Why YouTube Is Ready for Prime Time

Mainstream ads are probably not the focus, however. It's probably more attractive to potential buyers as a means of wholesaling videos to young consumers who have become accustomed to the notion of paying a buck or two, through iTunes and the like, for episodes of commercial TV fiction, news, sports shows and movies.

Kedrosky says the key is that people increasingly don't want to watch an entire show twice. They want to watch a good show once, and then they will pay to keep the good bits. "That's where YouTube comes in," he says. "People don't want to watch the full Daily Show with Jon Stewart. They just want to watch the best parts. This is what I call GBOD, or 'good bits on demand.' There is no prime time anymore. People will get the parts of the shows they want when they want it."

CBS, NBC and Fox are already paying YouTube and Google to post pieces of their programming as promotions. CBS, in fact, has posted entire episodes of its hit comedy The New Adventures of Old Christine and Smith, and Warner Music this week agreed to allow YouTube to post its music videos on an ad-revenue-sharing basis.

Television producers are putting increasing focus on the four-minute segment of all their shows that they think people will buy and share. Since that's how people already think about shows -- relaying to friends their favorite parts of a show -- producers will find success by using YouTube and Google Video to intersect with their audience in a natural way. "This audience was always there," Kedrosky said. "It's not being invented on the fly."

Too Big to Topple

At present, YouTube is pretty disorganized and poorly marketed. As it preps for an initial public offering over the next six to nine months, expect it to get an attractive makeover -- much as Amazon.com went through in about 1998.

Since the company just hired a veteran chief financial officer from Yahoo!, I think it will go public by the summer of 2007. It needs to go soon, while there is still a lot of hope and expectation on the part of speculators about the democratization of video. By not affiliating with any one network, YouTube can remain the Switzerland of video, attracting attention and eyeballs from networks and the public alike.

Sure, it could be replicated. But so could Starbucks(SBUX Quote) in its early stages. So could Google. But they weren't after they had gathered a fanatical audience.

Kedrosky points out that the luck and beauty of YouTube at present is that "everyone goes there because everyone goes there." He adds: "Once you reach a tipping point, the size of your community becomes its own barrier to entry."

Unless the deal is really crazy, I think this is one Web 2.0 success story that will fly as a public company as long as it doesn't go too mainstream to satisfy Hollywood first. Watch for it.

At the time of publication, Jon Markman owned shares of Starbucks.