With Original Content, YouTube Hopes to Woo Advertisers

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Google’s (NASDAQ:GOOG) YouTube is set to take the next big step in providing video content, [1] possibly leading to an upside to the company’s display advertising business. The world’s largest video site is reportedly on the road to seal deals with well-known personalities and media companies to produce original content. Google competes in the online advertising space with competitors such as Facebook and the now-struggling Internet giants Yahoo (NASDAQ:YHOO) and AOL (NYSE:AOL).

We currently have a price estimate near $600 for Google’s stock, which is roughly 25% above the current market price.

See our complete analysis for Google’s stock

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Original Content Can Attract Advertising Dollars

Youtube has shown impressive growth in scale so far, reaching around 600 million unique visitors worldwide in August 2011. However, ad revenues to the site still come mostly through syndicated videos from other music video sites such as Vevo, [2] as well 20,000-odd Youtube user-partners, both of which share ad revenue on their videos.

With Youtube now striking deals directly with high-profile individuals such as skateboarder Tony Hawk and major media houses such as Warner Bros., Google has a much bigger opportunity to produce original content on Youtube. The next task for Google however will be to convince major advertisers that Youtube is now a safe haven for them as much as cable television is. This could lead to a significant upside in the average advertising revenue made on every page view on Youtube, which is currently lower due to the overall low-quality user-generated content up on the site.

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  1. Wall Street Journal: YouTube Goes Professional []
  2. TechCrunch: VEVO: YouTube And UMG Team for A Premium Music Video Hub That We Don’t Really Need []