When Google acquired YouTube in 2006 for $1.65 billion, CEO Eric Schmidt remarked, “This is the next step in the evolution of the Internet.” Three years later, YouTube is still not profitable, hosting thousands upon thousands of silly cat videos, while its primary competitor, Hulu, has already secured content syndication deals with NBC, ABC, FOX, and scores of cable networks. Ouch.

Of course, we shouldn’t be writing YouTube’s epitaph just yet. According to an article in the Wall Street Journal, YouTube is currently in discussions with a number of movie studios, including Lions Gate, Sony, MGM, and Warner Brothers, to develop some kind of movie rental agreement.

The proposed agreement would create a system whereby YouTube users could access new movies for a standard fee of around $3.99. Users may also be able to access movies for free by agreeing to watch a few commercials during the course of the film. The move indicates Google’s strong desire to compete with the likes of Netflix (which recently began streaming select movies online instantly) and Apple iTunes.

Though YouTube has been hosting licensed content from Sony, Lions Gate, and CBS (among other media companies) since April of this year, the videos have all been of older materials. Through a rental agreement, YouTube would be able to host movies on the same day that they are released on DVD and Blu-Ray. At this point, these are just negotiations, so there’s no way to be sure exactly what movies would be available, and when.

Compared to Hulu, YouTube still brings in vastly more web traffic (billions compared to millions), making it an extremely attractive target for advertisers. What’s more, if this rental deal with Lions Gate, Sony, MGM, and Warner Brothers comes through (and if YouTube can massively improve the quality of their video streaming) there’s a chance it could be a real moneymaker.

On the other hand, who would actually be willing to pay $3.99 to watch a movie on YouTube? I don’t mind watching TV shows on Hulu, which has much better playback resolution, but I’ve never felt that the quality of YouTube was good enough to warrant watching more than a three or four minute clip.

What do you think? Would you pay $3.99 to watch a movie on YouTube? If no (and I’m betting we’ll get a lot of no’s) why? If you wouldn’t pay to watch a movie on YouTube, Would you sit through a series of commercials to watch it?

Source: Wall Street Journal, CNET

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