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Google (s GOOG) is pitching Hollywood studios a pay-per-view service that would enable them to rent videos on YouTube for $5 a piece, according to a report in the Financial Times. While the service could introduce incremental revenues to both the online video site and the studios, the question remains whether the service will catch on with consumers.
YouTube’s pay-per-view service is not new; the site has had video rentals available on its site since January of this year, when it launched with films featured at the Sundance Film Festival. Up until this point, the service has been largely dominated by independent films and video rentals from niche publishers, such as anime distributors FUNimation Entertainment and the Anime Network or health and fitness video specialists Bay View Fitness and the Fitness Channel.
YouTube even launched a store highlighting some feature content available through its rental service. Now, eight months after the service was launched, the YouTube store features a number of indie titles, as well as some videos from Lionsgate Films (s LGF). While most of the rentals cost $1.99 each, some newer releases — like Lionsgate’s Kick-Ass, for instance — cost $3.99.
With consumers flocking to Netflix’s (s nflx) $9 a month subscription service, as well as a steady decline in DVD sales, studios are looking for new ways to increase sales through VOD and digital sales. Due to the relative profitability of VOD sales — at a price point of $4.99 or more per title — studios have collapsed the VOD window substantially over the past year, making titles available much closer to the same day-and-date that they go on sale on DVD. They’re also being more aggressive with electronic sell-through, making more titles available through digital platforms like Amazon (s AMZN) Video on Demand and Apple’s (s AAPL) iTunes.
Despite the growing number of videos available for rental, however, it’s difficult to determine whether the store has actually caught on with consumers. YouTube’s initial rental numbers for Sundance films were somewhat disappointing, with the program only generating 1,500 views in the first weekend those movies were made available.
Even after adding Oscar-winner Precious: Based on the Novel Push by Sapphire and popular library films like Reservoir Dogs, YouTube failed to generate much interest in its rental program, with the top ten titles in the program generating only 6,200 streams in the first week its rental “store” was opened.
While some incremental revenue is no doubt welcome, early lack of interest in the rental program could spell trouble for expansion of the pay-per-view initiative. Despite YouTube’s massive scale as the #1 online video site — with more than 40 percent of online video views in the U.S., according to comScore — the site has had a difficult time monetizing all that content. After five years of streaming mostly user-generated content, the site has yet to turn a profit. That could change in 2010, according to some analyst forecasts, with YouTube expected to pull in nearly $1 billion dollars in revenue this year.
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