Today YouTube will start placing advertisements into video clips (read Times Online article). Warner Music Group is one of the first group of 1,000 "content partners" whose videos will get advertisements.

Pictured is an advertisement placed on a video for "What I've Done" (YouTube link) by WMG's Linkin Park.

The initial cost for advertisers will be $20 per 1,000 views (whether or not the user clicks on the ad). Revenue will be split between the website and the content provider. The pictured Linkin Park video has been viewed over 19 million times. At $20 per 1,000 views, WMG's share would be just over $190,000.

For a major artist on a major label, that's a fair amount of money. Across a large video catalog, though, that revenue will sum to a considerable amount. For the labels, this is basically found money. YouTube videos do not cannibalize music sales in the same way downloading does. These ads mark the dawn of the new, ad-supported era. Rather than collect money from an end sale, other levels of consumer participation matter. Now there is a way to properly monetize the curious, the mildly interested and the more frequent viewers.

Claims of effectiveness are in this Telegraph article:

"YouTube claims the new advertising method is five to ten times more effective than any other display advertising.

A spokesman for YouTube said the group had been trialling various different ideas for weeks, revealing that video abandonment skyrockets as pre-roll adverts get longer in length, making it clear that they have a 'detrimental impact on users'."

From AdWeek.com:

"In its test, Google said the ads got click rates of 1-2 percent, with 75 percent of clickers watching the message all the way through. In shunning pre-rolls for targeted ad invitations, Google is borrowing a page from several startups, including VideoEgg and ScanScout, which have tried overlay video ad features."

The AP article mentions the new ads' effectiveness:

"Shiva Rajaraman, product manager for YouTube, said internal tests show more than 70 percent of people give up when they see a pre-roll. By contrast, less than 10 percent decide to close an overlay, which they can exit by clicking on an "X" in a corner. The overlay format also gives advertisers more flexibility, he said, because they aren't constrained to keeping a video ad at 15 or 30 seconds to avoid defection."