Google Inc. has seen the video future, and it is YouTube.
The search giant is pulling the plug on its video-download store, which Google only last year said would become a vibrant marketplace for video producers to sell or rent their work to customers. Early partners included CBS and the National Basketball Assn.
But instead of offering an online alternative to the Hollywood machine, Google Video showed that people prefer to get their online video free -- even if that means watching some ads.
“Google Video was a failure,” said Charlene Li, an analyst with Forrester Research. “They focused on video while YouTube focused on the community around video.”
That’s why Google is doubling down on YouTube, the free video-sharing site it acquired in November for $1.65 billion. YouTube is exploring ways to generate advertising revenue without driving away viewers.
Mountain View, Calif.-based Google alerted customers by e-mail Friday that it would stop selling and renting movie downloads Wednesday. It will offer refunds or online shopping vouchers for previously purchased videos, which won’t be viewable anymore.
Google sought to portray the move not as a failure but rather as an experiment that revealed how best to approach online video.
In the months after its YouTube acquisition, Google said its two video offerings would coexist -- Google Video would become a tool to search for video across the Web, while YouTube would be the place people would go to post videos, watch them and talk about them.
Google spokesman Gabriel Stricker said the effort to sell and rent videos was “an important test” for Google Video, which is still in beta mode -- geek speak for “not finished yet” -- long after it launched at the Consumer Electronics Show in January 2006.
“The current change is a reaffirmation of our commitment to building out our ad-supported monetization models for video,” Stricker said.
One of CBS Corp.'s first online deals was to rent shows such as “CSI” and “The Brady Bunch” through Google Video.
At the time, Apple Inc.'s iTunes was the only online video store that had showed any momentum. And CBS didn’t know whether an online audience would tolerate watching ads before videos on their computers.
But when CBS put its shows on its website for free, audiences proved much more willing to watch them along with the ads than they were to pay $1.99 an episode at Google Video.
“It was no comparison,” said Larry Kramer, former president of CBS Digital Media and now an investment advisor. “It was just clear the audience was more interested in free. But they were also willing to watch ads. Nobody knew that was going to be the case.”
CBS isn’t the only one making that discovery. Consumers spent about $29 million to buy or rent downloaded movies and shows in 2006, according to Adams Media Research in Carmel.
But online commercials, known as in-stream advertising, generated $402 million in revenue last year and were projected to reach $700 million this year, he said.
That hasn’t stopped major players from trying to crack the digital download puzzle. Most think the missing piece involves letting people buy videos on their computers but watch them on TV or hand-held devices.
Amazon.com Inc. unveiled its Unbox download service last fall and lets TiVo subscribers watch the movies and TV shows they’ve rented or purchased on their TV.
Video gamers can watch movies or television shows through Xbox Live, an online service connected to Microsoft Corp.'s Xbox 360 game console.
And Apple’s iTunes store has sold millions of TV shows and movies that can be viewed on the iPod.
Google Video downloads can be watched on a computer but not on an iPod or TV.
Google never disclosed how many videos it sold. But the failure of its video service came as no surprise to Ben Rekhi, a 28-year-old Santa Monica filmmaker whose movie, “Waterborne,” was highly touted when Google Video launched.
Rekhi had turned down a six-figure theater and DVD distribution deal to distribute his film through Google.
“The online video revolution was in full swing,” Rekhi said. “We had this opportunity to make history.”
His gamble turned out badly. Although 80,000 viewers streamed his movie when it was available for free in the first week, just 300 people bought it in the following months.
Rekhi eventually pulled the film, which was selling for $3.99 a copy, off Google in July 2006.
“It was an exciting opportunity and amazing experience to be a pioneer in the digital distribution realm,” he said. “But with any new technology, there’s going to be a few lambs that get slaughtered. We just happen to be that.”