YouTube is a video-sharing website that providers its users a platform to upload, view, and share videos.

Three former PayPal employees saw an opening in the market for such a website and together they created YouTube in February 2005. The official YouTube beta public site was launched in May of 2005 and attracted an average of 30,000 viewers per day. The surge of more user friendly video and Internet technology combined with an increased interest in social networking, allowed the amateur a unique opportunity to create and share videos. YouTube quickly grew to be the worlds largest community video platform for original content creators and advertisers on the Internet. In November 2006, YouTube was bought by Google for $1.65 billion. Today the site continues to provide viewers with a wide variety of user-generated video content, music clips (video clips), films, TV, and video made by the users themselves such as video blogging and short original videos. Most of the content on YouTube has been uploaded by individuals, although media corporations including CBS, MGM and other organizations have begun offering their material on the site, as part of the YouTube partnership program. (Ibarra, 2009.) The industry for online video viewing is huge with over 160 million people watching online videos in 2009. In just one month in August 2009, YouTube streamed 10 billion videos (Laudon & Traver, 2010, p. 425). In addition, online videos that were normally viewed only on PCs has expanded to mobile devices and is further increasing YouTube's audience. However, since YouTube provides bandwidth and hosting for a good portion of the worlds videos, the uploading of an estimated 15 hours of videos each minutes, represents costs for YouTube and very little revenue (Learmonth, 2009, p.2). Additionally, videos have the highest click-through rate next to search engine marketing and e-mail campaigns (Laudon & Traver, 2010, p. 425). In

2008, a featured video was worth about 105,000 views but, in 2009, this dropped to 54,000 views, a 48.2% decrease (Learmonth, 2009, p. 1). Expanding the customer base from amateur to higher quality videos, could increase the retention rate and provide a larger platform for advertisers. Major Fortune 500 companies, such as Dove, have learned that people get more excited and are more likely to pay attention to video content then look at a banner or direct advertisement. STOP There are three challenges for YouTube. The first challenge lies in the ability to link the right advertisements with the appropriate video content, essential in acquiring high-end advertisers. The second challenge is to figure out how to position the advertisement so as to not disrupt the viewing experience. Lastly, YouTube must determine whether it can expand to high quality video in addition to amateur and if the two mediums can co-exist, providing a broader spectrum for potential advertising partners. Customer Demographics In Table 1, the Nielsen Company Report on Online Video Use (2008) illustrates a wide distribution by age, with the largest segment being 25-65 year-olds; however, mobile video use shows the largest segment as 13-17 year-olds and 25-34 year-olds (Nielsen Company Report). Gender of viewers, illustrated in Table 2, shows a higher percent of female online video viewers; however, a larger percent of males view videos through mobile devices (Nielsen Company Report). The user base for YouTube has a broad range from 18-55 and is evenly distributed by gender, spanning all geographies. Fifty-one percent of YouTube users go to YouTube weekly or more and 52% of 18-34 year-olds share videos (YouTube Fact Sheet). Table 1

Table 2

YouTube participants create and view videos for information seeking, social interaction, and for entertainment. It is the social aspect to YouTube that reflects its social networking characteristics. Viewers can share opinions on video content and can share the content itself by e-mailing links to friends and family. Understanding the motivation of YouTube customers is critical in determining the likelihood of altering the current viewing experience to include higher quality videos.

Haridakis and Hanson (2009) applied a Uses and Gratification approach to examine the motives of YouTube users viewing and sharing of videos. YouTube user motivation was measured with 427 college students with a 45-item Internet-motives scale. The social component was reflected in two specific motives: social interaction and co-viewing. A co-viewing motive refers to an interest in watching, discussing and sharing videos an individual likes with family and friends. The findings from the study suggest that people do use sites such as YouTube to enhance their social circles and social lives. Users appear to occupy several roles. At times, users view videos for leisure or entertainment. At other times, they view videos they choose in demand with others. At still other times, they share videos or information about the videos by posting comments and rating the videos online (Haridakis and Hanson, 2009). YouTube is clearly a social medium. To retain their current customer base, YouTube will need to allow the amateur video creator and viewer an avenue for social interaction as this is the strategy that has made YouTube successful. Nevertheless, expanding YouTubes strategy to include strategic partnerships with high-end film producers could provide an avenue to lure big-name companies to advertise, generating a consistent stream of revenue and expanding the customer viewer base. If YouTube is to succeed in becoming the largest advertising platform in history (Laudon & Guercio, 2009, p. 704) they must add features that attract new viewers and keep the old viewers coming back more often. Currently, YouTube viewers do not visit the site frequently and when they do, they do not stay for long. Only 2% of monthly viewers view daily, and the average stay is only about five minutes. To generate more advertising revenue, YouTube must find a way to keep viewers on their site longer. One way to do this is to enable streaming of fulllength films and television programs. In fact, YouTube has begun doing exactly this. Just three

