An announcement came out yesterday that YouTube is going to begin testing movie rentals starting Friday with movies from the Sundance Film Festival. This move represents a new opportunity for YouTube to generate revenue in addition to advertising with its’ large, engaged audience. Last week, YouTube ranked 6th among all websites in the US and visitors spent an average of 25 minutes and 25 seconds with the website.
Already a destination for viewing both short and long videos online, YouTube ranked second behind Momo Mesh for websites that receive traffic from the search term ‘movies online’ for the 12 weeks ending January 16, 2010. Last week, among all of the search terms that drove traffic to YouTube, 2179 included the word ‘movie’ or ‘movies’, although 291 also included the word ‘free’. Migrating users into paying customers may be an initial challenge for those unaccustomed (or unwilling) to pay for content, the same problem facing all media companies.

There are many competitors to the new service offering from YouTube including NetFlix, Apple and Amazon. However, in general, NetFlix has become synonymous with movie rentals online and appeared three times in the top ten search term variations of ‘movie rentals’ for the 12 weeks ending January 16, 2010.

For any of the players in this space, video quality, breadth of selection and ease of use will be the key drivers of success.