YouTube, the video site, is celebrating the third anniversary since it was bought by Google with news that it now serves more than a billion views a day to users around the world.

In a blog by YouTube CEO and co-founder Chad Hurley, he reminisces about how he and co-founder/former CTO Steve Chen made a fun video declaring themselves the “burger kings of media”. How sweet.

But on the serious side of the media equation Hurley has some important points about the fast changing world of online video (You could also call it the ‘why we won’ manifesto).

Hurley says:

• Speed matters: Videos should load and play back quickly
• Clip culture is here to stay: Short clips are voraciously consumed and perfect for watching a wide variety of content
• Open platforms open up possibility: Content creation isn’t our business; it’s yours. We wanted to create a place where anyone with a video camera, a computer, and an Internet connection can share their life, art, and voice with the world, and in many cases they can make a living from doing so

Questions remain about the business model of YouTube, which is being built around the fledgling online video advertising sector. The company is yet to declare a profit. Yet with 40 percent of all online video viewing in the US, according to comScore, YouTube will have a lot of say in writing and re-writing the rules for Web video ads.

On a Credit Suisse call with investors this morning, some online advertising experts questioned whether YouTube has improved materially in their advertising mix though they acknowledged the hard work of the YouTube team to improve the advertising environment. One advertising executive on the call said YouTube has “improved year over year”.

When most Americans think of where to catch up with episodes of their favorite TV shows on the Web, they more than likely think of Hulu, the online video site owned by NBC, News Corp and Disney that offers free viewing of TV broadcast shows and archive movies. Second to Hulu would probably be YouTube.

But not Fancast. Despite being owned by the largest U.S. cable TV operator Comcast, it doesn’t even make the top 10 video sites in the U.S., according to comScore data. (Hulu is No. 5). One of the ways Hulu became better known was by launching a national TV advertising campaign which kicked off during this year’s Super Bowl TV extravaganza. Hulu’s user numbers jumped after those ads — and Fancast hopes for a similar boost.

Fancast has dubbed its debut TV campaign “See It For Yourself” and will feature a series of five spots with recaps of shows including CSI Miami, Glee, NCIS, How I Met Your Mother and Gilligan’s Island. Three TV spots will debut on CBS and also on targeted national cable networks. See the Fancast/CSI ad here: The campaign also features an online push and an outdoor drive with interactive bus shelters around the San Francisco area.

In truth, beating Hulu might not be Comcast’s biggest prize. It’s more likely to have its eye on its On Demand Online /TV Everywhere initiatives, which aim to make popular cable shows available on demand to paying subscribers. Fancast will be one of Comcast’s key platforms for that new service when it fully rolls out so building awareness of the site now is important.

(Photo: CSI Miami’s David Caruso/Reuters)

OnLive, the “cloud-based” gaming service that generated plenty of interest when it was announced in May, is opening itself up.

The company is aiming to challenge game console makers Nintendo, Microsoft and Sony with a bold and ambitious service: on-demand, lag-free access to graphically rich games, which can be played on any TV and nearly any PC, even budget netbooks.

Analysts say such a product could fundamentally change the economics of the multibillion dollar video game industry. The only question is how well OnLive works, and some have expressed skepticism. Since its splashy introduction, little has been heard from the company, which was busy testing its service internally and installing servers in its data centers to handle traffic. OnLive delivers games run on servers in the cloud, rather than locally on a PC or a console.

The company is now opening the OnLive beta to testing from outside gamers, said Steve Perlman, the company’s founder and CEO, in a blog post. Perlman is a well-known Silicon Valley entrepreneur who helped launch WebTV, which Microsoft bought in 1997. You can sign up to test OnLive at http://www.onlive.com/beta_program.html.

“One of the key challenges that OnLive technology addresses is providing a high-quality, fast-response gaming experience over a wide range of situations: different speeds/locations/types of broadband services, a variety of different PC and Mac configurations, several kinds of input and display devices, etc. So, a major focus of OnLive Beta is to test as many of these different situations as we can,” Perlman said in his post.

OnLive has been in development for seven years. It already has deals in place with 10 publishers to provide new game titles, including Electronic Arts, Ubisoft and Take Two.  The company has said it expects to launch its service in the winter of 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.

