CONFIRMED: YouTube Negotiating With Studios to Rent Movies Online

Posted by: Rob Hof on September 2, 2009

YouTube is negotiating with major Hollywood studios on a plan to stream rented movies on Google’s popular video-sharing site. If an agreement is reached, still an uncertainty, it would be the first foray by YouTube beyond advertising.

The talks between YouTube and Warner Bros., Lions Gate Entertainment, and Sony, with which YouTube already has relationships, first reported on the Wall Street Journal’s Web site, are in very early stages, and details could change, according to at least two sources. Sources indicated any agreement could be several months away, and could involve other studios as well.

Reports indicate that YouTube was open to charging for videos, rather than simply depend on advertising to fund them, if it could get movies at the same time they become available on DVD. The rentals could cost about $3.99, the same rate Apple’s iTunes Store charges for new movie rentals and similar to video-on-demand prices. To date, the movies available on YouTube under agreement from studios have been older or less popular titles.

If reached, the deal would put YouTube in direct competition with online movie rental services from Netflix, Amazon.com, and Apple. YouTube is by far the most popular video site, though much of the material is either clips or snippets provided by studios and other companies for marketing purposes or videos contributed by amateurs. YouTube’s traffic, however—Google sites, chiefly YouTube, drew nearly 121 million viewers in July, according to comScore—represents a huge audience ready for movies and other professionally produced video.

For the past year or so, Google has pressed to come up with ways to make money on YouTube, which is believed to be losing money, though how much remains a matter of great debate. It has come out with a series of new ad formats. But so far, even Google CEO Eric Schmidt has conceded that the site hasn’t lived up to its revenue hopes.

The talks follow a gradual thawing of relations between YouTube and at least some studios. On Aug. 19, Time Warner said it would distribute movie clips and shows on YouTube, sharing ad revenue with the video site. At the time, Jeff Bewkes, Time Warner chairman and chief executive, said in a statement: “Working with YouTube, we expect to improve our ability to monetize this short-form content through new and creative advertising initiatives.”

A copyright infringement lawsuit by Viacom, however, is still pending. That lawsuit, and the difficulty in keeping unlicensed material off YouTube, no doubt will figure in any negotiations.

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.

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