Google Counting on Video Ads for Growth

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That $2.6 billion in advertising revenue that Google raked in during the third quarter isn't shabby.

But that's only a start, coming largely from text ads placed alongside search results. Next up: ad revenue Google stands to gain when it absorbs viral-video Web site YouTube, which it has agreed to acquire for $1.65 billion.

Google expects to use its advertising network and its newly purchased asset to ratchet up the sale of video ads and search words for programming, ranging from NBC and Fox broadcast-television shows to amateur video clips.

“There's a lot of revenue here for everyone to share,” Google co-founder and president of technology Sergey Brin said last Thursday on a teleconference with Wall Street analysts.

Brin said Google would work with advertisers on video spots that can run on Web sites affiliated with the search giant, as automaker Saturn did earlier this month through a deal crafted by ad agency Goodby, Silverstein & Partners. That test campaign combined banner ads in six cities with video clips, the Google Earth satellite map service and a means of determining where computer users are located.

Clicking on the banner ad produced a view of the Earth that took the Web surfer to the nearest dealership, where a Saturn general manager introduces a brief commercial and afterward provides other details about a particular Saturn car.

Most of Google's ad revenue comes through ads on Google.com and other sites owned by the search-engine giant — it pulled $1.6 billion in ad revenue on its own sites in the third quarter. But about $1.04 billion in Google's revenue came from partner Web sites such as AOL, MySpace.com, and Clear Channel Radio, which run advertising on their sites that comes to them from Google's AdSense keyword-spotting technology.

Google already dominates the current online-advertising market, which the Interactive Advertising Bureau placed at $4.1 billion in the United States in the second quarter. And if Google could apply its AdSense advertising model and network to YouTube.com, it could dominate a fast-growing new sector of online advertising.

New York-based market research Web site eMarketer projects video advertising to triple to $1.1 billion Internet-wide in 2008, from $385 million this year.

YouTube generates most of its ad revenue by selling traditional banner ads and short video spots. Combining Google with YouTube, however, could make Google a player in brokering advertising for video programming, analysts said.

“What Google has done for the Web with text-based advertising with Web based results, they are now going to try to do in the video world by putting video ads against video content,” said Internet analyst Will Richmond. The Broadband Directions president said the YouTube acquisition — expected to close by the end of the fourth quarter — could allow Google to “turbo-charge” Internet video advertising for Google and TV programmers looking to boost revenue via the Web.

YouTube has already cut deals with programmers to run ads for content, including ads for Fox Interactive Media, CBS, NBC and MTV Networks.

In August, YouTube began selling a video panel on the top right hand side of its homepage, which TV and movie producers use to hype programming. On Friday, the panel contained a two-minute trailer purchased by Viacom's Paramount Pictures to tout the new movie Dreamgirls.

YouTube also cut a deal with CBS on Oct. 9 — the day Google announced the YouTube acquisition — which allows the Eye Network to share revenue from ads sold adjacent to CBS video clips. CBS can also force YouTube to remove clips that Web surfers have uploaded to the site.

“If Google was able to demonstrate that they could monetize for a content provider that video they've been selling in a traditional way because they have this ad engine … that makes Google extremely attractive to both content providers, who can monetize their video better, and also advertisers, because now there's $60 billion a year spent on TV advertising,” Richmond said.

If media buyers shifted just 5% of the money they spend on TV advertising to video advertising sold by Google, YouTube and other Google affiliates, Google stands to gain an additional $3 billion in annual ad revenue.

Google co-founder Brin addressed the potential of video advertising on the conference call.

“When I perform a search, the best answer is not necessarily a Web page,” Brin said, referring to video ads that could be sold on YouTube.com and Google Video (video.google.com).

“Both [Google Video and YouTube] of those together are really going to help to get more video to more users and provide them with better information,” Brin said.

Another way to illustrate Google and YouTube's video advertising potential would be to take the example of NBC uploading footage to YouTube.com of a professional soccer match that it shot for TV. Google and YouTube could not only sell keywords like “soccer video” to advertisers whose ads would run alongside videos returned from a search for soccer flicks, but Google could sell short video ads that would run before the clip as well, Richmond said.

“You could begin to see that that's where the real potential of the Google/YouTube deal lies,” he added.

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