Published September 4, 2009

YouTube in talks with Hollywood for pay movies

Agreements with studios will help financially: analysts

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(SAN FRANCISCO) YouTube, the largest video site, is in negotiations with major Hollywood studios for a deal that would let its visitors pay to watch full-length movies, according to two people briefed on the negotiations.

One studio executive said the issues still to be resolved were pricing and the timing of YouTube releases.

If an agreement is reached, it would be a major change for YouTube, which has built a huge audience by offering an eclectic collection of free video clips and earns most of its revenue from advertising.

It would also put YouTube, which is owned by Google, in direct competition with services from Netflix, Amazon and Apple, which allow users to buy or rent movies online.

YouTube, which already offers some older movies on its site free, is talking with Lionsgate Entertainment, Sony and Warner Brothers about making newer ones available, said one person briefed on the talks, which were intended to be confidential.

YouTube, which has long sought to add more professionally produced video, said in a statement: 'While we don't comment on rumour and speculation, we hope to expand both on our great relationships with movie studios and on the selection and types of videos we offer our community.'

Scott Rowe, a spokesman for Warner Brothers, and Jim Kennedy, a spokesman for Sony Pictures, declined to comment.

Peter Wilkes, a spokesman for Lionsgate, also would not comment specifically but said that the company was 'always exploring alternatives' that would help it make more money from its films.

Lionsgate, Mr Wilkes said, has enjoyed considerable success with offering movies and television shows through Apple. According to Mr Wilkes, the studio's Mad Men series has been downloaded about two million times through Apple's iTunes store.

The negotiations between YouTube and the studios were first reported on the website of The Wall Street Journal.

Movie studios have been pushing YouTube to consider charging for certain types of content, said a person briefed on the discussions.

YouTube appears willing to do so if the studios agree to give it access to enough of their newer films close to when they come out on DVD, the person said.

One studio executive - who was briefed on the talks but spoke on the condition of anonymity to minimise disruption to the discussions - said the issues still to be resolved were pricing and the timing of YouTube releases.

Though DVD sales have dropped, studios remain protective of the period during which films and shows are available on DVD but not in other formats.

Analysts said that without knowing the terms of the deal, it would be impossible to gauge its financial impact on YouTube, but said that, in general, agreements with major content providers would help YouTube over time.

'Wall Street is under the assumption that YouTube will continue to lose money,' said Ross Sandler, an analyst with RBC Capital Markets.

Mr Sandler said that with deals like these, 'YouTube's potential long-term upside goes up'.

YouTube overwhelmingly dominates the world of online video.

In July, users in the US watched nearly nine billion clips on the site, more than 10 times as many clips as they watched on the sites owned by its nearest competitor, Viacom, according to comScore.

But much of YouTube's audience visits the site to watch a random mix of clips generated by amateurs, which advertisers view with trepidation.

As a result, YouTube has been on a long quest to obtain more professionally produced video that it can use to generate revenue and offset the enormous cost of streaming billions of free clips. -- NYT