YouTube turns to the big studios

Once considered the scourge of traditional entertainment, YouTube is making an aggressive new play to earn friends in Hollywood.

The Google Inc.-owned Web video giant Thursday unveiled a new section on its site and an advertising program designed specifically to showcase TV episodes and feature films.

YouTube’s effort to play nice with studios and networks underscores how important Hollywood’s content is in the company’s efforts to increase revenue and develop a profitable business model. Google acquired YouTube for $1.65 billion in 2006 on the assumption that it could turn massive traffic into a healthy business. But that has proved elusive, and a recent report by Credit Suisse estimated that the site will lose $470 million on about $240 million in revenue this year.

At the same time, YouTube has been challenged by the growing popularity of Hulu, a joint venture between News Corp. and NBC Universal, which features a huge library of TV shows and movies.

While YouTube remains the 400-pound gorilla in online video, with 5.3 billion views in February, that figure has remained roughly flat this year. Hulu, by contrast, grew 38% in the first two months of 2009, and since its launch just over a year ago has leaped ahead of rivals such as Microsoft and AOL in users watching video online. Walt Disney Co. is also negotiating for an ownership stake in Hulu in exchange for supplying the site with Disney-produced movies and TV shows.

YouTube’s new section, dubbed “YouTube Shows,” is essentially a Hulu competitor that separates TV shows and movies from the site’s hundreds of millions of user-generated videos. It’s designed to make it easier for users to find long-form videos from Hollywood producers and to draw marketers that aren’t comfortable advertising against a 30-second clip of a teenager crashing his skateboard.

So far, however, the networks and studios are withholding their recent blockbusters and hit shows from YouTube. Hollywood companies working with YouTube Shows include CBS, Lionsgate, MGM, Starz and Sony Pictures. But almost all of the content they are providing consists of older films and TV series from their libraries. The only new program is CBS’ “Harper’s Island,” which the network is distributing widely online in an effort to boost mediocre ratings.

“Our hope is that we will work with our existing partners to prove the model,” said Shiva Rajaraman, a senior product manager at YouTube. “The number will increase over time and manifest in better and more diverse content.”

In a similar move to better feature and monetize music videos, YouTube last week made a deal with Universal Music Group to launch a section called Vevo.

Over the longer run, Google is betting that its best selling point for Hollywood partners is a new advertising program, called TV Ads Online, through which it will sell and service ads that can run in the middle of TV episodes and movies streaming on the Web.

Although TV Ads Online is starting on YouTube Shows as a beta test, Google is aiming to expand it to work with video on any partner’s website.

The idea is to make Google, which just two years ago was sued by Paramount Pictures owner Viacom Inc. for $1 billion over its alleged encouragement of piracy, into a close partner and significant revenue generator for studios and networks trying to deal with their own business troubles on the Web.

“Since it was bought by Google, YouTube has had to figure out how to protect intellectual property and deal with its own issues in attracting advertisers to user-generated content,” said Curt Marvis, president of digital media for Lionsgate. “That has brought it to this natural place where it needs professional content and real advertisers.”

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benfritz@yahoo.com