YouTube might just be the best thing that ever happened to old media.
Ever since Google (Charts) paid $1.65 billion for YouTube in October, plenty of pundits - from Mark Cuban to yours truly - have been waiting for the other shoe to drop. After all, the hugely popular video service is stuffed with clips that users have uploaded with complete disregard for copyright.
For awhile, content creators like Time Warner (Charts), Disney and News Corp (Charts) had reason to think that YouTube's sky-high operating costs would cripple the infant site long before any ! judge could. Then along came Google, perhaps the deepest pocket in all of Silicon Valley.
This could get ugly, skeptics surmised. Rumors swirled that Google created a $500 million YouTube legal defense fund. Media titans, including Time Warner CEO Dick Parsons, were heard huffing and puffing. In early November, Google disclosed that it had already been sued - and the media world gasped.
But a funny thing happened on the way to the courthouse. Nothing. YouTube has not only held the threats at bay, but also shown it can be a revenue boon for old media.
Friend or foe? Ask CBS
The strongest evidence: An experimental "brand channel" YouTube launched in mid-October for CBS (Charts) in the hopes that it would become the model for other old media partnerships. The press mostly ignored the deal's ! announcement at the time, most likely because it fell on the s! ame day that Google bought YouTube.
It's worth circling back now. As part of the deal, CBS agreed to offer free video clips for downloading. In return, the media company gets to sniff around YouTube for any content bearing its copyright. CBS can then choose between removing the offending clips or getting a cut of the revenue YouTube generates from any advertising linked to the clip.
The result? By Thanksgiving, CBS had uploaded 300 clips that caught the attention of nearly 30 million pairs of eyeballs. More than 35,000 consumers have subscribed to the free channel. More importantly, the shows that CBS was pushing online suddenly became bigger hits on regular old television too.
Take David Letterman. The late-night talk show host gained an extra 200,000 viewers shortly after his YouTube debut. Craig Ferguson, host of The Late Late Show, saw his audience increase by seven percent - all in a little over a month.
Given that the month was November,! a "sweeps" month in which audience ratings determine how much a network charges for ads until May, YouTube gave CBS an early holiday gift. CBS, with a strong overall lineup, finished the month as the most watched network among all age groups and tied for second in the most coveted demographic, 18 to 49 year-olds.
Focus groups, ready-made
The Nielsen ratings did more than give CBS a lift. It provided key evidence in the war between copyright owners and freeloaders. Music buffs, for instance, have long argued that the free sharing of songs drives CD and other music sales. The problem is, they've never had the statistics to prove it.
But video-sharing proponents do. The CBS deal shows that a direct connection can be made when it comes to free-for-all TV downloads. Networks now have both YouTube figures and Nielsen numbers at their disposal. "CBS is learning about its audience as never before," said CBS Interacti! ve president Quincy Smith.
It won't take long for other ! networks to embrace YouTube. Witness how NBC, a General Electric (Charts) unit, and CBS jumped on the iTunes bandwagon after Disney (Charts)-owned ABC paved the way. So don't be surprised to see NBC, Fox and ABC launch their own YouTube channels. (This week British channel Sky, controlled by Rupert Murdoch's British Sky Broadcasting (Charts), announced a deal for its own version of YouTube, built with Google technology.)
Google's head of business development Omid Kordestani, speaking at an investor conference in London this week, confirmed that "conversations have been going on with all the key p! layers" on developing and making money out of YouTube. He also hinted that old media partners would get the lion's share of advertising revenues.
YouTube could be a boon for the networks in unforeseen ways, too.
Spending millions developing sitcoms only to mothball them halfway through the season? Try developing a three-minute sketch first, rather than a whole pilot, and see if it flies on YouTube. Not sure who to cast in the lead role of your latest crime drama? Show online viewers the audition tapes and let them choose for you.
In the end, the prize fight we pundits have been expecting between Google and old media may rapidly turn into a love fest. While that may not score big ratings in the short run, it's sure to produce a lot more quality entertainment for TV viewers far into the future.
By Chris Taylor, Business 2.0 Magazine senior editor