Google’s (GOOG) YouTube may finally come up with a way to raise revenue. It streamed nine billion videos last month, but, by some estimates loses $300 million a year.
The quality of the video on YouTube is usually so low that advertisers don’t want to put their high-quality TV messages on the service. That leaves YouTube with limited options to make money.
The video-sharing service is in the final stage of a process to set up a movie rental business with most of the largest studios including Lions Gate and MGM. Many of the other companies in the industry will probably join the program if it works well. YouTube would offer films for streaming at a price of $3.99. Its audience is large enough so that the program could actually work.
But, YouTube may be late enough to the online rental business that it will lose some of the advantage of its size. Firms with millions of customers and major brands including Apple (AAPL), Amazon (AMZN), and NetFlix (NFLX) are already in the digital VOD business. Most cable companies have similar systems that work on their customers’ TVs. Time Warner Cable (TWC), Comcast (CMCSA), and Cablevision (CVC) report that they have substantial film rental sales.
Google has a fine idea, but the market may already be taken.
Douglas A. McIntyre
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