From Adage.com ( http://adage.com/digital/article?article_id=138136 ) today.

YouTube Ad-Serve Play Opens It Up to Big Media Content Players

FreeWheel Test Could Draw CBS, Warner, Up Ad Ante Past 9% Mark

by Michael Learmonth
Published: July 27, 2009

NEW YORK (AdAge.com) — After years of playing mostly aloof to theconcerns and dramas of Hollywood and New York, YouTube is showing a newflexibility with Big Media as it builds its brand-advertising business.

Today, YouTube begins a test today with another outsidetechnology, FreeWheel, a video-ad server founded by ex-DoubleClickexecs. YouTube has long allowed partners to sell their own ads, butwith FreeWheel, they'll be able to serve the ads as well, meaning thesame ad could appear in the same content no matter where it is, onYouTube or elsewhere.

That opens up YouTube to a host of big media companies such asCBS and Warner Bros. that are using FreeWheel, as well as web-onlycontent companies such as Demand Media and Next New Networks. Thetechnology allows YouTube to be part of a greater network ofdistributors, which is a strategy many content owners are adopting, orat least those not working exclusively with Hulu.

In just the past few months, YouTube has allowed studiopartners such as Sony Pictures and ESPN to place their own videoplayers on YouTube, integrated with non-YouTube or Google technologyfor the first time. This lets Sony and ESPN/Disney insert their own adsand attribute the traffic to their own networks, which they can measurewith third-party firms such as Nielsen and peddle to advertisers.

With the new players has come ad formats once anathema toYouTube's free culture, such as pre-rolls. YouTube itself has startedto experiment with pre-roll ads, the most invasive type of advertisingfor web video, but one favored by Madison Avenue because it's theeasiest way to repurpose creative from existing TV ads.

'Giving up some control'
YouTube ProductManager Phil Farhi said the latest deal with FreeWheel is about"helping partners that have embraced broad syndication."

"The old way was you either sent the ad hardcoded or letYouTube pick the ad," said FreeWheel CEO Doug Knopper. "Now they aregiving up some control over what ads appear in content in order to getmore ad revenue."

More ad revenue is what YouTube is about these days now that itis expected to deliver to Google's bottom line in relatively shortorder. YouTube has long been cagey about giving out stats, but hasindicated that the percentage of "monetized views" in the U.S. is over9%.

"In the not-too-long-distant future, we will actually see a veryprofitable and good business for us," said Chief Financial OfficerPatrick Pichette in Google's last earnings call. Shishir Mehrotra,YouTube's director-product management, said on a global basis thenumber of monetized views has tripled in the past year.

YouTube once was run by the same tight philosophy as Google'ssearch business, as a self-serve tech platform that accommodates theworld's video. In response to the industry's early legal threats (and a$1 billion Viacom suit) YouTube implemented Content ID to screen outcopyrighted material, but that had a self-serve aspect to it as well,in that content owners could claim their video and allow YouTube toplace ads on it.

Equal treatment
Now there's arealization that a lot more handholding and flexibility is going to benecessary to get the kind of video that brings brand ad dollars withit. YouTube execs will tell you it's not about favoring one type ofcontent over another; that YouTube wants to give small providers thesame treatment as a web-only producer such as Machinima or a big studiosuch as Disney. But it's clear YouTube is reinventing itself from aone-size-fits-all machine into something else.

"We are the most flexible distribution outlet that contentpartners have," Mr. Mehrotra said. "We're flexible in how we sell andserve ads; we're flexible in ad formats. The more flexible we are inhelping them reach their needs, the more successful they can be and themore successful we will be."

YouTube has even formed a joint venture with the biggest musiclabel, Universal, in a bid to generate more revenue from its biggestsource of views, music videos. Vevo, as the venture is called, isheaded by former UMG digital exec Rio Caraeff and is hiring a directsales force to sell music videos exclusively, a big shift from priorefforts. The labels haven't traditionally had ad sales forces, meaningthey previously relied on YouTube to sell ads against their videos.

Earlier this year, YouTube even started allowing partners tosell videos via download, an indication that it might implement apay-TV option similar to "TV Everywhere," which is cable's great hopeto preserve its pay model on the web. While that isn't yet a priority,CEO Eric Schmidt said "a fair number of subscription services,[including] micropayment systems" will coexist with ad-supported modelson the web.