For Broadcast October 29, 2009

The broadcaster’s innovative deal may yet come back to haunt it.

The final interviews for the new chairman of Channel 4 conclude this week, and not a minute too soon. In fact, from a VoD point of view, it might be one upload too late.

Because Channel 4 has already signed the most far-reaching and pioneering deal with YouTube of any broadcaster in the world. The outgoing chief exec and chairman of C4 have sold the digital family silver (online catch-up video rights to all current C4 programmes plus 3,000 archive hours) to the biggest online audience aggregator on the planet.

Sounds like a good deal, right? C4 will get a minimum guaranteed (MG) return from Google that is thought to be in excess of £5m for each of the next three years. And, given the growing appetite for online video, the channel’s return could go higher than the MG. Andy Duncan looks a hero, bringing new cash into an increasingly financially strapped broadcaster.

But is doing such a comprehensive deal with YouTube really a good idea?

C4 says its sales team will have access to up to 30% more of YouTube’s advertising inventory in addition to selling ads around C4 content. It will also use YouTube’s demographic targeting tools to target advertising against C4 shows on the site.

Google is the best-in-class at online ad sales in search advertising and increasingly in display, which is the holy grail for online video content. So yes, C4 should earn a lot of money in the short term.

The ‘but’ to the deal is the lack of long-term vision: C4 is giving YouTube the ammunition to become the defacto giant in professional online video and hence in online display advertising - replicating what it has already achieved in search advertising.

VoD’s biggest gorilla

Why is that a danger? Well, how many of you use Yahoo or Ask Jeeves or MSN for search? And now that there is effectively one search giant, who do you think sets the ad rates and reaps the rewards?

Note that the US studios/broadcasters have not done a C4-style deal with YouTube. Instead, NBC Universal, Fox and Disney/ABC back hulu.com, while Viacom CBS continues to sue YouTube.

Of course, the US guys are working with YouTube, but they recognise that there has to be balance or you end up with one big gorilla and not a lot of control. Think pay-TV and Sky - and think about how the negotiations with YouTube might be very different in three years time.

C4 says the YouTube deal is non-exclusive, but the other fledgling online video destinations have yet to build up the massive audience of YouTube.

The longer-term threat to C4 (and to all UK broadcasters) is that alternatives such as Blinkbox, MSN and perhaps even a UK version of Hulu do not gain enough of a profile to give YouTube a run for its money. C4, tied to YouTube, could be left with much less choice and control over its online video revenues in the longer term.

But Andy and Luke will be long gone before C4 has to worry about that problem.