U.K. broadcaster signs longform content pact

Can YouTube be the stopper in the profit drain that is bedeviling the broadcasting biz? Troubled U.K. network Channel 4 is betting on it.

Just weeks after he announced that he was ankling the pubcaster, CEO Andy Duncan finalized a deal that may be regarded as a defining moment for Channel 4 and, possibly, British media as a whole.

Channel 4 became the world’s first broadcaster to sign a longform content deal with Google-owned website YouTube. Beginning next year, U.K. Web surfers will be able to watch full-length TV shows for free.

Mainstream TV nets on both sides of the Pond have been vexed by YouTube and its ilk as demand for online access to programming has grown. Despite the growing aud, online ads still only command a fraction of the coin spent on traditional TV blurbs. So as more viewing migrates to the Internet platforms, nets worry that they’re shooting themselves in the foot by making a significant amount of programming available online.

After all, even Google hasn’t found the formula for mining significant riches out of YouTube, which it acquired for $1.6 billion in 2006. But YouTube has clearly been stepping up its efforts to garner more advertising and marketing dollars by showcasing more high-end content, such as its live webcast last month of U2’s “360” concert in Pasadena, Calif.

And in Blighty last week, YouTube unveiled a U.K. portal providing thousands of hours of longform content — including a taster for the full Channel 4 service, which begins in earnest early next year.

Channel 4’s deal with YouTube is a bet that the economics of online advertising are only going to improve in time, and the early adopters will be best positioned to benefit. U.S. Spanish-lingo broadcaster Univision is placing a similar wager, striking a wide-ranging content deal with YouTube just last week (see report this page).

“Making our programs directly accessible to YouTube’s 20 million U.K. users will financially benefit both Channel 4 and our independent production partners and help bolster our investment in quality British content,” Duncan says. “It demonstrates our ability to strike dynamic commercial partnerships to help underpin our future in a commercially funded, not-for-profit public service network.” Channel 4 is state-owned but paid for by advertising.

Among the fare available will be the comedy “Peep Show” and breakout teen drama “Skins,” both to be uploaded shortly after their original transmission, plus around 3,000 hours of archive fare.

The three-year, non-exclusive deal with YouTube gives the broadcaster what is believed to be a 70-30 split in advertising revenues for selling ads around its content, plus the ability to monetize other non-Channel 4 YouTube content via display ads.

In addition, Channel 4 gets a minimum guarantee, believed to be in excess of £5 million ($8.2 million) for the next three years.

If this sounds too good to be true, skeptics reckon it may well be. Some of the doubters argue that one reason why no other broadcaster in the world has agreed to this kind of deal with YouTube is because it risks turning Google into an even bigger behemoth. NBC Universal and News Corp. went in together in 2007 on the online vid site Hulu (a project branded in its early stages as the “YouTube killer”), which has been wildly popular with viewers but has yet to turn a profit for its partners. Disney joined Hulu as an equity partner earlier this year.

“The U.S. studios are too smart for something like this. That’s why Fox, NBC and Disney got into bed together in Hulu,” one critic says.

Rumors persist that Hulu is planning to launch a U.K. service in the near future, and there have been talks with leading private terrestrial web ITV regarding a possible partnership, but nothing concrete has emerged.

Whatever the dangers, few dispute the notion that networks need to get into online video.

Internationally, broadcasters are watching how the Channel 4-YouTube partnership pans out, before considering replicating it.

“This is potentially a good deal for Channel 4,” says Dan Cryan, head of broadband at media analyst Screen Digest. “In one easy move, it provides them with a significant extension of their reach while enabling them to keep control of ad sales.”

With YouTube accounting for an estimated 65% of U.K. online video viewing, the potential upside for Channel 4, which will continue to offer content via its own 4oD portal, is clear.

Nonetheless, there is a risk that by creating so much extra advertising space, Channel 4 could end up diluting the value of its online ad inventory simply because of its increased supply.

“There is a fine balance to be struck between extending reach and keeping online advertising prices high,” Cryan says.

What is undeniable is that in Blighty, as elsewhere, the market for watching online video is soaring.

This has escalated in recent years from just 7.5 million hours in 2005 to a predicted 410 million this year, according to Screen Digest.

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