Cable Program Opportunity as Google Reduces Original Channel Funding

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When Google reveals the program creators who will receive the next $100 million in funding for original YouTube channels, the list will only include about 30% of the producers who got Google’s money in last year’s initial program investment round.

In other words, up to 70% of the YouTube’s Google-funded video channels will be cancelled, unless the creators can come up with their own revenue sources to keep their programs online. Google, which owns YouTube, is expected to announce its new funding selections during the next few weeks, and reports indicate that at least 30% to 40% of first-round recipients won’t make the cut. About 160 channels received Google funding of $1 million to $5 million a year ago.  

Could YouTube’s loss become cable’s gain? Many of the short-form series that were launched as online channels come from major producers as well as talented arrivistes whose shows could find a home in a new cable-centric online environment or, possibly, on linear channels.  Google has paid for a “pilot season” for shows that may find a home in other venues. l

Google’s gauge as it chooses which channels to continue supporting seems to have three criteria:

  •         direct tie-ins for advertisers
  •         “watch time” (which reinforces the advertiser connection)
  •         appeal to young demographics

Those benchmarks are identical to cable channel’s requirements. The “youth” factor might be reinterpreted to target other audience slices, although it does take on added meaning after Time Warner CEO Jeff Bewkes’ comment this week.  Bewkes cited cable’s need to attract “cable-nevers” i.e. young viewers who favor online access versus traditional cable subscriptions.

Google has acknowledged that its goal is to create online channels that are “TV-like” and can compete against video-on-demand services. Among the lessons of year one is that celebrities and high-concept programs don’t necessarily guarantee sufficient viewership and ad support; many are expected to fail the investment renewal test.

The canceled channels as well as the successful survivors both offer lessons to cable programmers about what viewers want to see.  They also have created a pool of a producers who may soon be ready for “prime time,” a test group funded by YouTube’s largess.

As YouTube’s funding roster for 2013 emerges, viewership data is trickling in, and it is modestly encouraging. Many of the online channels had impressive viewing levels.The top 25 channels average more than a million views per week; the 33 most popular channels attracted at least 100,000 subscribers, and several drew more than a half-million subscribers.That subscription level, while small in cable network terms, is a key metric since it confirms repeat viewing and hence the best advertiser loyalty.

Not coincidentally, Google’s funding cancellation rate in the 60% to 70% range is almost identical to the current pace of broadcast networks’ new series: 69% during 2010-2011 an 68% in 2011-2012 season, according to ScreenRant.com, Cable network’s cancellation rate is different (and not as easily measurable) because of shorter seasons and program variety not totally governed by the up-front commercial calendar,

Google’s ad-focused choice of funded channels plus its tight financial relationship with the funded producers also offer lessons for cable exploration of the YouTube experience. Analysts acknowledge that the YouTube channels have taught advertisers to look at online ads, including interactive marketing options.  Although Google is guarding its ad agenda for the “renewed” channels and the new ones, the lessons from year one will clearly govern the next iteration of YouTube channels – and provide pointers for other video program distributors.

Fundamentally, the Google funding model involves an upfront payment to be paid back by ads sold on each channel.  Hence a $2 million investment would require about 100 million views, which equates to about $20 CPM, high for online video, but not unreasonable in the cable environment.

Until Google unveils its 2013 funding choices (expected to come out in batches during the coming weeks), it will be hard to identify trends in content.  The deal with funded channels requires that ads on the channels must recoup Google’s initial investment before the producers can sell their own advertising and collect revenues from those sales. Channels that don’t receive a second round can continue to operate, but they must pay back the initial funding to remain on the YouTube channel lineup.

Not surprisingly, the first wave of advertisers on YouTube channels resembled the cable advertising pioneer of three decades ago: automotive and consumer packaged-goods makers. Procter & Gamble, Gillette, Unilever, Toyota and Dodge were among the first advertisers, although there’s no word yet on which will continue to support the YouTube channels. The ad deals generally include commercials on the target channels as well as video rolls elsewhere on YouTube.YouTube viewing – not just on the new channels – has grown from just under three billion hours per month in September 2011 to more than four billion hours last month.

While Madison Avenue assesses the value of the YouTube channels, other media companies have the opportunity to identify how and why the original online video initiatives  provide pointers – as well as specific shows – for the next era of digital programming.

Gary Arlen is president of Arlen Communications LLC in Bethesda, Md., and a long-time interactive TV enthusiast. Reach him at GArlen@ArlenCom.com.

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