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In the online video space, video-sharing site YouTube has launched an advertising model that appears to be its first effort to monetize its explosive popularity (the site received 16 million unique U.S. visitors in July, according to comScore Media Metrix).

Known as participatory video ads, they will run on YouTube’s home page based on viral popularity among its users (much like all its video content). YouTube declined to say how it will charge for these placements, but it is clear based on traffic levels that this ad inventory will be valuable and highly sought after. It is likely that it will be sold on a CPM basis, as the company has confirmed it won’t be pay-per-click.

This seems to be a clever way to intermingle "ads as entertainment" to its current site content. YouTube’s primary demographics have proved to be averse to pre-roll or banner ads that accompany video content, so this is a creative way to bring advertising into the picture that won’t drive away traffic. MySpace faces a similar dilemma, which it recently sought to alleviate by bringing in text ads from Google.

Sony Pictures Entertainment, meanwhile, announced today that it has acquired video-sharing and user-generated content site Grouper for $65 million. The deal is a vote of confidence by the studio giant that user-generated content will continue to be a significant online traffic driver and the basis for sustainable business models.

Sony’s chairman and chief exec, Michael Lynton, said as much:

"My sense is that user-based content is a form of content that's going to last," he told The New York Times. "It's a bet, no question, but it's a bet worth making."

Nielsen/NetRatings counted 430,000 visitors for Grouper in July, compared with YouTube’s 30 million, but Grouper claims this is a miscount due to survey extrapolation. The real monthly figure, according to the company, is 8 million visitors a month, up from 1 million in March.

The majority of content on Grouper is short form videos and commercials, akin to YouTube’s sweet spot. We’ll see if Sony can bring a level of investment and marketing heft that will give YouTube a run for its money. YouTube has proved that success in this segment is built on viral marketing, so we’ll see if Grouper/Sony can replicate that and, more importantly, if either can successfully monetize traffic.

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