How YouTube's modest new movie rental service could radically change the movie business.

Commentary about business and finance.
Jan. 29 2010 10:59 AM

YouTube as Video Store

How the site's modest new movie rental service could radically change the way Hollywood does business.

Internet famous still doesn't quite cut it in the film world. Last week, at the Sundance Film Festival in Park City, Utah, YouTube held a press conference to launch its brave new $3.99 video rental service  and introduce its featured filmmakers. Unfortunately, after opening remarks, everyone was promptly ejected. Yes, Google does have a market cap of more than $170 billion, and YouTube welcomes more than 1 billion viewers a day. But Robert Redford, apparently, wanted the room.

YouTube isn't just having trouble booking a hall. Its new video rental service has been criticized and even mocked. The idea is to use the familiar YouTube format to allow users to rent films that as of now are not available in the theaters or through other traditional forms of distribution. The service's initial offering is five independent films that in their opening weekend grossed something like $6,000.

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YouTube's own users were among the critics, seemingly offended by the idea of paying for anything. "The beginning of the end," wrote one user in comments; "i thought the purpose of youtube was to watch videos for free." Another wrote that "Youtube is seriously [sic] selling out," apparently unaware that YouTube, in fact, already sold out to Google in 2006 for $1.6 billion.

Yet big things have small beginnings, and it's a mistake to underestimate what YouTube and Google are doing here. It is true that Apple and Netflix, its rivals, have their own online rental services and currently offer much more product. But YouTube's service is more idealistic and more radical, aspiring not simply to succeed in the film industry as it is but to challenge its very structure. In that sense, it is a cousin to Google's other projects, like Android, whose immediate target is less market share than industrial change.

What YouTube wants to create is what it calls an "open platform" for film distribution. According to group product manager Jim Patterson, YouTube has designed a platform that will "provide a level playing field that treats large content and small content equally, where a film can rise to the top based on its popularity alone." That might not sound all that revolutionary, but it is—film distribution hasn't been open or neutral since 1894 or so. What YouTube rental offers is a vision, however far off, of a future where independent film is the norm, not the exception; where filmmakers rise in viral fashion online; and where producers are masters of their own destiny.

To say there is room for change is to state the obvious. The movies remain the only media industry generally unaffected by the rise of the Internet. In 2009, despite the wobbly economy and the supposed threat of Internet piracy, the industry posted more than $10 billion in domestic box-office revenue, the highest in history. The revenue from DVD sales and rental was roughly $17 billion. Online film sales, which YouTube would be a part of, meanwhile, accounted for just $100 million, or 0.3 percent of total feature film revenue.

How has the American film industry remained unaffected by changes in technology over the last decade? One reason is that films take forever to download, and a computer isn't a perfect substitute for a movie theater or, for that matter, a big TV. What's more, the Hollywood studios have retained their strong control over the distribution of films—both their own, mainstream films and those made by independent producers.

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