Although advertising revenue is helping YouTube edge close to profitability, the massively popular video site is not yet there, according to parent company Google. YouTube is reportedly negotiating a deal with several Hollywood studios to move into online film rentals, which could push it over the line.
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YouTube, Google's (Nasdaq: GOOG) online video streaming service, is in talks with Hollywood studios to rent new release movies online, according to people familiar with the talks.
The move follows similar deals by Apple's (Nasdaq: AAPL) iTunes and others.
A final deal would be contingent on pricing and an agreed-upon release date, said the people, who spoke on condition of anonymity because discussions were still ongoing.
The move takes YouTube one step away from an ad-supported business model, but does not break the mold of other online rental deals already struck by iTunes, Amazon.com (Nasdaq: AMZN) and
Cinemanow.com, a unit of Sonic Solutions. All of them offer movie rentals for between US$1.99 and $3.99 each with a 24-hour viewing period.
The talks were first reported on The Wall Street Journal's Web site Wednesday.
The Internet site declined to comment specifically on the talks.
"While we don't comment on rumor or speculation, we hope to expand on both our great relationship with movie studios and on the selection and types of videos we offer our community," said YouTube spokesperson Chris Dale.
If YouTube becomes a rental channel for movie studios, it would mark a return to what Google used to do before it bought YouTube for $1.76 billion nearly three years ago. Besides offering free looks at short clips, Google Video sold the right to view some movies and TV shows.
Google got out of the online video rental business shortly after it bought YouTube and poured more resources into building a larger audience for YouTube's totally free service.
YouTube is still unprofitable, although Google management says it's close to making money, thanks to all the ads on there now.
Higher Profit Margins
According to a person with direct knowledge of the deals in the works, YouTube plans to begin a three-month test of the online rental service this month.
Every studio would likely come to different terms, but most would receive around 60 percent of the revenue from each rental, with a floor of about $2.40 that could vary depending on the age of the title, the person said. That's very similar to the studios' deals with other online outfits, as well as those agreed upon with cable operators such as Comcast (Nasdaq: CMCSK), which offer videos on demand.
The "window" -- or the time lag between the sales date of DVDs and their rental, which is meant to protect sagging DVD sales -- could be 30 days or more.
However, Warner Bros. has been allowing video-on-demand rentals on the same day that its DVDs hit retailers. The move has boosted sales and not hurt physical disc rentals, which don't generate as much profit as digital ones.
That's another way of making money, which I don't agree anymore since there are so many other ...
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would be contingent on pricing and an agreed-upon release date, said the people, who spoke on condition of anonymity because discussions were still ongoing.
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