Could peace be near for YouTube and Hollywood?

Google's YouTube is quickly shedding its reputation in Hollywood as a clearinghouse for pirated content and could soon be home to clips from popular movies and TV shows--all legally obtained.

Insiders say the search company has adopted a more accommodating approach toward Hollywood, and that it's finally starting to pay off. Last week, Lionsgate struck a content agreement with YouTube in a deal that calls for unprecedented cooperation between a major film studio and the Web's largest video-sharing site.

That agreement is likely only the beginning. Other big media companies are in talks with Google about similar deals, say sources with three different entertainment companies. They detailed the ways Google has become more flexible in talks about sharing revenue and helping protect films and TV shows against piracy.

"We've been working with them on filtering and they're doing a pretty good job," said an executive at a major media company that has been critical in the past of YouTube's antipiracy efforts. "We're pretty impressed with the results and their ability to identify our clips and allow us to automate the process."

Google has also piqued the interest of some in Hollywood with new ad-delivery and content-tracking technology that the company is developing, according to three studio executives who spoke to CNET News. Google could one day enable content owners to insert ads into unauthorized video clips wherever they might be posted online.

Ricardo Reyes, a YouTube spokesman, declined to comment about Google's business dealings, but did say YouTube's commitment to copyright protection hasn't changed. "We've always been committed to it," he said.

Should Google succeed in convincing Hollywood to share content on YouTube, many of the company's copyright woes could be put behind it. Google could also generate new revenue from selling ads against popular television shows and films.

Hollywood could profit from piracy
As it stands now, Google doesn't advertise against the vast majority of YouTube clips. It can't legally sell ads against pirated content and homemade video at the site is often too controversial or mundane to appeal to advertisers. Licensing more professionally made content could be the answer to Google's disappointing attempts to make money off the volume of content available on YouTube.

The new ad-distribution technology Google is working could go a long way to mitigating the damages caused by copyright violations. A digital fingerprint is made of a piece of video and is used to locate unauthorized clips. If the owner chooses, an ad can be inserted into the video. To do it, Google has been considering a partnership with Auditude, a start-up that has impressed many in Hollywood with this type of technology, according to three sources with knowledge of the talks.

A representative from Auditude declined to comment for this story. A third competitor, Vobile, has also caught the attention of studio executives, said one of the sources.

Google CEO Eric Schmidt hinted that his company was working on this kind of technology during the company's quarterly earnings call on Thursday.

"Lionsgate works with people who upload segments of the Lionsgate movies that they like and they capture them using our ClaimWare content product," Schmidt said.

He continued by saying ClaimWare finds a copyright owner's videos and enables the copyright owner to display ads next to them.

These kinds of systems, however, don't solve all of the entertainment industry's problems, said one executive at a major media company. Film studios would be profiting from (rather than punishing) piracy. "Sure, it's easy to say, 'Wouldn't it make sense to monetize these unauthorized clips,'" said the source. "But if you say 'Go ahead and make unauthorized copies. We'll just make money off of them' aren't you legitimizing piracy?"

Did litigation and mediocre revenues change Google's tune?
None of the people who spoke to CNET News knows for certain what led Google to soften its approach toward the entertainment sector.

But few in Hollywood have missed Schmidt's recent comments that YouTube is struggling to make significant income. YouTube is also defending itself against a $1 billion copyright infringement suit filed by Viacom last year.

And while YouTube is still the Web's dominant video site, with 34 percent of the market according to ComScore, the site has begun to see major entertainment players gravitate toward competitors, such as Hulu, the video portal backed by NBC Universal and News Corp.

Hulu may have already hurt YouTube and Google in one significant way, according to one media executive. The portal has helped to establish revenue splits between online video distributors and content owners.

"The days of the 50-50 split between content owners and Web sites are over," said the executive. "Content owners are not going to take less than 70 percent anymore and some are getting 90 percent. In Hulu's case, 70 percent goes to the content owner. Hulu takes 20 and the Web sites who have distribution deals get 10 percent."

These aren't close to what Google was willing to accept in the past, but the search giant now appears more willing to compromise, said two studio executives.

Conversely, the studios realize that Google, despite concerns over YouTube revenues, isn't exactly playing a weak hand: YouTube has more than 70 million unique monthly visitors, making it the third-most visited site on the Web.

"YouTube and Google were the 800-pound gorilla (in the online video sector)," said one of the executives who has been involved in negotiations with the companies. "They had all the distribution and all this pirated content and you couldn't monetize without them."

On Monday evening, Viacom CEO Philippe Dauman respond to questions posed by reporters at a gathering in San Francisco and said in his view YouTube started out as a "rogue company." Google's hardball negotiating tactics with the studios and TV networks only served to further alienate decision makers in the entertainment sector, he suggested.

Dauman said that eventually Google must learn the value of "making friends."