Is YouTube a bottomless money pit? Or is the world’s dominant video site an asset that might eventually contribute real revenue for Google (GOOG)?
Mark Cuban, the billionaire Web video entrepreneur, has long argued the former: In a nutshell, he contends that Google is stuck paying endless storage and bandwidth bills for content it can’t sell. For instance, even innocuous videos — like this clip of New Jersey teens and their pogo sticks — often contain copyrighted music, which means YouTube is loath to stick a single AdSense unit on the page.
Citi analyst Mark Mahaney, though, figures that YouTube is so huge (the world’s fourth-largest site measured by uniques; seventh-largest measured by page views) that Google can’t help but make money from the site — even without figuring out a clever video advertising solution. He thinks YouTube may generate up to $500 million in net revenue for Google next year
CUBAN: Does Mark realise that by law [YouTube is] not allowed to sell display ads anywhere near or around videos that they do not have licenses for?
So if you upload your cat singing, no video ads, no display ads, no nothing ads. And Viacom will argue no category ads either. Which begs the question — how much traffic does Youtube get to pages with licensed content? Because those are the ONLY pages they can sell ads around, or can package with advertising.
If YouTube really were able to generate a ton of traffic for their licensed content and monetise it, we would be hearing 2 things:
- Management saying they know how to monetise.
- Content providers bragging about how much money they are making, which in turn would act as digital gravity to every content producer in the world.
Instead, we see YouTube creating a segregated island for indie film. Smart move, because it allows them to test what their traffic-generating power is off the main site. However, it still only gets them content that can’t find money elsewhere.
All YouTube has to do is put some of the money they use to subsidise the world’s bandwidth costs towards content providers and they change their future. Hell, they could partner with [Cuban’s] HDNet to acquire films. Anything that drives cash to indie film makers is a good thing. But given today’s market, what choice do you think film-makers will make between a) having their movies shown in theatres on a commission basis or b) shown on YT on a commission basis?
MAHANEY: 1. Yes, YT in ’09 doesn’t provide dramatic diversification. But nice to see loss-leading asset generating some offsetting revenue.
2. Yes, I realise YT can only sell ads where they have licenses. Our report tried to lay out a range of caveats. But hard to escape conclusion that YT as a forum is becoming increasingly important to content makers. Those weren’t Hulu-CNN presidential debates. And couldn’t we see a self-service solution (with rev shares) for cat-singing video producers?
3. Wish we could get the data on the number of legal content providers on YT. Likely that’s been increasing, but impossible to know externally.
4. If GOOG/YT doing their job right, shouldn’t they be able to monetise better than MySpace?
5. I would never disagree with Mark Cuban.
CUBAN: Always disagree with me, Mark. That’s what makes all this fun.
And as far as YT as a forum, I would say it’s gone the other way — they are losing their importance. Channels that were announced early on as big deals, no longer are — if they are still on YT at all. Wanna bet we don’t ever see another YT debate on a national level? I think the candidates are still embarrassed by the whole thing.
Major content providers have been more likely to remove content or replace any content with “link videos” – videos that are there just to send traffic elsewhere. In fact, that’s what YT has become for professional content creators: Not a destination, but a loading dock for other sites, or to act as a Hotjobs site for their careers.
Which I think is exactly why they created their Screening Room. As a way to test creating destination sites where they control all the media and advertising, and to see how much traffic they can send. They want to be a media company, but right now they are more of a free hosting company.
I also think that Apple (AAPL) and iTunes is also going to be an interesting wildcard in all of this. If they open up and create an easy to upload, and licence, and sell solution for indie content creators, I would bet that they’ll do it as an exclusive deal, and that content producers would rather go where the money is….
The baffling part is that if Google invested $25 million a year to licence content, they could solve all of their problems and be the chosen destination for all indie content providers.
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