Google's Box-Office Bomb

Google (Nasdaq: GOOG  ) won't come out and say it, but its gamble over the weekend to establish a digital video-rental service is a box-office bomb.

It was easy to predict that YouTube's user base wouldn't warm up to paying $3.99 to rent one of five critically acclaimed Sundance-screened films. Folks approach YouTube as an outlet for short -- and free -- clips.

Apple (Nasdaq: AAPL  ) , Blockbuster (NYSE: BBI  ) , and Amazon.com (Nasdaq: AMZN  ) have all struggled to push digital video rentals, while Netflix (Nasdaq: NFLX  ) has enjoyed much better luck in that department. And all of these players have systems in place to deliver those films directly into set-top boxes, DVRs, portable media players, or other home-theater gadgetry, a realm into which YouTube is just beginning to venture.

However, even a cynic like me is shocked to see how poorly YouTube's rental debut went over the weekend. It promoted the offerings on its landing page on Friday. I kept tabs on the slow trickling of the view counts during the weekend, and this is where the tally stood as of last night.

Film

Views

The Cove

303

One Too Many Mornings

241

Homewrecker

279

Children of Invention

301

Bass Ackwards

298

Ouch! We're talking about 1,422 total views, or $5,673.78 for all of the rentals at $3.99 apiece. If Google is giving the filmmakers roughly two-thirds of the take -- and I'm going by other digital-media standards, since the site isn't publicly spelling out the royalty payouts -- each of the five productions will walk away with just hundreds of dollars for their role as video-sharing pioneers over the weekend.

Maybe YouTube made the system too cumbersome, requiring film buffs to jump through too many hoops, and ultimately requiring payment through Google Checkout. It could have at least accepted eBay's (Nasdaq: EBAY  ) PayPal or a major credit card like Visa (NYSE: V  ) , instead of forcing users toward its proprietary transaction platform.

Google also runs the wildly popular AdSense program for third-party website publishers, and YouTube Partners as its revenue-sharing offering for popular video creators. Where were they in all this? At the very least, YouTube could have approached some of the bigger Partners to promote the rentals in exchange for a piece of the action.

Despite generating a fair deal of publicity for the rollout in the financial media, YouTube's effort failed to resonate with the tastemakers on its site.

If anything, YouTube may find itself on damage control duty this morning. YouTube users were able to rate the films, even without purchasing them. There are hundreds of more ratings than views, and many of them are skewing toward lower one-star reviews -- likely as a reaction to YouTube charging for content in the first place. Of the five films, I have only seen The Cove, and it's highly unlikely that its uninspiring average rating of 2 1/2 stars out of 5 stars owes to folks who actually saw the documentary about a mass slaughter of dolphins in Japan.

YouTube shouldn't give up this early, of course. Opening weekend may make or break a Hollywood flick, but an operating model takes longer than that to prove itself. Let's hope that Google comes back with fewer restrictions, a wider selection, and lower introductory price points if it really wants YouTube to eventually excel as a digital ticket-taker.

Will premium rentals on YouTube ever work? Share your thoughts in the comments box below.

Google is a Motley Fool Rule Breakers recommendation. Apple, Amazon.com, Netflix, and eBay are Motley Fool Stock Advisor picks.. Try any of our Foolish newsletter services, free for 30 days.

Longtime Fool contributor Rick Munarriz is ready to officially classify himself as a clip-culture junkie. He does not own shares in any of the stocks in this article. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (8)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 25, 2010, at 12:53 PM, LDSGJA wrote:

    I think this is an overreaction - those are all independent films from sundance and quite frankly, most people don't find this type of media entertaining.

    Most Youtube videos are someone farting, or a music video, or a stupid clip from TV, or a cut kitty. A long independent film though? Its just not mainstream.

    I'll bet if it was Avatar for $3.99 i'd be a different story. Although its too bad they can't get a lower price point as it seems to me that most people aren't willing to shell out $4 for a single rental anymore: hence the success of $0.99 Redbox rentals and NFLX unlimited rentals for low prices.

  • Report this Comment On January 25, 2010, at 1:05 PM, indomitableme wrote:

    Have you ever heard of a soft launch?

    This is not a failure in the least and the fact that they only accepted Google Checkout should be an indication that they only want to pilot this to those somewhat loyal to the Google brand already.

    Total misread here on these success of this.

    This is threat to Netflix for sure.

  • Report this Comment On January 25, 2010, at 2:08 PM, BioBat wrote:

    I wouldn't call it a flop because it's a pilot program but with a $3.99 price point, this is absolutely no threat to Netflix. If the point is to maximize profits, you have to get viewers to pay for content and a $3.99 one shot vs. $9 monthly fee with unlimited rentals makes zero sense. It'll work for occasional renters but where's the big $$$ profit in that.

    Good idea, just 2-3 years too late.

  • Report this Comment On January 25, 2010, at 2:35 PM, wuff3t wrote:

    A threat to Netflix? Unlikely. Have you ever tried to get technical support on YouTube if something doesn't work properly? It's next to impossible. Google will have to do a lot of work in that area to compete with Netflix. It doesn't matter how good the content, if you can't get support when things go wrong you're liable to spend your dollars somewhere you can the help when you need it.

  • Report this Comment On January 26, 2010, at 7:40 AM, wjcoffman wrote:

    It'll work but it's all about price point, content (people will probably pay to watch just about anything for .99USD), and customer support. (My summary of the previous posts.)

    Signed,

    Mr. Obvious

    <DISCLOSURE: Long GOOG>

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