Google tests ads in YouTube videos

Times Staff Writers

Almost a year after paying $1.65 billion for YouTube, Google Inc. is seeking some return on its investment.

YouTube on Tuesday unveiled a new form of advertising to cash in on its 130 million registered users, who watch 3 billion videos a month.

Dozens of other sites have tried ways to make money from the burgeoning popularity of online video. But YouTube’s size and influence could help its approach -- touted as less obtrusive and more effective than banner ads or in-video commercials -- become the industry standard.

“This is a strategy that will be widely adopted by other sites,” said analyst Greg Sterling, principal of Sterling Market Intelligence. “There has not been a really good way to monetize the video stream. This is a pretty interesting, thoughtful approach to that.”


Here’s how it works: Fifteen seconds into a music video for the band Madina Lake, an animated pink doughnut rolls along the bottom portion of the video with Homer Simpson in hot pursuit. Viewers can click on Homer to watch a trailer for “The Simpsons Movie” while the video they originally chose is paused. If they don’t click on the ad, it disappears after 10 seconds.

The experiment, which has been quietly underway for several weeks, features ads on videos from Warner Music Group, Ford Models and lonelygirl15. YouTube product manager Shashi Seth said he found that this approach had a higher response rate than traditional display advertising; 75% of those who started to watch the ads kept watching until the end.

Some of the ads, such as one campaign from Warner Music, let viewers browse through covers of albums by Linkin Park, Smashing Pumpkins and Lil Scrappy from within a YouTube video. Clicking on one of the album covers takes viewers to a website where they can learn about upcoming shows, watch videos or buy T-shirts and CDs.

Ad executives say YouTube may not be the first to experiment with advertising overlays, but the effort nonetheless won high marks as a promising alternative to other forms of online video advertising.

“It’s a really good option, because you don’t inhibit the user experience by delaying their enjoyment of a piece of content that they want to watch,” said Ian Schafer, chief executive of Deep Focus, a New York online ad agency.

YouTube’s Seth said the advertising system would allow advertisers to target specific types of consumers anonymously -- based on demographics, geography, time of day or type of content. For example, the information YouTube users provide when they sign up lets marketers advertise to female soccer fans, ages 18 to 34, who live in the Los Angeles area.

YouTube shares the advertising revenue with the video owners. Seth declined to disclose details or to say how much revenue Google expected the program to generate.

“It’s a step in the right direction,” Forrester Research analyst Josh Bernoff said. He noted that established media players might nonetheless chafe at Google’s insistence on retaining control over ad placement.


“This is yet another example of [Google saying] ‘Look, turn it over to us, and we’ll make money for you,’ ” Bernoff said. “Media companies tend to feel they have control of their own media.”