This story first appeared in the May 11 issue of The Hollywood Reporter magazine.
Competing for a chunk of advertising cash at this year's upfronts is the biggest distributor of video in the world: Google's YouTube, where 800 million people view 3 billion hours of content each month.
YouTube is hosting 1,000 top advertisers, agencies and content partners May 2 at its Brandcast event at New York's Beacon Theatre, where it will show off programming from some of its 60 or so new "original channels." The move is part of a first-ever coordinated effort dubbed "Digital Content Newfronts" among major digital content players—including AOL, Yahoo, Microsoft and Hulu—to siphon ad dollars away from traditional broadcasters.
To that end, in October, YouTube vp and global head of content Robert Kyncl debuted the original channels concept as joint ventures with about 100 content producers. YouTube advances each partner up to $5 million, and it keeps the ad money it collects until the advance is paid off; revenue after that is split, and the producers get more than half.
Some of the channels that have launched already include ones from Madonna, Tony Hawk and Felicia Day. By September, channels from Shaquille O'Neal, Amy Poehler, Rainn Wilson and dozens more will have bowed.
YouTube isn't divulging how its advertising sales are going, but according to Advertising Age, the company has been pitching packages that sell for as much as $62 million annually (though none has yet sold). Single-channel sponsorships are going for $2 million to $4 million, and a package that includes ads on all of the sports-related channels runs $40 million, whereas advertising across all of the celebrity news sites costs $10 million.
There's money to be had. Last year, the broadcast nets took in $9.2 billion at the upfront, an 8 percent gain compared with the year prior; cable pulled in $9.3 billion, up 16 percent year-over-year. Morgan Stanley analyst Benjamin Swinburne says he expects $3 billion to be spent on online video this year, with much of that going to established sites like ESPN.com and Hulu's streaming episodes of broadcast series. So far, some of the more popular YouTube channels include music-video hub Noisey, with 27 million views in less than two months, TED Education (1 million views its first week) and auto-enthusiast channel Drive (7 million views since launching Jan. 1).
Toby Gabriner, president of video advertising marketplace Adap.tv, estimates that YouTube eventually will command CPM ad rates in the high teens for its original channels because they will attract a more desirable demographic, whereas the most it gets for user-generated amateur videos -- like "Charlie Bit My Finger"-- is $10. "It's not strictly about audience size, or YouTube would already be making billions," he notes.
While Toyota is sponsoring channels targeting women and GM sponsors an action-sports channel from Red Bull, most of the ads so far are auction-based one-offs, according to insiders. Sponsorships, though, are the goal. Sony is closing in on a deal to run multiple ads for That's My Boy -- an Adam Sandler comedy due June 15 -- on The NOC (Network of Champions), a channel that explores the more personal sides of athletes, who appear for free. One, for example, has Nick Swisher of the Yankees in a pingpong tournament with YouTube comic sensation KevJumba. The video has been watched more than 1 million times, says NOC co-founder John Hirsch. He says he began pitching the idea of a comedic, pro-athlete lifestyle channel to YouTube in July, and they closed the deal in October. YouTube advanced north of $2.5 million to NOC, say insiders.
"Statistics and instincts tell me the audience is moving online, so that's where we're going," says Hirsch, one of many YouTube original channel producers attending the upfront event. "Will this be a professional business from day one? No. But we'll figure out the financial stuff as we go along."