Search Engine Land has the scoop. I was wondering exactly how YouTube was going to do this, and frankly, I’m not blown away. This to me seems obtrusive to my viewing experience. I suppose I’ll have have to wait and see it live in action.

This is HUGE, HUGE news for video publishers.

People have been speculating about how YouTube would eventually monetize video streams, as opposed to page views. The answer comes in the form of an innovative approach that involves almost transparent animated flash “overlays” that will appear on selected videos. It’s an attempt to balance the competing demands of an unencumbered user experience with the effort to monetize the video streams themselves.

Google conducted research, which supports other empirical data in the market, confirming high rates of abandonment of ads (and accompanying videos) when users are exposed to pre-roll. However, pre-roll has been the “default” strategy among sites seeking to monetize their video traffic. To Google’s credit, they’re taking a careful and thoughtful approach to monetizing YouTube video streams.

Here’s how the new overlay approach works, according to Google:

* 15 seconds into the video, an overlay ad appears on the bottom 20 percent of a video
* The overlay animates for up to 10 seconds and is 80 percent transparent
* The overlay then closes automatically
* A user can replay ad by clicking button

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If the flash ad is clicked, the video stream stops, a “picture within picture” window is launched and a full video ad plays (no specified duration). After the user finishes viewing the ad, the window closes and the primary video resumes. Google will be reporting click-throughs to advertisers and the duration the accompanying ad plays.

Instead of simply subjecting users to unwanted pre-roll ads, what this approach does is create a more qualified user for the subsequent video ad, among those who click through on the flash overlays. This offers a combination of branding and, to some degree, direct response to marketers. If the overlay ads are successful you can expect to see them quickly emulated by others.

Google will be rolling the ads out selectively and on a limited basis but more widely over time.

Search Engine Journal is reporting on the revenue split.

Currently on the testing stage, the new ad serving scheme pays YouTube content partners around 70%-80% revenue payment. As for advertiser charges, YouTube charges $20 per one thousand video viewings.

With the current popularity of user generated and uploaded videos, it is high time that Google utilizes YouTube videos for income generating purposes, to recover the cost it pays for it.