Viewership of online videos has continued to rise, as the Nielsen Company showed in a study released this week. As everyone knows, the online video market is far short of delivering solid profits for media and entertainment companies, but one analyst expects the market to reach a critical mass in 2011.

U.S. Web users spent an average of 212 minutes watching online video in the month of July, an increase of 42 percent compared to the year before, the Nielsen study said. The latest spike in online video viewing for July also marked a 12 percent increase over the month before.

Time spent watching YouTube.com, a division of Google Inc was up 39 percent. At Hulu.com, a website owned in part by NBC Universal, Fox Entertainment Group and ABC network, time spent watching online video was up 34 percent.

The numbers are encouraging for websites that show and produce online video, but the industry has been largely unable to generate profits because of low advertising rates and consumer reluctance to pay for content.

Dan Rayburn, an online video expert and principal analyst at Frost & Sullivan, said the spike is the latest of "several sudden surges" that have occurred in the sector.

But he added that sustained growth will depend on more consumer adoption of technology to make watching online video easier, such as the Roku player and game device Xbox 360.
"We need to wait really until sometime in 2011 until some of these numbers start to add up," Rayburn said.

Lots of news in online video world, some potentially significant. 

And some we can only wait and see about.

Google Inc, Cisco Systems and News Corp are separately doing things that could mean sweeping changes in the way video is produced and consumed on the web.

Video compression technology can be interesting, really.

Most people forget how online video worked before YouTube popularized the embedded Flash video player. Remember the frustration of making sure you had the right video player to play this or that web video? It was YouTube that popularized giving people one-click access to videos.

On Wednesday, Google said it had agreed to acquire On2 Technologies, a maker of video compression technology, in a deal that could have sweeping effects for how video works on the web. The Internet search leader has a bland blog post about how it intends to use On2 to innovate in how video working on the Web, but it isn't at all clear how far it Google is ready to go.

There's lots of speculation that Google may choose to open source, or give away, On2's video compression technology, undercutting royalty-bearing video compression technologies in use across the Web. That could undermine Adobe and its widely used Flash player, Microsoft, with its Silverlight alternative, not to mention Apple Inc and RealNetworks. Dan Frommer at Silicon Alley Insider spells out how far-reaching the Google gambit could be.  As a counterpoint, Dan Rayburn of StreamingMedia.com argues the Google move is no big deal.

Google is only paying $106.5 million in stock for the American Stock Exchange listed-firm based in Clifton Park, New York. Because the deal involves two public companies, there's an outside chance that a competitor may want to mount a rival bid. The On2 board would have to consider a richer bid for fiduciary reasons. Google might have more on its hands that it bargained for.

(Images: Beet.tv, Google Finance)

On Cisco System's quarterly earnings conference call last night, CEO John Chambers gave out an interesting tidbit about the demand for consumer video cameras among corporate users.

Recall that in March, the world's largest maker of network equipment for enterprises and telecom carriers, made an underappreciated acquisition of Pure Digital Technologies, the maker of the insanely easy-to-use Flip video camera line. 

Cisco's CEO said his company had signed a contract to sell $1 million worth of its Flip handheld video cameras to just a single corporate customer. That's a promising sign for a company Cisco paid $590 million to acquire in March. Just 589 more customers to go, John, plus the cost of the software, the chips, the plastic cases and the stock options.

Cisco has been pushing into consumer makers for some time -- with Linksys and other product lines. But buying a line of cheap plastic video cameras that sell for as little as $99 seemed a surprising turn for Cisco. Chambers is now flogging the equivalent of the Kodak Instamatic camera for videos as a workplace communications tool.

The Cisco CEO has been a relentless, you might say shameless, advocate for the idea that trendy Web 2.0 technologies are finding their way into corporate organizations. The Flip camera is one of his favorite examples when he's not talking up WebEx video conference call meetings.

What's the etiquette, I wonder, for videoing your boss or pulling out your Flip in the middle of meetings? And will the workplace ever be the same?

(Images, Pure Digital; Transcript: Seeking Alpha)

It’s taken a while but YouTube is officially pushing back at the various estimates on how much money it costs parent Google by satisfying our collective hunger for million of video clips every day. Google paid $1.65 billion for YouTube in 2006, when it bought the site from Chad Hurley and former CTO Steve Chen (pictured).

