Google Jumps on the Hollywood Bandwagon

Google (Nasdaq: GOOG) is in talks with Hollywood studios to start a pay-per-view video service on YouTube in a bid to bolster its presence in the crowded online TV and movie segment, The Financial Times reported.

Google is negotiating with major studios to allow the streaming of movies onto YouTube from their catalogs on pay-per-view basis at $5 per movie, payable at the end of the year.

The current negotiations follow its earlier bid to woo TV broadcasters to support its Google TV. It received resistance from broadcasters on grounds of cannibalization of their content and a lack of revenue model around Google TV.

The digital movie and TV market has been steaming with activity compounded by recent rumors about Apple's (Nasdaq: AAPL) possible launch of Apple TV with 99-cent television show rentals on its scheduled Sept. 1, 2010, press event. Also early this month, Netflix (Nasdaq: NFLX) signed deals worth $1 billion to stream movies from Paramount, Lionsgate, and MGM. With Hulu joining the bandwagon with the launch of its IPO, Google has a lot to contend with.

Google had earlier removed its payment mechanism for content purchases from its now scrapped Google Video service in 2007, is back to build on a payment mechanism to milk its YouTube services.

Google's attempt to launch a pay-per-view on demand movie on YouTube could also be a strategy to look at the digital content service holistically. With Google TV in line it can offer a mix of services thus allowing it to negate its revenue-model snag. As it can allow users to rent specific videos from Google TV it can allow a significant revenue model to TV broadcasters as well.

Google's entry into rental service is a digression from its open system of ads-based revenue model, a possible sign that Google is willing to tap other revenue-generating avenues.

The digital content segment will depend on the relationships forged between online digital delivery providers like Google and Apple with content makers -- broadcasters and movie studios. The quality of content is key to success and thus an alliance with the right studio will matter.

Hollywood studios and TV broadcasters recognize the reach of online content delivery model built around smartphones, tablets, and TVs that allow online content search, thus their willingness to explore this segment. The caveat being a viable revenue model and possible cannibalization of the content they provide through traditional channels.

However, with the inevitability of more TV and movie content moving online, the nexus between broadcasters, film studios and online content delivery channels like Apple, Google, Hulu and Netflix is sure to deepen.

As the revenue models for both these parties will become more muddled, the days when Google and Apple may have considerable stakes in content production houses may not be far. Vertical integration across this sector is a possibility in the future.

International Business Times, The Global Business News Leader

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