Digital Media

Google's YouTube is quickly shedding its reputation in Hollywood as a clearinghouse for pirated content and could soon be home to clips from popular movies and TV shows--all legally obtained.

Insiders say the search company has adopted a more accommodating approach toward Hollywood, and that it's finally starting to pay off. Last week, Lionsgate struck a content agreement with YouTube in a deal that calls for unprecedented cooperation between a major film studio and the Web's largest video-sharing site.

That agreement is likely only the beginning. Other big media companies are in talks with Google about similar deals, say sources with three different entertainment companies. They detailed the ways Google has become more flexible in talks about sharing revenue and helping protect films and TV shows against piracy.

"We've been working with them on filtering and they're doing a pretty good job," said an executive at a major media company that has been critical in the past of YouTube's antipiracy efforts. "We're pretty impressed with the results and their ability to identify our clips and allow us to automate the process."

Google has also piqued the interest of some in Hollywood with new ad-delivery and content-tracking technology that the company is developing, according to three studio executives who spoke to CNET News. Google could one day enable content owners to insert ads into unauthorized video clips wherever they might be posted online.

Ricardo Reyes, a YouTube spokesman, declined to comment about Google's business dealings, but did say YouTube's commitment to copyright protection hasn't changed. "We've always been committed to it," he said.

Should Google succeed in convincing Hollywood to share content on YouTube, many of the company's copyright woes could be put behind it. Google could also generate new revenue from selling ads against popular television shows and films.

Hollywood could profit from piracy
As it stands now, Google doesn't advertise against the vast majority of YouTube clips. It can't legally sell ads against pirated content and homemade video at the site is often too controversial or mundane to appeal to advertisers. Licensing more professionally made content could be the answer to Google's disappointing attempts to make money off the volume of content available on YouTube.

The new ad-distribution technology Google is working could go a long way to mitigating the damages caused by copyright violations. A digital fingerprint is made of a piece of video and is used to locate unauthorized clips. If the owner chooses, an ad can be inserted into the video. To do it, Google has been considering a partnership with Auditude, a start-up that has impressed many in Hollywood with this type of technology, according to three sources with knowledge of the talks.

A representative from Auditude declined to comment for this story. A third competitor, Vobile, has also caught the attention of studio executives, said one of the sources.

Google CEO Eric Schmidt hinted that his company was working on this kind of technology during the company's quarterly earnings call on Thursday.

"Lionsgate works with people who upload segments of the Lionsgate movies that they like and they capture them using our ClaimWare content product," Schmidt said.

He continued by saying ClaimWare finds a copyright owner's videos and enables the copyright owner to display ads next to them.

These kinds of systems, however, don't solve all of the entertainment industry's problems, said one executive at a major media company. Film studios would be profiting from (rather than punishing) piracy. "Sure, it's easy to say, 'Wouldn't it make sense to monetize these unauthorized clips,'" said the source. "But if you say 'Go ahead and make unauthorized copies. We'll just make money off of them' aren't you legitimizing piracy?"

Did litigation and mediocre revenues change Google's tune?
None of the people who spoke to CNET News knows for certain what led Google to soften its approach toward the entertainment sector.

But few in Hollywood have missed Schmidt's recent comments that YouTube is struggling to make significant income. YouTube is also defending itself against a $1 billion copyright infringement suit filed by Viacom last year.

And while YouTube is still the Web's dominant video site, with 34 percent of the market according to ComScore, the site has begun to see major entertainment players gravitate toward competitors, such as Hulu, the video portal backed by NBC Universal and News Corp.

Hulu may have already hurt YouTube and Google in one significant way, according to one media executive. The portal has helped to establish revenue splits between online video distributors and content owners.

"The days of the 50-50 split between content owners and Web sites are over," said the executive. "Content owners are not going to take less than 70 percent anymore and some are getting 90 percent. In Hulu's case, 70 percent goes to the content owner. Hulu takes 20 and the Web sites who have distribution deals get 10 percent."

These aren't close to what Google was willing to accept in the past, but the search giant now appears more willing to compromise, said two studio executives.

Conversely, the studios realize that Google, despite concerns over YouTube revenues, isn't exactly playing a weak hand: YouTube has more than 70 million unique monthly visitors, making it the third-most visited site on the Web.