Various YouTube executives we’ve spoken to privately over the last year have bristled at the idea that they are an expensive experiment for Google without a clear profit-making business model. Google CEO Eric Schmidt took the first step in a change of communications strategy in an group interview with reporters at the Sun Valley conference two weeks ago, and to more listeners on the Google earnings call on Thursday. His central point was that everyone’s favorite video site is on the path to profitability.

On Monday, two of YouTube’s PR executives hit back at some of the myths about YouTube’s business with a blog titled “YouTube myth busting.” These include claims that it only features short-form, grainy user-generated content when in fact it has deals with Hollywood partners and features HD content. They also said more than 70 percent of AdAge Top 100 marketers ran campaigns on YouTube in 2008.

But two disputed myths that raised the hackles of the tech blogosphere were related to 1) estimates of YouTube’s cost structure and 2) the “oft-cited” stat that YouTube only monetizes 3-5 percent of the site, which the PR execs said was “old and wrong.” The bloggers wanted some numbers and they didn’t get any from this YouTube’s blog

Here’s Henry Blodget of Business Insider:

Enough already. We’re glad that YouTube has not turned out to be a disaster. (We weren’t among those who thought it would be). But we can’t stand this attitude. If Google is tired of people “picking any number to fit any theory,” then they should just publish the facts.

Peter Kafka of AllThings Digital calls it ‘modest boasting‘:

So really, the big takeaway here is that the Google folks are feeling ever more confident about YouTube’s prospects, enough to do some public chest-beating. But not enough to actually talk about those prospects in concrete terms. YouTube says that estimates that the site can sell ads against only three percent to five percent of its video inventory, first asserted in a well-reported Wall Street Journal piece a year ago, are “old and wrong.” But the company won’t say what percentage of the site it does sell.

Paid Content thinks it’s “myth-spinning” by YouTube and wasn’t convinced either:

The only interesting part comes here: “The truth is that all our infrastructure is built from scratch, which means models that use standard industry pricing are too high when it comes to bandwidth and similar costs. We are at a point where growth is definitely good for our bottom line, not bad.” Which gives credit to this analysis by RampRate last month, which said the costs of video delivery for YouTube are a lot lower than what analysts have previously estimated.

(Photo: Reuters)

How much money is Google losing from YouTube?

Not as much as you think, according to a new report by an IT research and consulting firm.

The cost of streaming billions of videos a month, and Google’s difficulties monetizing those videos, has put YouTube on track to lose almost a half billion dollars this year, according to a famous report by Credit Suisse released in April.

But that report failed to take into account key aspects of the Internet infrastructure business that significantly lower YouTube’s costs, says RampRate, a San Francisco firm that consults companies on IT outsourcing practices.

According to RampRate, YouTube’s vast size means it can negotiate bandwidth deals for about half the cost per megabit per second that Credit Suisse used in its estimates. More importantly, roughly three quarters of YouTube’s bandwidth costs are virtually free thanks to peering arrangements that allow it to bypass carrier networks and the associated fees.

“YouTube’s costs are a fraction of any other company running similar operations,” said RampRate’s report, which also estimated YouTube’s hardware costs to be significantly below Credit Suisse’s assumptions, thanks to Google’s use of off-the-shelf commodity hardware.

All told, RampRate estimates that YouTube’s loss this year is only $174 million versus the $470 million estimated by Credit Suisse.

Google, of course, doesn’t break out financial figures for YouTube, which it acquired for $1.65 billion in 2006. And RampRate said its analysis is based not on any inside information about Google, but rather from the knowledge of the online infrastructure business it has acquired by working with clients.

Of course, RampRate’s estimate of a $174 million loss means YouTube is still losing a hefty chunk of change.

But RampRate argues that YouTube provides value by serving as a sort of loss leader for Google. While Google loses money on YouTube, the extra scale it gets with the video service gives the company the clout to negotiate better infrastructure deals for Google’s broader needs.

“Far from being an infrastructure money pit, YouTube is key to reducing operational costs for other Google initiatives,” said the RampRate report.

Keep an eye on:

• Apple 3G S reviews are mostly positive (New York Times, WSJ, USA Today)
• Sirius launched its iPhone App, sans Howard Stern (Reuters, Siriusbuzz)
• Tom Tom adds Homer Simpson’s voice to navigation devices (Reuters)
• Microsoft makes gains with Bing search engine (Reuters)