For months, Google, YouTube's parent company, has been talking to the major film companies about launching an ad-supported, streaming movie service, two execs with knowledge of the negotiations told CNET News. "It's not imminent," said one of the executives. "But it's going to happen. I would say you can expect to see it, if all goes well, sometime within the next 30 to 90 days."
To be sure, not all the studios are prepared to give YouTube full-length movies. Canadian film company Lionsgate agreed in July to give YouTube access to only short movie clips. At least one other studio is trying to cut a similar deal for short-form content with Google, said a separate high-level industry insider.
There's skepticism in some circles about whether enough ads can be placed into a streaming movie to make it profitable without also overloading viewers with commercials. Another sticking point is Google's insistence on using a specific ad format, such as prerolls or postrolls, for feature films, according to two studio sources. They declined to say which ad unit Google prefers but said some of the studios want the final say on how to advertise to viewers.
Google declined to discuss specifics, but a company spokeswoman issued this statement: "We are in negotiations with a variety of entertainment companies. Our goal is to offer maximum choice for our users, partners, and advertisers."
What is certain is that YouTube's original hope of building a behemoth business exclusively around short, homemade videos is --to this point at least--a bust. The company captured the world's imagination by showcasing 10-minute long user-generated videos but that hasn't yielded much in the way of profits. Three years later, the company is turning to professionally made films and TV shows.
YouTube vs. Hulu
A showdown between Hulu and the 3-year-old YouTube was inevitable. Consider that Hulu, the joint video venture formed by NBC Universal and News Corp., attracts only a fraction of the 80 million people who visit YouTube each month, but Hulu still managed to generate nearly the same revenue in it's first year in business, according to reports.
Over the past year, Hulu's advantages over YouTube have been clear. Hulu attracts more ad revenue because advertisers understand full-length TV shows and films better than they do the typical user-generated fare. Something else Hulu has going for it is a superior video experience. Hulu's player offers some of the clearest images found on the Web.
YouTube's new wide-screen player presents video in a less pixilated 16:9 format than the site's standard player, but it falls short of providing Hulu-esque quality (who knows, YouTube's player might be good enough for YouTube fans).
And here's what YouTube offers that Hulu can't: 80 million monthly visitors. No other video site comes close. "We'd love to have our long-form content in front of that audience," said an executive with a studio close to reaching an agreement with YouTube.
YouTube's move to join the growing number of competitors trying to deliver movies over the Internet isn't entirely unexpected. Last month, CBS, parent company of CNET News, announced it had agreed to post full-length TV shows on YouTube. That same month, Google rolled out a new wide-screen video player built to display long-form content.
In addition, Google has lamented publicly YouTube's inability to generate significant income. Some people, including me, predicted it was only a matter of time before Google began obtaining rights to TV shows and films.
But I didn't believe Google could manage to put all the bad blood behind it this soon.
Kinder, gentler relations?
YouTube was supposed to be despised by the entertainment industry. Viacom CEO Philippe Dauman last summer called YouTube a "rogue company." YouTube became the Web's No. 1 video site and amassed an enormous following, partly by becoming a favorite place for people to post pirated clips of TV shows and movies. YouTube got rich on the backs of filmmakers, or so it seemed to many content owners.
To make matters worse, Google often took a hard line in negotiations with the studios, according to multiple sources. Things got hostile enough for Viacom, parent company of Paramount Pictures, to file a $1 billion copyright lawsuit against Google last year. That case continues to play out in the courts.
But then Google's approach to Hollywood changed dramatically. Google actually began wooing the studios and won over many a bitter studio suit by developing systems that help them either thwart piracy or profit from it. Google representatives also became more flexible about sharing ad revenue, according to insiders.
How far the relationship between Hollywood and Google will go is anybody's guess. It's going to be hard for YouTube to land Universal or 20th Century Fox because each has a parent company that owns a stake in Hulu.
"Will (Google) try to get into the same space as Hulu, of course," said one studio executive. "Lots of people will."
Google also wants to deliver all the ads and this is problematic because some other companies do a better job, according to one of the executives. He singled out Auditude, which enables a content owner to insert ads into clips wherever they might appear on the Web. This means that if someone posts a pirated copy to some blog or message board, Auditude can slip an ad within the player and allow the rightful owner to turn a buck.
The one thing that Google and YouTube should be encouraged about is that a growing number of Hollywood executives believe there is a large and growing number of consumers interested in watching films on their computer.
"Our movies are consumed frequently and for long periods of time on the net," said the exec whose company is in talks with Google. "We're big believers in long-form feature film content on new media platforms."
By Greg Sandoval