Los Angeles Business Journal

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YouTube channels team up to score bigger ad rates By Tom Dotan Monday, April 1, 2013
Larry Fitzgibbon stands next to a screen showing Joe Perez and Steven Kydd at Tastemade
in Santa Monica.

Larry Fitzgibbon stands next to a screen showing Joe Perez and Steven Kydd at Tastemade in Santa Monica. Photo by Ringo Chiu.

Ad sales

When it comes to announcements of big investments and impressive view counts, the multichannel networks like Tastemade are showing they have plenty of sizzle. But in terms of actual profits, it’s still undecided whether they have much steak.

As the channels continue to build their affiliated networks and viewership, the problem of sluggish growth of ad rates has become more apparent.

Google places ads on the videos through the AdSense network and takes a reported 45 percent commission for each spot it sells. The multichannel networks then split the remaining revenue with content creators, with the lion’s share generally going to the creators.

For every 1,000 views a video gets, a typical ad might pay $5, so a video that gets 1 million views would bring $5,000. That still pales in comparison to some of the top rated TV shows, for which rates can start at $30 for every 1,000 views.

Google has assured the networks that rates would rise once the advertising demand met the video supply. It’s an important point to the multichannel networks, which have enticed channels to become affiliated by offering higher payout rates than they’d get through AdSense.

But that has yet to happen and some networks have suffered. Last year, Machinima reportedly let go of some of its channels because it was unable to meet the ad rate payouts promised in its contracts.

The prevailing sentiment among the optimists in the industry is to focus more on the industry’s potential. Strompolos of Fullscreen, like the founders at Tastemade, is viewing this era through the same lens as the dawn of cable. It was an entirely new business model for the TV industry and one that took years to finally pay off.

“Cable television wasn’t a viable business model until early ’90s; it took one to two decades until Viacom was born for it to work out,” Strompolos said. “We think we are rebuilding what Viacom would look like if it was started today.”

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