Is Google’s message on YouTube starting to get through?

August 20, 2009

YouTube executives and spinmeisters have been pushing back more aggressively at the perception that the video site is a great big drain on Google’s bottomline, probably  losing $200 million to $500 million a year by some estimates. These execs say that hundreds of major advertisers are taking spots on YouTube against “hundreds of millions” of video views every week.

The problem with this is the lack of precise details. How much revenue is YouTube generating from these monetized videos exactly (even approximately)? And how much does it cost to stream and store those hundreds of millions of videos every week? Google and YouTube decline to provide any numbers other than to say things are moving in the right direction. Wall Street and investors are yet to be convinced.

Goldman Sachs analyst James Mitchell is the latest to have a shot at a respectable estimate for YouTube. He says it will generate around $300 million in 2009. He also thinks the best is yet to come from YouTube — and that Google will see some benefit.

We believe YouTube revenue will grow at 40 percent year-over-year or faster in 2010 as YouTube is generally under-monetizing its home page traffic versus peers, and as its home page is a natural venue for studios to advertise new movies.

For Google investors, the most important part of Mitchell’s analysis is that he thinks display advertising, of which YouTube is a major part alongside DoubleClick, could add 1-2 percent to Google’s revenue growth.

In the meantime, the majority of the videos uploaded to YouTube are done so by its users — and as the world’s most popular Web video site YouTube has a lot of users. Over a 100 million in the U.S. alone according to comScore. Goldman Sachs’ Mitchell says:

We do not expect serving query-specific video advertisements to represent a substantial business for the foreseeable future given branded advertiser discomfort with unknown content, and given consumer unwillingness to tolerate 30-second advertisements against 60 seconds or less of content; however, Google does not need such advertising to make YouTube profitable given YouTube’s cost leverage against Google’s existing assets and homepage traffic.

YouTube is signing up more so called professional content such as its latest deal with Time Warner on Wednesday with shows like “Ellen Degeneres Show” and “Gossip Girls”. For now, most of what they’re getting from Time Warner and others like Disney is promotional clips. We asked about getting more full-length shows like Hulu, and executives gave a very ‘watch this space’ type of response.

YouTube, meanwhile, is working hard to show that getting people to watch more and more video online is not as easy as it looks and involves lots of clever technology and algorithms that its engineers have been working on.  The idea — as the Wall Street Journal’s Digits blog explains — is to  make sure “people don’t just watch one video when they come to  the site”.

The company’s engineers are looking for ways to predict what topics will pique a user’s interest after they’re done watching a certain video, based on data about their viewing behavior.

11 comments

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if it is such a drain on Google, why not charge its users a yearly fee, say £20 a year . . . i love youtube enough to pay for what I get out of it. I stress a yearly fee is the only respectable way forward, monthly would be tasteless, and paying for every video watched in the way people pay to buy single songs off itunes would be extortionate and horrendous and too dappy for words. Youtube is a cultural phenomenom. i share rare beloved footage with folk around the world, that has to be worth a few quid. . . “God bless us, everyone.”

Posted by Barbara Watts | Report as abusive

by the by….the above is a horrible idea. Charging? charging? Charging?! one day the internet won’t be free….and I’m going to go buy farmland.

Posted by C-cats-c-cats-run | Report as abusive

YouTube should remain, in part, as what it was brought to the world to do, “Broadcast Yourself”.However, if they are to remain viable in this digital world, they should be pressing to get more content such as television shows, old movies, or music video (remember those MTV?)and the ability to download that content to a local drive, burn it to DVD and pay for it as if I went and bought it or ordered it online.Maybe team up with Redbox and charge $1.50 for viewing new releases. Then allow you to watch old movies like Frankenstein (1931) for free while advertising similar movies or remakes such as Frankenstein (1994)or The Bride (1985) and charge $1.00 if they choose to view other content.My idea, no one elses. For more information, contact me Google and Redbox.

BAGELS?!?!?

Posted by izzie lowrie | Report as abusive

Yeah i’d agree on C-cats-c-cats-run’s comment. If Youtube was provided to internet users as a free service in the first place, then it should remain that way. If it changes, the outcome will be bad.

Posted by Fo0-zAi | Report as abusive

I also agree with C-cats’s comment. IMO, if YouTube had a fee to create an account, then LESS people would join. You would think that the fee would help them make money, but YouTube is so popular because it is free. Less people would join if there was a charge for applying, and it would make the fee pointless.

If youtube charges a fee i’m sure that the population, having lost what youtube had to offer in the first place(the freedom), will just simply make another free video hosting site dailymotion extremly popular. That being said youtube rally should find some way of making money because as its popularity increases so does the bandwidth consumption and the load on the server. and if google believes that youtube has ceased to be worth its while im sure that they could find it in their hearts to drop youtube! (resulting in a very many broken links =P)

Posted by foota | Report as abusive

Google isn’t losing money off of Youtube..if there wasn’t money in Youtube, they never would have made the move to purchase it in the first place.Web hosting is cheap as hell these days.And as for charging, I say ‘Free to All’ and keep on downloading!

Posted by GanjaSoldier | Report as abusive

ganja web hosting is relatively cheap…. if you need 1 server that will at maximum need to upload to like 10 people at once. That being said however google stores (time to guess) around 1 petabyte of videos (for those of us not mathematically/technically inclined that is 1024 terabytes which is 1,048,576 gigabytes), now anyalysts in 2006 assumed that google had around 100,000 servers and used 20 terabytes of bandwidth per day ,for comparison that is the same as streaming the entire literary collection of the library of congress. Streaming 20 terabytes costs alot of money…..as mike moran says “Given the cost of servers, storage, and bandwidth for streaming so much video over the Web, it’s certainly true that it costs them a bundle–far more than they ever expected.”sourceshttp://www.searchengine guide.com/mike-moran/googles-youtube-mon ey-pit.phphttp://en.wikipedia.org/wiki/L ibrary_of_Congress

Posted by foota | Report as abusive

they could just charge the standard .99c to post videos.or incorporate a voting system to keep worthy videos up for free. it seems to many videos on the site are duplicated in various different quality and some are just bad period. consolidating the best content could resolve these issues

Posted by dvictr | Report as abusive

If it were up to me, I’d set a limit of how many videos could be posted for free per month and/or limit the number of views a free account video can have per month. Then I’d offer a premium account that has unlimited uploads.

[...] evidence is suggestive. Goldman Sachs forecasts that YouTube will generate $300m in revenue this year and grow by 40 per cent next year. Google is keen to reinforce the notion that YouTube’s cost [...]