TECH TALK: The Rise of YouTube: The Future

Of late, YouTube has been trying to avoid the fate of Napster and negotiate deals with the big media players and in the process figure out a business model for itself. Knowledge@Wharton wrote recently about YouTube’s planned business model:

On Sept. 18, 2006, YouTube, the largest video sharing site on the web, and Warner Music Group announced a deal to distribute WMG’s music video catalog on YouTube. The catalog includes music videos, behind-the-scenes footage, artist interviews and other special content. In addition, YouTube’s bevy of amateur video producers can use WMG’s music library as soundtracks for the content they upload. As for copyright management, YouTube plans to build a content identification and royalty reporting system to identify video content — such as the most recent Madonna video — and divvy out payments to artists. The system, to be launched by the end of the year, will allow WMG to authorize rights to YouTube users. Advertising revenue will be shared between WMG and YouTube.

Wharton marketing professor Peter Fader says YouTube’s latest partnership (it also has a promotional deal with NBC) is “the single biggest business development deal in the history of digital media. This changes everything, and people will look back at it as a turning point.” Wharton public policy professor Joel Waldfogel acknowledges that YouTube is “becoming more attractive to media partners as more people use it,” but cautions that the WMG deal is just a first step to discovering a business model.

The Economist wrote recently about YouTubes monetisation efforts:

Aware that inserting advertisements at the beginning of video clips, as some sites do, is annoying and risks driving away YouTube’s users, Mr Hurley and Mr Chen have announced two experiments with advertising, with the promise of more to come. One idea is for brand channels in which corporate customers create pages for their own promotional clips. Warner Brothers Records, a music label, led the way, setting up a page to promote a new album by Paris Hilton. The second experiment is participatory video ads, whereby advertisements can be uploaded and then rated, shared and tagged just like amateur clips. This encourages engagement and participation, the company declares.

Even as YouTube now begins its life as part of Google, the one thing that is clear is that 2006 will be seen as the year the Internet transmogrified from a world of text to rich media, and YouTube will have its place as the primary change agent.

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