YouTube Courts Sony

YouTube continues its push to bring more feature-length movies to its lineup, as word breaks that the Web site is in talks with Sony (SNE) to add some of the film company's vast film library to its repertoire. CNet's Greg Sandoval writes that while the two companies have yet to disclose what their partnership would entail, past Sony deals have been considerably limited, with Sony offering only 15 or so films to other Web distributors. In addition, Sony has occasionally insisted that Web sites use its Crackle video player in order to redirect viewers to Sony's Crackle Web site and control the advertising that accompanies the film. YouTube may not agree to such a deal, since it still boasts the largest video-viewing audience in the world. On the other hand, the site is reportedly bleeding money and may cut any deal that drives more advertising revenue its way.

According to TechRadar, a new Credit Suisse report claims that YouTube will lose a remarkable $470 million by the end of the year. Advertising revenue has been slowly creeping up but not nearly at a pace to match the massive bandwidth costs, which are expected to top $710 million. Google (GOOG) has already spent $1.6 billion acquiring YouTube, and more easily navigable sites such as Hulu are drawing viewers away at an alarming pace. Unless it puts together more ad revenue in a hurry, the site could swell into a big money hole.

Accordingly, YouTube has already begun revamping its site to segregate revenue-generating movies and television shows from amateur videos in order to match Hulu's more user-friendly format. In addition, YouTube is finishing a deal with Disney (DIS) to place ABC and ESPN clips onto the site, which would give users access to more professional content, something YouTube has been desperate for. Ever since Google cavalierly dismissed Hollywood's copyright-infringement complaints, the company has been working overtime to mend fences and sign distribution deals with studios angered by Google's initial attitude. Any deal with Disney and Sony would go a long way toward finally bringing them some properties they could sell ads around.

Oddly, Disney is negotiating to buy a piece of YouTube's main rival, Hulu, even as it finishes this deal with Google. According to the trade site broadcastingcable.com, the deal would likely give Disney between 20 percent and 30 percent of Hulu, sharing the site with its rivals NBC and News Corp (NWS). This leaves a lot of open questions as to whether Disney would share films with both Hulu and YouTube. Would the company reserve some clips for YouTube, keeping them off Hulu? Or is the goal to get as wide an audience as possible in order to gin up ad rates? And what will Hulu's founders NBC and News Corp. have to say about their own partner signing a deal that would boost YouTube's viewership and ad revenue?

In any case, Google needs Disney and Sony if it wants to put YouTube in the black anytime soon and could easily agree to whatever deal either partner wants. And the studios might be a little desperate these days as well. As CNet's Sandoval points out, Americans have begun canceling their cable subscriptions and turning to the Web to watch movies and television, and the studios are eager to sign deals that keep the ad revenue flowing, whatever form it takes. "If YouTube only gets a handful of Sony movies and if they aren't the best and if there's lots of strings attached, YouTube should still go ahead," Sandoval concludes. "Sony and Disney are worth twisting yourself in knots for."