube cannot live on advertising alone. The company has spent the past few years toying with every kind of ad model imaginable, only to realize it might be easier to have consumers rather than marketers fork over money.

But launching out of Sundance, where YouTube can extol the virtues of independence and the creative spirit, is a fig leaf for the glaring omission in its new rental service: fresh movies from the Hollywood studios. While going day-and-date with theatrical releases is sheer fantasy, YouTube should at least be aiming for simultaneous windows with home video. Even lower-hanging fruit: moldy library titles, some of which YouTube already carries in ad-supported versions.

Without any of that material, YouTube is never going to move the needle toward significant revenue. In contrast to iTunes, with which Apple made a splash in 2006 by strolling online hand-in-hand with Disney, the absence of studio pics in YouTube's rental extension is an unwelcome reminder that Google always seems to be inching its way forward into the entertainment space instead of taking a real leap.

In fairness, YouTube has come a long way in a short time. It wasn't that long ago that longform video in any capacity seemed unlikely to find a home on the site. YouTube since has struck a few deals with CBS and Sony for full-length TV shows and films -- but for nothing too current or voluminous to disrupt the sacred succession of exhibition windows where Hollywood makes its money.

YouTube seems to be able to get little traction outside of indie circles, where nearly all of its entertainment forays were made last year. Luc Besson's "Home" and Wayne Wang's "The Princess of Nebraska" enjoyed YouTube premieres that no doubt maximized exposure for these films.

If the knock on YouTube a few years ago was that its stock in trade seemed to be videos of cats on skateboards, its snail-paced crawl to the monetization of premium content has done little to change that. Google held negotiations with Warner Bros., Lionsgate and Sony to get them on board for YouTube rentals, and their absence is not a good sign. That said, those companies probably are playing wait-and-see, hoping that indie films score the kind of success that make the platform worth playing on.

Unlike the wide-open playing field for free Internet video that YouTube conquered at its inception, the online rental space already is cluttered with big brands: Apple, Netflix, Amazon and Blockbuster, to name a few.

But it's worth noting that for all the progress these companies have made, none of them has dominated a marketplace still taking shape -- which makes YouTube's late entry notable; when your sheer size is that monstrous, even the slightest foray makes it an automatic contender.

YouTube's honeymoon at Google is long over. The golden boy of 2007 is now the whipping boy of 2010, under increasing pressure to earn its keep rather than just be a sinkhole of bandwidth costs. Independent film had better be just a canary that can wing it through the coalmine of digital distribution.

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