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Google adds click-to-buy feature on YouTube

Google Inc. added another jewel to its crown nearly two years ago with the $1.65 billion acquisition of online video powerhouse YouTube.

It instantly transformed Google into the dominant player in online video, an emerging and potentially lucrative field. But while YouTube continues to gain in popularity, it is still trying to find a recipe for financial success. 

Several efforts are under way to turn the Web site into more of a moneymaker. The latest, announced Tuesday, allows users to buy songs and games that appear in videos that they watch. 

Viewers who want to buy a song featured in a music video can click on an icon that takes them to Amazon.com or Apple's iTunes store, where they can download that track for a fee. The program is a new e-commerce ad format for YouTube, which gets a share of the revenue from every transaction. 

Currently, only EMI and Universal Music Group are making their music available for "click to buy." EA's Spore video game is also part of the program through Amazon.com.

Google is hoping to bring other companies aboard and other kinds of content including film, print and television. If successful, it would help counter YouTube's image as a safe haven for copyright infringement that is undermining the entertainment industry.

YouTube executives, effusive about the growth in users on the Web site, emphasize that it will take time to find the right financial formula.

"That is the Holy Grail," Eric Schmidt, Google's chief executive, said earlier this year. "When we find it, or the combination of it, it's likely to be very, very large because of the scale and scope of YouTube."

Google, in Mountain View, was the top U.S. video property in July with 5 billion videos viewed, or a 44 percent market share, according to comScore Video Metrix. YouTube represents virtually all of Google's video business.

Because Google doesn't release financial details specifically for YouTube, analysts are left guessing. Marianne Wolk, an analyst with Susquehanna Financial Group, expects the Web site to generate $250 million in revenue in 2008 - a relatively sizable amount, and growing - but only a fraction of Google's expected overall $16.1 billion in revenue.

Like many sites, YouTube also features video ads and display ads, the equivalent of online billboards. Partners can sign up to share in the revenue from the ads that appear next to their videos.

Last year, YouTube started allowing partners to insert semi-transparent ads on the bottom fifth of their videos. Users can click on the ads, which appear for about ten seconds before shrinking, to open another video window for more information.

Companies can pay YouTube to offer contests. Users then, for example, submit homemade commercials for Kmart or upload consumer tips for Johnson & Johnson for the chance to win prizes. Colin Gillis, an analyst with Canaccord Adams, said with the economy slumping, Google will be under greater pressure from investors to wring revenue from YouTube, along with other products in its arsenal that are considered underperformers.

"I'd like a clear road map from the company about what steps they are going to take to drive this product and gain some critical traction," he said.

Phil Leigh, senior analyst with Inside Digital Media, a market research firm, wasn't particularly concerned about the slow financial progress at YouTube since the acquisition, saying it was more important to draw more users to the Web site. But he added that it's probably the right time to try to ramp up the financial side given the potential impact of the bad economy on Google's overall advertising business. 

- By Verne Kopytoff

 

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