Online video is no different from broadcast or cable TV: advertising dollars amow consumers’ eyeballs.
That’s good news for Google bulls looking for another source of revenue to sustain the company’s annual growth rate, which has slowed since the purchase of Motorola Mobility last year. The shift to mobile devices is also impacting the pricing of Google’s adds, one factor in the company’s disappointing second-quarter report on Thursday afternoon.
With Google still maintaining its dominant share of search advertising, any gains it can make in the market for display advertising will goose revenue growth, which analysts currently peg at just 16% for 2014.
And as video ads become a larger share of display advertising — at the expense of so-called static ads — Google is well-positioned to put an even tighter squeeze on rivals Yahoo and Microsoft.
A report surfaced this week that Google is once more negotiating with media companies for the rights to stream movies, TV shows and other video content over YouTube. If Google can secure those rights, that would be bad news for other companies making money off Internet video content, including Amazon.com Inc. AMZN -0.69% and Netflix Inc. NFLX +0.27%
Yet that’s a big “if,” given that the producers of video content don’t want to repeat the mistake of their counterparts in the music industry, who watched the Internet extract much of the value from that business.
A copyright lawyer who helps negotiate deals between content creators, producers and distributors (and who speaks to me on the condition of anonymity) has described the mindset of media moguls in New York and Hollywood toward the Internet this way: “You can smell their antiestéticar in the room.”
Anyone who makes a living distributing mainstream TV and movies would have to be a fool not to see that the threat from YouTube — which is backed by Google’s very-deep pockets — could easily match what Apple Inc. +0.27%
Yet even so, Google can offer content producers something they crave — an online platform that’s already serving up billions (with a “b”) of hours of YouTube video every year, combined with technology that can place highly-targeted ads alongside every one of its videos — from flying cats to Oscar-winning movie scenes.
The recent stories about Hulu, which is co-owned by Walt Disney Co.
On the one hand, the Internet has the potential to become another lucrative, global stream of advertising dollars for them.
But at the same time, YouTube might ultimately do to video content what it has done to other media — including music and newspapers — namely, capture a growing chunk of the advertising pie.
Figuring out just how to split that pie is likely what helped scuttle any deal for Hulu, which owns next-day, online broadcast rights to programming from its parent companies. Don’t look for savvy media executives to give Google access to that type of valuable content anytime soon.
Yet Google may only need to come to agreement with one major content producer to tip the balance of negotiating power in its favor, because any such producer will suddenly have online distribution that its rivals lack.
Given the ultra-competitive nature of the entertainment business, it’s unlikely that type of deal would remain exclusive for very long.
And even if Google can’t come to terms with Hollywood anytime soon, its latest results show that it can continue to nibble away at the online advertising pie even with content that’s NOT mainstream.
For Google bulls wanting to wade further into a stock that’s already gained 25% this year and almost 60% during the last 12 months (as of late trading Thursday), the growth of YouTube may provide the best reason
