YouTube may offer premium movie rentals

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Photo by 'sjsharktank' via Flickr

YouTube headquarters (Photo by 'sjsharktank' via Flickr)

YouTube is currently discussing with major movie studios about providing rental movies to its users.  The world’s most popular online video site owned and operated by Google currently streams videos for free with advertisements.

According to CNN Money, YouTube is in talks with Lions Gate Entertainment Corp., Sony Pictures, and Warner Brothers about movie rentals likely to cost $3.99 per movie.  Currently YouTube has a free selection of movies, TV shows, and movie trailers from those studios and others.

Internet-based movie rentals are not uncommon these days.  Apple iTunes, Netflix, and are among those who offer movie rentals online for a fee.

Until recently the site was known primarily for entertaining videos created and uploaded by its users.  Now they are turning to a new direction, giving focus to professional videos as well.

YouTube has been criticized by analysts for not creating enough revenue solely from advertisements.  With the number of users they host, YouTube is believed to be losing money from operating costs.  This may be what they need to become profitable.

The criticism does not end there.

YouTube has a market-leading share of 40% of all online video streams, so the site has the most potential to achieve success from its online video advertising model.  Still, it has a lot of work to do to make the site more profitable.

Also, there are already many similar competitors out in the online video rental market.  Amazon and Netflix can be watched online or be streamed to a TV, but YouTube rentals would most likely remain solely computer-based.  Netflix charges a monthly fee for an unlimited number of movies, while YouTube rentals are predicted to charge a per-rental fee.  Unless YouTube could offer dramatically low prices and faster movie launches than its competitors, the chance of great success is slim.

And the revenue?  Movie studios would take a large portion of the revenues, most likely leaving YouTube with only 30% of the profits.  Although YouTube has 400 million users, only a tiny fraction of them would be willing to pay for rentals.

The launch date may be soon as this premium service is currently being tested by 10,000 of Google’s employees.

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