months ago, YouTube announced plans to offer five films from the Sundance Film Festival (YouTube blog, 2010). The films were available for 10 days and netted the company just over $10,000 in revenue (Helft, 2010). Since this experiment, YouTube has added a small collection of other movies available for rent at a cost of $.99 to $5.99 per rental. YouTube must do a better job of advertising their available rentals if they hope to generate any substantial revenue from movie rentals. Currently, it is difficult to even find where to go on the site to access these rentals. After reviewing the homepage closely, a person can find the option to a rent a movie in the YouTube Store. If rentals are to become a core part of the YouTube offering, an additional page must be added where viewers can easily go from the home page to the rental library. Keeping rentals separate from the YouTube staple of amateur videos is important and will ensure that current viewers are not alienated from the site. If YouTube attempts to integrate rentals within their free video library, viewers may become irritated when they click on a link and find it is a pay-for service. Viewers will quickly become disillusioned by the thought of paying for something that once was free and may flee to competing sites. By keeping a clear separation between their free library and their rental library, YouTube can maximize their viewership and ultimately generate more advertising revenue. YouTube must also substantially increase the amount of rentals available on their site. Currently, there are less than 100 movies for rent on YouTube. In contrast, NetFlix has hundreds of movies available for instant download. The partnership with Sundance Film Festival provided a nice entry into the rental market, but to compete with the likes of NetFlix, YouTube must develop partnerships with some much bigger players. Strategic Partnerships

User-generated content is what gave birth to YouTube but in order to maintain its dominance YouTube must continue to forge partnerships with professional content providers to increase the proportion of premium content on the site. This content, such as movies and television shows from established media firms like MGM and CBS is where the real money is, with advertisers happy to pay for their ads to appear alongside professionally-made videos. A 2008 report by a web analytics group showed that user-generated content accounted for 42.4% of video streams, but only 3.7% of ad revenues. On the other hand, as can be seen in Figure 1, long-form premium content (such as premium movies) accounted for only 2.2% of streams but accounted for 41.6% of ad revenues.

Figure 1. Stream Count Usage and Ad Revenues. This figure illustrates that more usergenerated content is available but professional content generates higher adverting revenues.

The report also looked at CPMs (clicks-per-impression) and found that CPM's for professionally-made long-form content were $40 in 2008 and expected to reach $46 in 2013. CPMs for professionally-made short-clips were around $30 and expected to rise to over $34 in 2013. They compared this to user-generated videos, which were only bringing in rates of around $15 in 2008, they predicted that this would only rise to about $17 in 2013 (Gannes, 2008.) Figure 2 shows the huge difference in CPM's based on content type and demonstrates why professionally-made premium video content should be a main strategy for YouTube.

Figure 2. Online Video Advertising Growth in CPM (clicks-per-impression.) This figure illustrates that professional content generates higher adverting revenues than user-generated content. YouTube was further able to understand the value of professional content when another online video provider, Hulu.com, started gaining popularity. Hulu is a website offering commercial-supported streaming video of TV shows and movies from NBC, Fox, ABC, and many other networks and studios (Technology Review, 2008.) Similar to YouTube, Hulu distributes video both on its own website, syndicates its hosting to other sites, and allows users to embed Hulu clips on their websites. Unlike YouTube, however, Hulu does not offer usergenerated content. They exclusively offer professionally produced content that attracts greater ad revenues. Hulu has grown quickly with this model and has been profitable for several years. Following their purchase of YouTube in 2006, Google began to follow in Hulu's footsteps by partnering with several media groups in efforts to monetize the video-sharing website. In 2006 and 2007, all four major record labels signed deals with Google to include their

music videos on YouTube. Internet users watch the music videos for free, Google and the record companies share in the revenue generated from in-stream advertising. 2009 was a pivotal year for YouTube's partnership strategy. Through a partnership with CBS and MGM, YouTube began offering classic full-length TV episodes and full-length movies. YouTube also signed content deals with several major short- and long-form providers including Disney, Turner, Warner Bros., Univision, the UK's C4 and Channel 5. In addition, YouTube began offering major livestreamed events in 2009 such as concerts by U2 and Alicia Keys and the Rose Bowl (Eun, 2009.) YouTube also released a newly designed site in April of 2009 that segregates user-generated content from professional content making two distinct channels of content. The premium and professional content on these channels all carry in-stream advertising. An example of the success of YouTube's new partnerships with premium content providers is what happened when the movie "Where the Wild Things Are" was released in the fall of 2009. To promote the film, Warner Brothers released the movie trailer onto YouTube several months prior to the film's release. The trailer was a big hit with viewers, it was viewed by millions. Then, a day before the film arrived in theaters, the studio bought prominent placement on YouTubes homepage. A web analytics service later looked at the traffic data to find out how well the YouTube ad placement worked. As can be seen in Figure 3, they found that consumers who were exposed to the ad were much more likely to visit the films web site, search for it on YouTube and look it up via search engines.

