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YouTube Isn't Playing Nice With TV Networks Anymore

TV on fire

Last week, we told you about Publicis Groupe’s big deal to purchase tens of millions of dollars in YouTube advertising and how the move was a harbinger of how the
online video platform might steal bigger slices of television’s advertisingrevenues in the future.

Now, Ad Age is reporting that YouTube will no longer offer television networks and movie studios the so-called “sweetheart deals” that gave the networks 70% of the advertising revenues YouTube made from ads placed on content from ABC, NBC, and the like.

Instead, YouTube is offering a deal by which networks will have to settle for the 55% split YouTube offers online-only content networks like Machinima and AwesomenessTV.

The terms can be seen as something of a power move by YouTube, evidence that the company’s ad sales department feels it has enough leverage over traditional video content producers to twist their arms into giving up some of the guaranteed money they once received simply for gracing YouTube with their premium content.

Now, YouTube is saying it no longer needs mainstream television’s stamp of authenticity, forcing the networks to compete on the same playing field as the rest of the platform’s users and professional content providers.

The new terms are not quite take-it-or-leave-it for the networks, though. While YouTube has lowered the percentage networks it will get when it sells ads at the baseline price, Ad Age reports that YouTube is lowering that baseline and offering the networks an opportunity to keep 100% of the revenues they receive beyond those minimum prices.

By doing so, YouTube is betting that the increase in its slice of the baseline revenue pie will amount to more money than whatever revenues the television networks can get from advertisers by charging them higher prices.

If television networks accept the terms YouTube is offering, the only way they can avoid giving up another sliver of the advertising pie will be to convince advertisers that their inventory is of significantly higher quality or easier to purchase than that of other YouTube content providers. Otherwise, the advertisers might not be willing to pay more money per view than they would have to elsewhere on the site.

In short, YouTube appears to be betting on the following theories:

  1. That viewers no longer associate the traditional broadcast television networks with a higher level of quality than made-for-online video.
  2. That advertising buyers will recognise this fact and be unwilling to pay higher prices to have their ads placed beside content from the traditional television networks.
  3. That even if the new contract terms YouTube is offering give the networks less money than the old ones, its growing viewership will require the networks to continue posting content on YouTube.

At present, it looks like the networks will have at least a healthy shot at commanding the higher advertising they’d need to win the deal. As Ad Age points out, the networks have the advantage of packaging YouTube media buys with television ad purchases.

Since major media buyers are still spending around 60% of their advertising budgets on television, they might be willing to pay the networks higher prices for YouTube ads in order to avoid the headache of having to make a separate, smaller, YouTube-only ad buy.

Either way, YouTube has placed its cards on the table and pushed a couple chips into the middle. Now it’s television’s turn to decide whether to call.

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