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In YouTube's corner

Dmgi_banner Tuhin Roy is a top exec at the Digital Music Group Inc., a distributor of digital music and video that recently struck a revenue-sharing deal to put its wares onto YouTube. Ask him why, and he'll give you an answer straight out of the Willie Sutton playbook: it you're trying to make money in an advertiser-supported business, you have to go where the viewers are. Or, as he put it in a recent interview, "To the extent that there are going to be ad-supported video services (online), YouTube will be in a leadership position because they've aggregated so much audience."

YouTube isn't generating much money for anybody at this point, largely because the company has taken a minimalist approach to advertising. Paid spots are confined mainly to banners on the menu pages. This is a company that's incredibly well positioned to sell targeted ads, given how much its users reveal about themselves as they search for and comment on clips. And its users' hunger for video makes the site a natural for video advertising, which can be much more lucrative than banners and search ads. According to Roy, however, YouTube plans to run ads on video pages only if it has a licensing deal with the clip's copyright owner. That's why deals such as the one between DMGI and YouTube are important for both companies.

So why are the likes of Viacom and other major content providers rattling sabers at YouTube, rather than trying to tap the potential spigot of advertising dollars? It's tempting to say that Roy "gets it" and Hollywood doesn't, but that's too facile (even for me). Instead, it's a matter of upside vs. downside. The biggest brands have the largest revenue streams to manage, and they worry about YouTube eating into those streams by drawing viewers away from established outlets (like, say, broadcast TV). DMGI, on the other hand, is focused on building an audience, not preserving one, and YouTube can expose DMGI's fare (including such classic TV fare "I Spy" and "Gumby") to tens of millions of new viewers. In fact, the fencing match between Hollywood and YouTube may actually help smaller players like DMGI. The Viacom and company spend on the sidelines, the better chance DMGI will have to win over YouTube's faithful.

If you doubt YouTube's power to elevate brands out of obscurity, consider the new music video by Canadian hitmakers Barenaked Ladies. It features several amateur filmmakers made famous, at least within YouTube, by videos posted there. If you've spent little or no time on YouTube, you won't recognize any of them. But if that's the case, you really don't get it.


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Times editorial writer Jon Healey pens opinion pieces about a variety of business issues, and blogs about technologies that are changing the entertainment industry's business model.

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