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Will Google (GOOG) Position YouTube to Compete with Cable Networks?

Google Inc. (NASDAQ:GOOG) has proven that their YouTube segment can develop and market content to compete with major broadcast channels. YouTube funded video-series “Recipe Rehab” was picked up by ABC, a testament to the quality and potential of some videos on YouTube. In April, the search giant began showing videos of the show on YouTube, and plans to extend the program to fill a 30-minute time slot on Walt Disney Co.’s ABC network. This marks the first sitcom from a YouTube-funded channel to air on broadcast TV.

This could be a sign of bigger things to come.

Google Inc (GOOG)

YouTube has always had the desire to become a key player in the entertainment industry. In 2010, ABC, CBS, and NBC blocked online versions of their full programs from appearing on YouTube. In a way, this blocked the Google TV from reaching its full potential. If the Web-enabled TV allowed users to watch their favorite shows on YouTube, then Google Inc. (NASDAQ:GOOG) could have developed a major advantage over cable companies. If the major networks would have allowed YouTube to stream their shows, Google TV would have given customers access to nearly everything they wanted to watch, and content would be easy to search for, and available at any time.

Even after being shut down by the major cable networks, Google Inc. (NASDAQ:GOOG) has made a push to expand their content on YouTube. Today tens of millions of people have created channels on YouTube. Looking at YouTube’s suggested channels bar, the platform has positioned itself to keep users on the site by offering a variety of tailored channels that appeal to nearly every taste and preference. Although Google has become more like a cable network in the sense of having channels, ComScore reported the average video duration on YouTube was only 6.7 minutes long, and the average online video ad was 0.4 minutes. This doesn’t compare to cable networks.

In an attempt to close this duration gap, YouTube has put money into channels that they believe will keep viewers watching for more than just a couple of minutes at a time. The video site has focused on longer-form content, the kind of content that keep advertisers coming back for more, so to speak. Google Inc. (NASDAQ:GOOG) is putting their money into this initiative with hopes that they will help YouTube take the leap towards competing with network programming.

Dana Vetter, a YouTube music marketing programs managers, stated that there’s one major difference between YouTube and TV networks. Vetter stated that YouTube has no interest in independently producing their own content. “It’s about facilitating programming rather than creation,” she said. “It’s about finding a partner who has the content who can deliver a phenomenal Webcast.”  This notion is displayed in YouTube’s success with Recipe Rehab.  Alex Carlos, head of entertainment at YouTube, displayed the notion stating “Recipe Rehab is the latest example of how creators are now harnessing the combined attributes of TV and the Web to build scaled, engaged audiences.”

Comparing YouTube to The Walt Disney Company (NYSE:DIS), News Corp (NASDAQ:NWSA), CBS Corporation (NYSE:CBS), and Time Warner Inc. (NYSE:TWX) will show how close the platform is to becoming a major player in the broadcasting industry. Looking at revenues, Google Inc. (NASDAQ:GOOG) does not disclose the slightest bit of detail about YouTube, but analysts have estimated the video site should generate more than $3.6 billion in gross revenue this year, and after distributing it to partners, the number should look more like $2.4 billion.

News Corp’s cable network segment includes FOX news, FSN and FX among others, and reported 2012 revenues of $9.13 billion (Click here to read about News Corp’s move into streaming media). Disney’s media network segment includes cable networks like ESPN, Disney Channel and ABC Family, among others, and reported 2011 revenues of $18.7 billion. CBS’s entertainment segment, which consists of CBS Television Network, CBS Television Studios, and CBS Studios International, among others, had revenues of $7.45 billion in 2011.

Lastly, Time Warner’s network segment consists of Turner Broadcasting Systems (recognized as TNT, TBS, TruTV and CNN) and Home Box Office (recognized as HBO or Cinemax), and had revenues of $13.65 billion in 2011. Analysts have projected that YouTube will generate less than half the revenues of the smallest comparable, and one fifth of the largest. Google Inc. (NASDAQ:GOOG) may have positioned YouTube to be in the same ballpark as the major broadcasters, but they still aren’t on the same field in terms of revenues.

The initial release of the Google TV did not take off like many had hoped for. The appeal of internet TV will continue to grow as YouTube improves the quality of its offerings and expands its content base. We believe if Google Inc. (NASDAQ:GOOG) can continue to progress in facilitating full-length TV shows, they will be able to leverage their customized channels to compete with major broadcasters.

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