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Cashing In On YouTube

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Music, games and more to become part of popular site.

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Historians once said the sun never sets on the British Empire. The way things are going, Google (GOOG) may soon own the sun and charge the rest of us rent.

YouTube, the world's most popular video-sharing website and part of Google's empire, plans to sell music, movies, books, electronic games and concert tickets online while developing new advertising formats to boost revenue.

The potential is enormous because YouTube had about 330 million visitors in August. You can bet that Google's competitors in this sector, including News Corp. (NWS), Yahoo (YHOO), Microsoft (MSFT) and Time Warner (TWX), will counter because the potential earnings are too rich to concede without a fight.

After watching a music video, YouTube users will be able to click buttons that take them to Amazon.com's (AMZN) MP3 store or Apple's (AAPL) iTunes site.

YouTube will share revenue with its partners. The proposed split isn't known and it's unclear how much revenue the video site will generate. Google doesn't break out YouTube's financials in its quarterly or annual SEC filings, but some peg the video site's potential earnings at about $200 million next year. The basic question: How high is up?

Google acquired YouTube in 2006 for about $1.65 billion. Until now, the site has relied on advertising as its primary source of income. In addition to online sales, YouTube is experimenting with "in video" advertising that runs text ads along the bottom of the screen as the videos play. Other formats include advertiser-sponsored contests and video ads on the home page.

YouTube's new advertising formats are an effort to supplement pre-roll advertising, a 10-to-15-second ad that runs before a video clip plays. Pre-roll may not be effective with short videos, but don't expect them to vanish from the site.

YouTube also bets that its video ID system will boost advertising revenue. Video ID alerts music and TV producers when copies of their content are uploaded to YouTube. The content owners then share in advertising generated by the clip. That could be a good way to survive in the TiVo age.

Overall, YouTube has a helluva fine marketing and advertising plan, reaching a young, tech-savy audience that advertisers and retailers crave while creating new opportunities to generate revenue. Let the Association of National Advertisers fret about the side effects.
No positions in stocks mentioned.
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