May 1, 2008 03:00 PM
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Tue Feb 9
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In comments to CNBC's Maria "Money Honey" Bartiromo yesterday, Google CEO Eric Schmidt declared that "advertising itself has value" in YouTube's efforts to achieve profitability. By which he likely means that a well-placed ad can, on occasion, actually help a potential customer find what they're looking for. But you know what else has value? Distribution. Never mind sophisticated ad-targeting technology — YouTube is subsidizing distribution of commercials, and if the company wants to profit, Schmidt might want to think about charging for it instead.
As it stands, a producer can contract with a liquor distributor to produce a commercial at a profit, and then distribute the commercial on YouTube without paying a dime — even reaching underage audiences. Or he can get paid to place brands in the hands of sketch-comedy players. Again, he makes the money, not YouTube. I'm not sure that "innovation" is required so much as doing what television has been doing for generations, which is charging advertisers to distribute their commercial content.
YouTube's incredible rate of user adoption and massive market share has been largely due to the fact that it's reached a critical mass of content, which is better than any advertising the site could have bought. There is no video search anymore, really, just YouTube. What the company needs to do now isn't brainstorm new and interesting ways to sell ads against free content, but leverage what other distribution platforms are already doing — including Google search.
Because even if the site doesn't want to charge Smirnoff to distribute the company's commercials, YouTube could at least charge to have Smirnoff ads appear on searches for specific keywords. And if the online video site policed for copyrighted material, not only would it help make nice with content providers, it would also mean YouTube could then charge them for the distribution of show clips as well — which, ultimately, serve as advertisements for the shows, both on television and online.
As NewTeeVee's Liz Gannes pointed out, "It's all smoke and mirrors until the products launch." I have a bad feeling that YouTube is thinking that "plinking" — embedding product links within videos — and other failed interactive ad schemes of the past will save them. If Google simply put the screws to the people who can pay to play their content, in the time-honored tradition of entertainment distribution racketeers throughout history, the site would have been profitable a long time ago.
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