"YouTube and Google were the 800-pound gorilla (in the online video sector)," said one of the executives who has been involved in negotiations with the companies. "They had all the distribution and all this pirated content and you couldn't monetize without them."

On Monday evening, Viacom CEO Philippe Dauman respond to questions posed by reporters at a gathering in San Francisco and said in his view YouTube started out as a "rogue company." Google's hardball negotiating tactics with the studios and TV networks only served to further alienate decision makers in the entertainment sector, he suggested.

Dauman said that eventually Google must learn the value of "making friends."

SAN FRANCISCO--Viacom CEO Philippe Dauman doesn't typically bash Google in the press.

While Google CEO Eric Schmidt has publicly ridiculed Viacom for filing a $1 billion copyright claim against Google and YouTube, Dauman is usually more reserved.

But at a small press gathering Monday night in San Francisco, Dauman discussed some of the events that led up to the lawsuit and what he sees as wrong with Google's handling of the entertainment industry. (I wasn't taking direct notes, so I'll paraphrase most of what he said.)

First, Dauman noted that one of the first meetings he had after taking over as Viacom's chief executive in September 2006 was with Schmidt. Dauman said he and his managers were relieved when Google purchased YouTube for $1.7 billion in October of the same year because up to that point, they had considered YouTube a "rogue company."

He was referring, of course, to all the unauthorized clips from feature films and TV shows that appear on YouTube.

Dauman said he was sure Viacom would eventually cut a deal with Google and was disappointed when the two companies failed to reach an agreement. But his disappointment turned into something else when clips from Comedy Central, MTV, and Paramount Pictures--all owned by Viacom--continued to accumulate on YouTube.

"You can't just take it from us," Dauman said. He added that he believed Google's strategy all along was to defy copyright owners just as long as it took to "dominate the space."

He argues Google didn't do anything to prevent piracy on YouTube because it helped draw a massive audience.

If Dauman is correct, then the strategy worked. YouTube has more than 70 million monthly unique viewers. No video site on the Web comes close.

What about the risk of lawsuits? Google has plenty of money and probably considered the $1 billion it would have to pay Viacom should it lose in court as an acceptable risk, Dauman speculated. The case isn't scheduled to go to trial until sometime next year.

Dauman said Google, which has been open about its struggles to generate revenue from YouTube, may have difficulties negotiating content deals with Hollywood in the future unless it changes its negotiating strategy.

Dauman, whose son works for Google, said Google's unwillingness to bend in negotiations has led to a sparsity of legal premium content on YouTube. Google must learn the value of "making friends" and the necessity to give as well as take, Dauman said.

Google has always said it respects copyright and is working on filtering systems to help eliminate pirated content. Indeed, Google does appear to be making peace with some of the studios.

Last week, Lionsgate struck a content partnership with YouTube that is unprecedented among the major Hollywood studios.

Sources have told CNET News that more such deals are on the way.

The common wisdom might be that the film industry loathes Google's YouTube, but that might be changing.

Lions Gate Entertainment, the studio responsible for classics like Dirty Dancing and recent TV hits like Weeds, has signed a revenue-sharing deal with the video hub.

It was alluded to by Google CEO Eric Schmidt at the Madison & Vine conference in Los Angeles on Wednesday, and according to the Hollywood Reporter, subsequently confirmed by Lionsgate.

It's not clear how extensive this deal will be. Presumably, it means that Lionsgate would create a branded "channel" on YouTube, and serve its TV and film content accompanied by advertising. That's not particularly innovative, but the Hollywood Reporter added that additionally, short clips viewable for free could be accompanied by a link for a full-length digital purchase. In other words, you might not get free full-length movies.

Right now, most film studios limit their involvement with YouTube to trailers and promotional clips, but if one signs a more extensive deal, others could follow suit--though probably not Paramount, DreamWorks, or MTV Films. Those are owned by Viacom, which has famously sued YouTube.

But it's likely a blow for Hulu, the NBC Universal-News Corp. joint venture that was created last year to provide a more civilized outlet for television and film content on the Web, promising higher ad revenues, no chance for piracy, and a refreshing lack of goofy user-generated videos.

If Lionsgate is willing to brave the hordes of skateboarding-dog videos posted on Google's site, that all could change. Then, however, Lionsgate and YouTube could face a whole new problem: whether that revenue-sharing deal actually results in decent profits.