YouTube Offers Some Prime Online Real Estate

In Search of Steady Revenue, Video Site Starts Selling Home Page Space to Advertisers

Paris Hilton addresses "YouTubers" in her video ad on the site. (Youtube.com)

Paris Hilton's face is shiny. The lighting is bad, and she's sitting against a yellow wall, filmed with what appears to be an amateur's video camera.

"Hey, YouTubers, it's Paris," she says to the camera, followed by a clip of her latest video and an invitation to check out the "Paris Hilton channel" on YouTube.com.

Her appearance on the Internet's most popular video site is part of a new advertising strategy announced yesterday by YouTube, a year-old Internet phenomenon that has yet to find a viable revenue stream. By midday, the Paris Hilton video -- found at a home page location that YouTube will be selling to advertisers -- had attracted 155,000 views and more than 600 comments from visitors. The company said it would sell the upper-right corner to advertisers for an undisclosed daily rate, also allowing them to create special YouTube "channels," for which they would be charged based on the number of page visitors.

"It's giving brands and advertisers a new way to provide new material to the YouTube community," YouTube chief executive Chad Hurley said. "This gives them a chance to create a viral video," he said, referring to fast user-to-user spread.

YouTube visitors will have to click on the video ad to activate it, and its appeal will be measured by the number of visitors who choose to watch it, share it and provide a short commentary below the clip.

Advertising and marketing consultants said YouTube's new offer will appeal to many advertisers because the location of the video gives them more control over it. But at the same time, advertisers will have to be much more savvy about the kinds of advertisements that should be displayed in the space.

The new ad platform aims to strike a balance for advertisers, who are leery of associating their brands with the sometimes racy and copyright-infringing content on YouTube, yet eager to capture the Web site's rapidly growing audience. In just one year, YouTube has quickly become the most popular online video site, but its revenue model has remained uncertain. The firm has $11.5 million in venture capital funding and until recently relied mostly on text and banner ads for revenue.

That model is "a convenient autopilot for any property that hasn't figured out the advertising thing yet," said Timothy Hanlon, senior vice president of Denuo, a consulting firm within Publicis Group. He said YouTube is now essentially renting out prime home page real estate. "It's an obvious next step," he said.

Hurley said the model is already proven with a clip from a film called "Pulse," created by Weinstein Co. Since being featured on YouTube, the trailer has become one of the most popular videos on the site for this month. Other TV commercials posted by Internet users have also been popular: A Sony commercial depicting more than 100,000 brightly colored rubber balls bouncing down a San Francisco street has been viewed 3.5 million times, and a Volkswagen commercial has been viewed 2.5 million times.

But if yesterday's video is any example, online ads will have to have a different look and feel than those made for the 30-second TV spot.

Hilton started her video with a personal message. Hundreds of people commented, often writing as though they were talking to Hilton directly. "Love the video! The upbeat reggae sound. No matter how I'm feeling . . . this video always picks me up. Love ya Paris!" wrote a user identified as "zentsang." Another visitor left this comment: "meh, don't like the song."

Brian Haven, a senior media analyst at Forrester Research, said YouTube is challenging advertisers to let go a little. "They're upping the ante to marketers. You can't just repurpose the content you've been putting on TV for a mass audience. That mass strategy isn't going to go forward," he said. "Marketers are going to have to more effectively engage consumers. They're going to have to take it up a notch in creativity."

For example, advertisers have to think about more subtle ways of reaching out to the online audience. "It's not just 'click here, buy now,' " Haven said. "Consumers see through that. If you're creating content that happens to be related to your brand but not blatantly about selling your product, it's more of a narrative. It's a story happening over a longer period of time. They're building awareness."