Figure 3

Figure 3. YouTube Ad Results - "Where the Wild Things Are." This figure illustrates how viewers of a YouTube advertisement for the movie "Where the Wild Things Are" were much more likely to take further actions to find out more about the movie. The strategy to increase premium content for YouTube appears to be paying off for Google. Analysts expect YouTube to generate about $700 million in revenue in 2010, an estimated 55 percent increase from 2009. If YouTube meets this target, it likely will turn profitable, helping to validating the $1.76 billion in stock that Google paid for the site more than three years ago. As YouTube expands its strategic ad partnerships, they must be cognizant of the issues related to ad placement. Customers and advertisers complain that the ads dont always fit the video. YouTube currently places ads using matching technology. Ad placements can be based on items related to the video such as a subject category or an interest area of the viewer based on his or her viewing history. Video creators can determine which videos they want to be monetized but

most creators opt for all their video uploads to be matched with ads. YouTube must continue to develop enhanced matching technology. Recommendations 1) Although YouTube was founded based upon user-generated content, this source provides

only 3.7% of ad revenues; whereas, long-form premium content accounts for 41.6% of ad revenues. Additionally, since CPMs for premium content is expected to reach $46 in 2013, YouTube should continue to expand the base of premium content from established media firms such as MGM and CBS. This should be a primary strategy for YouTube since it will increase the ability to offer more ads per view and thus more advertisers would be motivated to sign on. 2) Correct linkage of advertisements with video content will encourage high-end advertisers

to partner with YouTube. Since erroneous linking of ads that dont always fit the videos, YouTube needs to continue to develop matching technology. This will increase the likelihood of large name companies purchasing advertising space, generating higher revenue for YouTube. 3) Streamlining the search process for customers would enhance the customer experience. If

rentals are to become a core YouTube offering, a revision to the home page is necessary. By adding clear tabs to separate amateur video libraries from rental libraries, YouTube can maximize their viewership and ultimately generate more advertising revenue. Conclusion

References Eun, D. (2009, December). YouTube's 10 memorable moments of 2009. Retrieved from http://ytbizblog.blogspot.com/2009/12/YouTube-partnerships-10-memorable.html Gannes, L. (2008, July 10). Report: user gen to only ever account for 4% of video revenue. Retrieved from http://newteevee.com/2008/07/10/report-user-gen-to-only-ever-accountfor-4-of-video-revenue/ Haridakis, P. & Hanson, G. (2009). Social interaction and co-viewing with YouTube: Blending mass communication reception and social interaction. Journal of Broadcasting & Electronic Media. 53 (2). pp. 317-335. Helft, M. (2010, February 2). YouTubes take from movie rentals: $10,709.16. The New York Times online. Retrieved on May 4, 2010 from, http://bits.blogs.nytimes.com/2010/02/02/youtubes-take-from-movie-rentals-1070916. Ibarra, S. (2009). Google Teams With CBS, MGM on YouTube. Television Week, 28(10), 4. Retrieved from Business Source Complete database. Laudon, K. C. & Guercio Traver, C. (2009). E-commerce: Business. Technology. Society., Sixth Edition. Prentice Hall. Learmonth, M. (April, 2009). Why free-ride YouTube is finally winning ad dollars; Google sells ads against 9% of sites streams, but theres a long way to go. Advertising Age. Retrieved on May 4, 2010 from lexisnexis.com.shoeniii.com Nielsen Three Screen Report (2008). Fuor Digital. Retrieved on May 4, 2010 from http://www.fuor.net/dnn/online+video.aspx YouTube Blog. (2010, January 20). Retrieved on May 4, 2010 from, http://youtube-global.blogspot.com/2010/01/youtube-to-sundance-independent.html.

Technology Review. (2010, February). Hulu. Retrieved from http://www.technologyreview.com/business/24248/ Warren, C. (2010, January). YouTube + movies = marriage made in marketing heaven. Retrieved from http://mashable.com/2009/12/01/YouTube-where-the-wild-things-are/ YouTube Blog. (2010, January 20). Retrieved on May 4, 2010 from, http://youtube-global.blogspot.com/2010/01/youtube-to-sundance-independent.html. YouTube Fact Sheet. Retrieved on May 3, 2010 from www.YouTube.com.