Now Playing on YouTube: Ads

Source: BusinessWeek

Fifteen seconds into a rock music video on YouTube, a large pink-frosted donut rolls across the bottom of the screen, obscuring the image of the musician's girlfriend. A beat later, a bright yellow Homer Simpson chases after the cartoon confection. The ad for an animated movie based on the popular Fox television show contrasts sharply with the tone of the somber emo video, but it gets the message across: The Simpsons Movie is playing in theaters now.

There's an even bigger message conveyed by Homer and his donut: For the first time, ads are playing in videos posted on Google's video site, and watching clips on the world's most popular video-sharing site may never be the same. The move to include ads with videos was expected. Ever since Google bought YouTube for $1.65 billion last October, it has said new forms of advertising were on the way (see BusinessWeek.com, 10/10/06, "YouTube's New Deep Pockets"). Analysts say it's a smart way to generate greater revenue from online video, but viewers may nevertheless balk at having ads clutter an in-progress clip.

Embedded Advertising On Aug. 21, Google announced plans to show ads within thousands of YouTube videos, breaking with the current practice of placing ads on a page where videos are featured, but never inserting them immediately before, during, or after the clip plays on screen. The new ads will primarily appear as translucent animations or graphics overlaid on the lower section of professionally produced videos, such as those from media companies like Warner Music Group. In some cases, Google will also place ads on clips created by amateurs. "This is the first time that we are inserting an ad within the video experience itself," says Eileen Naughton, Google's director of media platforms.

Google will charge advertisers each time an ad is shown, sharing part of the revenue with the maker of the video, including the chosen few individuals whose homemade videos are deemed worthy. Google began a revenue-sharing program with users back in May. It plans to append ads to more user-generated videos that have been vetted for copyrighted material.

The Web search giant could find other ways to wring sales from its new practice. Google could charge more for clicks on the ads or specific actions, such as purchasing a music download after being prompted by an ad. "We are continuing to experiment with other formats, and as time goes by I'm sure we will continue to create and introduce new formats and expand on existing formats," says Shashi Seth, a group product manager at YouTube.