MOUNTAIN VIEW, California: According to a new forecast, by Screen Digest analyst Arash Amel, the $1.65 billion (€1.3bn; £1.11bn) paid two years ago by Google for video-sharing site YouTube was not the most productive $1.65bn ever invested.

Despite its massive audience of around 83 million unique US viewers (September 2008), YouTube seemingly lacks advertising appeal – perhaps because of the nature of that audience and the site's often risqué content. To say nothing of serious issues regarding content copyright.

In terms of consumer eyeballs no other video-sharing site comes within a country mile of YouTube. But in terms of ad revenues ... that's another story!

Hulu, backed by News Corporation and NBCUniversal, and launched only in March of this year, is coming up fast on the rails, Amel believes. Showing only professional TV shows and movies, he forecasts it will draw level with YouTube in 2009 - at around $180m in US advertising revenues.

Says Amel: "YouTube is in a very tough place right now. Most of that user-generated content is worthless or illegal. The next eighteen months will determine whether or not it was just an expensive mistake for Google."

Starcom video innovations director Tracey Scheppach agrees: "YouTube hasn't done a great job justifying why advertisers should migrate online."

Whimpers YouTube advertising product manager Matthew Liu in response: "We're in the early stages, I wouldn't say we're where we want to be."

  • Meantime, back at the YouTube ranch, the boys in the backroom are trialling a service that offers video ads linked to search results ... YouTube's latest attempt to get "where we want to be" ad-wise.

    YouTube Sponsored Videos, has been in pilot with advertisers for several weeks. When rolled-out, YouTubers will see online commercials next to their search results when seeking  products or criteria such as "the financial crisis."

    Emulating Google's search ad system, advertisers can create and bid for such ads via a self-service website. "What we're trying to do here is bring the best parts of Google and the best parts of YouTube together," says Liu.

    The concept appeals to Jordan Bitterman, svp at Publicis's Digitas.  "The sponsored video links get around [content problems]. You don't have to worry about the content of the page."

  • Data sourced from Financial Times and Wall Street Journal Online; additional content by WARC staff