Feb. 15 (Bloomberg) -- YouTube is running advertisements on videos more than 3 billion times a week, a 50 percent increase from May, helping Google Inc. wring more revenue from its largest acquisition.
Ad growth for the video-sharing website has also led to a surge in sales for makers of video clips for the site, said Shishir Mehrotra, director of product management at YouTube. The gain in ad-supported video views means that the company is making money on about one-fifth of its 14 billion weekly views, he said.
“A lot of it is based on growing ad products as well as growing inventory,” Mehrotra said in an interview. “Our partners are starting to see real success on the platform, and so they’re starting to invest.”
YouTube, which competes with premium-content site Hulu LLC and rental service Netflix Inc., is trying to expand revenue by keeping viewers on its site longer to woo more advertisers and create another billion-dollar business for Google, owner of the No. 1 search engine. YouTube more than doubled sales last year, beating total U.S. display-based advertising growth of 17 percent, according to researcher EMarketer Inc.
“Independently, it’s not going to be a game-changer, but it’s part of the non-search growth that investors are looking for,” said Aaron Kessler, an analyst at ThinkEquity LLC. “Longer-term you want to have more branded content or more professional content to drive growth.” Kessler rates Google stock a buy and doesn’t own the shares.
YouTube probably brought in about $710 million in revenue last year, up from $345 million in 2009, according to Sandeep Aggarwal, an analyst at Caris & Co. Mountain View, California-based Google doesn’t break out YouTube’s sales.
Aggarwal also said YouTube likely reached profitability last year. While the unit’s operating margin may be about 35 percent, it’s still about half of the margin in Google’s core search business, where the company places ads next to query results.
Ad-supported video views are a key metric for the financial health of the company, Mehrotra said. YouTube first reached 3 billion ad-supported views weekly in October after hitting 2 billion in May 2010 and 1 billion in 2009, he said.
Google, mostly due to YouTube, had more than 80 percent of the U.S. market for Internet-video views in December, making it the largest viewing site, according to ComScore Inc. No. 2 Yahoo! Inc. had 37 percent as many views as Google.
Comedy Skits, Dance Numbers
Content providers, who as a group upload more than 35 hours of video per minute to the site, make money from YouTube by allowing advertising with their videos as they grow in viewership. YouTube also attracts advertising dollars for its home page, where visitors often begin their sessions on the site.
Shay Butler, who posts video clips including comedy skits and dance numbers from Pocatello, Idaho, said he could quit his work in granite-countertop fabrications and installations because of YouTube. Butler makes money on shared revenue from YouTube and product placements in his videos. He says he made at least $100,000 last year thanks to his clips, and his videos have been viewed more than 250 million times.
“Back when I started, I didn’t know you get paid,” he said, noting his first check from YouTube was for less than $500. “YouTube advertising is getting better. People are starting to see the value.”
Alternative to TV
As part of its push to draw more advertising, YouTube is trying to position itself as an alternative to television. That’s a tough sell for a site better known for cat videos and babies burping, said Paul Verna, an analyst with EMarketer in Kennebunk, Maine.
“When you say a YouTube video, that means a short, user-generated clip,” Verna said.
Last year, YouTube hired Robert Kyncl, a former Netflix executive, to head up YouTube’s TV and film-entertainment efforts. He’s helping to bring more live-streamed content that makes the channel feel more like TV.
The company is also forming partnerships with sponsors that want to offer exclusive content. American Express Co. has been working with YouTube for the last four or five years, said Courtney Kelso, the credit-card issuer’s vice president of media and sponsorship marketing. The company has sponsored a concert series on the site featuring such artists as Arcade Fire, John Legend and Sugarland. American Express also has spent money on advertising on YouTube.
“It helps us capitalize on the viewer migration from broadcast TV to the more narrowcast-video viewing. We find it drives online buzz,” Kelso said. “We would definitely be looking to continue our significant level of investment -- and even increase when great opportunities arise.”
The company needs to do more to keep its viewers on the site for longer than the average daily 15-minute session, compared with the multiple hours consumers spend in front of televisions, said Hunter Walk, director of product management at YouTube. That involves efforts such as the Leanback service unveiled last year, which predicts what YouTube channels users want to see based on prior views.
“We need to get the point where YouTube is where you go when you just want to watch video, period,” Walk said.
YouTube has tried to distinguish itself by offering programming such as sports, including the Indian Cricket League and showing Major League Baseball games in Japan, where major TV broadcasters don’t feature the sporting events.
As YouTube expands its programming, advertisers also are getting help targeting users based on their interests, through a program started last year. And in December the company rolled out a new ad format called TrueView, which only charges advertisers when users choose to watch an ad. Now, advertisers can more easily invest in spots that are gaining viewer attention, Mehrotra said.
Hewlett-Packard Co. has done traditional advertising on the site and recently sponsored a live-streamed event that featured a new printer and comedy sketches, said Tariq Hassan, HP’s vice president of worldwide marketing and communications.
“It’s been an opportunity for us to experiment, obviously, with the younger digital generation,” he said.
To contact the reporter on this story: Brian Womack in San Francisco at Bwomack1@bloomberg.net
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