Long-term Google (NASDAQ:GOOG) investors will benefit from the search engine's likely dominance of the potentially lucrative internet television market. I think the outcome of the battle between Google, Apple (NASDAQ:AAPL) and others to develop the definitive web TV platform has already been determined. Google sees the big picture, as evidenced by its development of YouTube as the cornerstone of the internet TV era.
For those competing with Google in the web TV arena, the war was lost before it even began. When Google purchased YouTube in 2006 for $1.65 billion, its biggest acquisition by far in its then eight-year-old history, it cornered the market for online video sharing. That deal looms larger than ever today as Apple and a host of smaller companies develop what ultimately will prove to be alternative internet TV systems.
The alternative web TV platforms all have two key features: a Netflix (NASDAQ:NFLX) video application and the ability to stream YouTube videos. Virtually all of the discussion about the emerging convergence of the internet and television centers around the reluctance of the major networks to allow access to their content. Long-term, there is another decisive issue, however. YouTube has developed alternative content, and, in the process, a new internet television network paradigm. Netflix and YouTube are the innovations that will define web TV in its early development.
After designing the Google TV platform, the operation was transferred to YouTube. In recent weeks, Google has been talking to Madison Avenue agencies about advertising deals for its new network.
YouTube gets about two billion views a day. It has about 10,000 content partners who share revenue with the site. "Hundreds" of those partners make six figures per year, according to Tom Pickett, online sales and operations director at YouTube, and attract what Google calls "TV-size audiences."
The online video ad market grew nearly 50 percent to $1.5 billion in 2010, according to eMarketer. By comparison, traditional TV networks garner between $60 to $83 billion in ad revenue, depending on varying estimates.
Today's king and queen of pop, teen sensation Justin Bieber and the eclectic Lady Gaga, are viewed by a much larger audience than the most popular MTV performers of yesteryear. As they battled to see who would be the first entertainer to top one billion views on YouTube, Bieber was recently collecting 3.7 million hits a day, Lady G: 1.8 million. Michael Jackson and Britney Spears are distant runners-up, each with about 600 million total views.
On October 25, Gaga announced that she had reached the coveted one billion views, the first performer ever to do so. Gaga's Bad Romance is the second most viewed YouTube video of all time.
Bieber was the second entertainer to reach one billion views, doing so on November 3. His top hit, Baby, is the most watched YouTube video of all time.
"No one comes close to Gaga and Bieber in terms of compiling this sort of statistic in this short of time," says David Burch of TubeMogul, which monitors internet video traffic.
Bieber owes his stardom to YouTube. Bieber was discovered and signed by rhythm and blues star Usher, who was impressed with amateur YouTube clips of the teenager singing. Eight of the top 10 most viewed YouTube videos of all time are music videos.
Europe is also an important market for YouTube music videos. Since September, 2009, Google has signed royalty agreements with music copyright collection groups in seven European nations representing more than half of the continent's online music market, reports the New York Times.
The deals are key for Google because they allow the search engine to generate ad revenue from popular overseas music videos.
Many American cable TV programs draw under 100,000 viewers. YouTube stars average 250,000 views per video. "On any given day or night, the top 10 YouTubers will have more views than any cable channel," says Walter Sabo, a former ABC radio executive who now runs the internet talent agency HitViews.
According to TubeMogul, 15 independent YouTube vloggers make more than $100,000 a years from banner ads. Two make more than $200,000. One of YouTube's biggest stars, Shane Dawson, is the top ad revenue generator, collecting an estimated $295,000 a year. YouTube videos can bring as much as $20,000 a clip from brands such as Mattel (NASDAQ:MAT), Lancome, McDonald's (NYSE:MCD), Kraft, General Electric (NYSE:GE) and others.
Justine Ezarik has developed a fledgling video advertising operation. Last month, a three-minute Barbie clip was seen by 460,000 viewers and collected some 2,000 comments in only a week.
Earlier this year, Lancome choose 22-year-old YouTube star Michelle Phan, who films cosmetic tutorials from her bedroom, to be their spokesperson. Phan is the most successful of a group of women creating makeup videos. TubeMogul estimates that, as a group, the women average about 1.2 million views per day. In the video that first brought her a lot of attention, Phan demonstrated how to recreate Lady Gaga's look. Fourteen million people have watched the clip this year. Phan has also done a video commercial for Colgate that has gotten 2.5 million clicks since it was first aired in May.
Ian Hecox and Anthony Padilla, known on Youtube as Smosh, have a very large audience, averaging 1.4 million views a day. Their popularity attracted Kraft and GE. Smosh has done commericals for both.
YouTube celebrity Michael Buckley, who has attracted attention from the ABC, Fox and Nickelodeon networks, has collected 4.6 million hits on branded videos.
Thirty-two-year-old YouTube comedians Rhett McLaughlin and Link Neal, known professionally as Rhett & Link, have done work for McDonald's (MCD), Cadillac, Alka Seltzer and the Food Network. "No YouTube celebrity, other than Michelle Phan, has more branded views in 2010," says TubeMogul.
Related articles: On YouTube, Seven-Figure Views, Six-Figure Paychecks (businessweek.com)