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Google's YouTube in Talks to Let Video Creators Charge Viewers

February 8, 2013 By AMIR EFRATI

Google Inc.'s YouTube video site has been in talks to allow video creators to charge viewers to access their content sometime later this year, said people familiar with the discussions.

The move would add a new revenue stream for YouTube and its thousands of content partners, and it could potentially help the site lure new video creators who want a subscription model rather than rely only on advertising, these people said. YouTube executives have long discussed such a possibility publicly, so the discussions aren't a surprise.

"We have long maintained that different content requires different types of payment models," said a YouTube spokesman on Tuesday. "There are a lot of our content creators that think they would benefit from subscriptions, so we're looking at that." He declined to comment further.

The initiative, earlier reported by Ad Age, could take several forms, these people said.

In one scenario, video creators would start new channels and charge a subscription fee. In other possible models, creators would charge a fee to viewers who want to get early access to videos, known as "windowing." Many video creators say that such models are preferable to converting their free channels into paid ones.

Such "windowing" models have previously been tested with some success. In 2007 and 2008, online-video creator Revision3 charged viewers a $50 annual fee or $9.95 per month to access videos from an online "channel" called "Diggnation" two days before the videos were posted publicly. The company shifted away from the model when it started to focus on selling advertising against the video content, and it said it faced some problems when a few "techy" viewers posted Diggnation videos on other sites.

Still, "we learned that people will pay if you have an engaged audience," said Jim Louderback, chief executive of Revision3, now owned by Discovery Communications. He declined to comment on the current activities of YouTube, where Revision3 has a big presence.

In pursuing the initiative, YouTube also hopes that owners of struggling cable-TV channels might opt to move their content to YouTube, these people said.

YouTube has talked about the matter with select video creators but hopes to make subscription tools available more broadly, these people said. YouTube already generates some revenue from offering movie rentals or purchases that can cost between $1.99 and $14.99.

Mark Mahaney, a stock analyst at RBC Capital Markets, estimates that YouTube generated about $4 billion in revenue in 2012, up from $2.5 billion in 2011. He expects the site to generate $5 billion in 2013, though about half of the revenue is paid out to content creators who share in the advertising revenue.

The new paid-subscription fees also would be shared between YouTube and the content creators, said the people familiar with the matter.

In recent years, YouTube has moved far beyond its roots as a home for amateur content. There are now many "channels" on YouTube with hundreds of thousands of "subscribers" who await new videos from the channel creators.

In a bid to attract more advertising dollars and shift advertiser budgets away from TV, YouTube over the next few years could end up spending hundreds of millions of dollars in cash advances to video producers around the world to create high-quality, original content for YouTube.

YouTube already has funded the creation of new channels for the U.S. market, where it paid more than $150 million in cash advances to content creators such as comedian Amy Poehler, Hollywood director Jon Avnet, and musicians such as rapper Jay-Z. It also is working with big content producers such as Walt Disney Co. and European ones including Endemol NV, which produces shows such as "Fear Factor" and "Big Brother."

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