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If you needed a sign of just how audacious YouTube’s $100 million experiment in original content is, consider the asking price for advertisers: as much as $62 million for the exclusive on a package of “channels” in categories such as music or pop culture.
No one has paid that yet. Early deals are in the $5 million to $10 million range, but the aggressive asking price reflects the ambition for YouTube’s 96 premium “channels,” designed to bring to the site TV-like appointment viewing, as well as TV-like advertising dollars.
A smattering of the nation’s biggest marketers have signed on, including Unilever, which is sponsoring “Young Hollywood Network,” founded by well-known YouTube star R.J. Williams, Toyota, which is backing a host of channels targeted at women, including “Cafe Mom,” “Kin Community” and “Mom’s View,” and GM, which signed on last week to sponsor Red Bull’s action sports channel and a package of automotive-focused channels. Chrysler, AT&T and Lowes are also appearing on channels that have already been launched.
YouTube started conversations with brands and agencies in November in hopes of persuading them to part with chunks of their TV advertising budgets on a site once known for cat videos.
But there was a catch: To get exclusivity in the premium channels, buyers also had to make a huge investment across the rest of YouTube. While deal terms varied, it was typical for YouTube to guarantee that just 20% of the ads would appear in the new channels, with the rest running in other videos on YouTube.
“YouTube is a pretty vast place,” said one buyer familiar with the terms. “You are spending an awful lot of money on things that are nontargeted.” The terms reflect how YouTube hopes to use the channels — some fronted by celebrities or produced by major studios — to bring brand dollars into the rest of the site, which is a bit like the Wild West, with a wide variation in quality.
By making the sponsorships of channels and packages of channels exclusive, YouTube aims to ignite a frenzy among marketers afraid of being left out.
According to a rate card distributed to ad agencies, two hot verticals — music and pop culture — were $62 million apiece for one-year sponsorships, a package of sports channels was $40 million, an autos package was $16 million and a mom’s interest package $10 million. YouTube has since subdivided the verticals into smaller packages in categories such as “Celebrity News,” “Music and Film” or “Geeks, Gadgets and Games,” which cost $10 million to $20 million to sponsor. YouTube also lets advertisers exclusively sponsor a single channel for anywhere from $2 million to $4 million on an annual basis.
None of the megapackages have sold, but GM and Toyota’s deals are thought to be well north of $10 million for packages of channels, while Unilever is in the $5 million range for “Young Hollywood,” one of the channel partners with a long history of producing popular celebrity programming on YouTube.
The deals work out to $15 to $25 per thousand views, competitive with broadcast TV ad rates. At a low-end sponsorship cost of $500,000 a month, an advertiser would need roughly 25 million impressions to net a $20 CPM — unlikely for most startup channels.
Channel producers will make money from ad impressions that run on the videos they create or curate within the channel, but only after YouTube recoups its initial investment in them, which ranges from a few hundred thousand to $5 million. Those deals were also struck on a variety of terms, but the expectation for most is that they will clear their advances back within a year. After that, YouTube will split revenue 50-50.
The early advertisers are also big TV spenders, and while most have ad budgets devoted to digital, spending at these levels will inevitably mean shifting some dollars that once went to TV.
“In a world of finite marketing budgets, you do this in place of doing something else,” said David Cohen, chief global digital officer of Interpublic Group’s Universal McCann. Mr. Cohen has been in talks with YouTube for several clients.
The biggest obstacle to getting TV ad dollars is keeping viewers’ attention longer. Google VP-Content Robert Kyncl said in January that YouTube users were spending 30 minutes a day with the service, up from an average of 15 minutes in May. That’s still a far cry from the more than average five hours Americans spend watching TV.
It’s enough time that an advertiser like GM, which spent $240 million on Internet display advertising in 2010 (and nearly $1.2 billion on TV) according to Ad Age DataCenter, must place a bet there. “When you have this much fragmentation taking place among audiences, its important that you touch all channels,” said GM spokesman Tom Henderson. “We don’t think one medium will replace another anytime soon.”
Google is expected to capture $2.58 billion in display-ad revenue in 2012, or about 16.5% of the overall market, according to a recent estimate from eMarketer. In an estimate last spring, Citibank said YouTube revenue would exceed $1 billion in 2012.
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