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YouTube’s New Deal: Biz Wary of Revised Ad-Sharing Terms

Vid site is aiming to have the system fully implemented by Jan. 1

YouTube proselytizes the virtues of its massive, democratizing video platform: Everyone in the world is now a broadcaster, and with just an Internet hookup and a cool idea, you can make some cold, hard cash.

Now the Internet vidcaster is leveling the playing field for its content partners, including the movie studios and TV networks that provide some of the site’s most-viewed clips. YouTube is in the process of shifting all content partners (with few exceptions) to the standard 55/45 advertising revenue share. That will eliminate the more favorable 70/30 revenue-sharing terms that some media companies have had for years, according to industry sources.

The Google-owned site is spinning the change to its partners as an incentive for producers of high-value content. That’s because under the new terms, it will give partners 100% of the revenue for ad inventory they sell that exceeds YouTube’s rate card. Partners now will get 55% of ad revenue up to that CPM threshold, with everything above that rate returning to the content owner.

But will the revised scheme really attract more professional content — or drive it away?

Some YouTube content partners are upbeat about the move, and see the potential for more upside. “If they choose to deliver more incremental revenue back to content creators, that will be a good thing for the health of the ecosystem,” said Kiliaen Van Rensselaer, Fox Broadcasting’s senior VP of multiplatform programming.

However, other traditional media companies are concerned that they’ll ultimately earn less. And that could prompt an exodus of top-flight entertainment content from YouTube.

“It feels very bogus, very much a red herring,” said a top exec at a TV production company, who like others requested anonymity, because YouTube’s contract terms are confidential.

YouTube declined comment. Sources familiar with its strategy said the website is unifying the revenue-sharing to be fairer across the board to its partners, in response to criticism that it doesn’t pay enough to premium players.

One objection to the new plan is precisely that it treats all content as equal. “Who are they trying to be fair to?” wondered one senior media exec. “It’s giving an advantaged position to the person who doesn’t spend as much on content.”

Another problem: YouTube rarely sells ads at anything close to its published rates card, and that presents a channel-conflict issue since marketers can get better CPMs directly from Google, industry execs say. The YouTube rate card ranges from $18-$28 CPMs depending on the format and level of targeting but in practice its deals are closer to $13-$14, according to sources familiar with the site’s deal terms.

And, several bizzers pointed out, YouTube has the latitude to change the rate card anytime it wants. “What if that’s a $100 CPM? You could never sell above that,” said a senior media executive, adding, “I don’t think it helps them get premium content. The premium guys are going to re-evaluate their positions.”

YouTube is aiming to have the system fully implemented by Jan. 1, sources said. It began informing partners of the revenue-sharing change as far back as six months ago, and began setting the new terms a few weeks ago.

For Fred Seibert, founder of Frederator Networks, which operates the Cartoon Hangover channel on YouTube, the change is a welcome effort to reward premium producers. “It’s been a struggle for YouTube to figure out this balance between what is fair to partners and what makes their business go ’round, and we haven’t seen any movement on that for quite a while, so any movement is good.”

And YouTube actually shares the wealth: “They’re the only ones in the Web 2.0 universe who put their money where their mouth is,” Seibert said.

It may have to do more. Today, YouTube is the dominant Internet video player. But it could be increasingly challenged by the likes of Yahoo, Twitter, Facebook or Microsoft if they move to win over disgruntled partners, said David Cohen, global chief media officer at ad agency Universal McCann.

“If YouTube does not figure out a sustainable model for those content producers, those partners will find other outlets,” Cohen said. “YouTube is trading on the currency that it is pretty much the only game in town. But I think there is a lot of anxiety in the content community.”

Stream of the Crop

Some of YouTube’s most recent viral hits come from top media firms. Pictured up top (from left to right): “My Girl” – “SNL” Highlight, 3.2m+ views (NBC); “Who’s Better: Thor or Loki?” (Comedy Central), 2.9m+ views; “I Told My Kids I Ate All Their Halloween Candy” – “Jimmy Kimmel Live,” 11.8m+ views; “The Hobbit: The Desolation of Smaug – Sneak Peek” (Warner Bros. Pictures), 3.6m+ views.

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