Just look what Steve Chen and Chad Hurley have wrought: In the three years since they founded YouTube, investors have poured more than $8 billion into the online video business.
What did they get for their troubles? So far, next to nothing. YouTube, which accounts for more than half of all video views, will generate a mere $200 million in sales in 2008, and the industry has yet to produce a profitable company.
Our numbers come primarily from Dow Jones VentureSource, which provided us with a running tally of venture investment in online video startups since 2005. The dealflow includes bets on infrastructure (Brightcove), ad platforms (YuMe), service providers (VideoEgg), and consumer sites (FunnyOrDie, Veoh, Joost, etc). Between 2005 and Q1 2008, that tally is $6.06 billion.
Add in one big acquisition — the $1.65 billion deal for YouTube ($1.65 billion) — and a few smaller ones — like Sony’s pickup of Grouper/Crackle for $65 million — and the grand total comes to $8.06 billion. Keep in mind this doesn’t include any of the billions invested in Europe or in China
Yet, while most VCs are unlikely to see any return on their investment, we don’t think $8 billion is an outrageous number. Consider:
- Online video is in its infancy. YouTube didn’t exist four years ago.
- 119 million people watched an online video in May.
- $1.35 billion will be spent on online video advertising in 2008 (though much will go to video sites that weren’t venture funded, like ABC.com)
- Advertisers poured $17 billion into broadcast and cable TV in the 2008 upfront
It also pales in comparison to other speculative investments of the past few years; Merrill Lynch wrote off $9 billion in bad mortgages in the first quarter of 2008 alone (and $29 billion since the meltdown began.)
Here’s how the money has flowed into video over past few years according to Dow Jones:
2005: $1.764 billion
2006: $2.117 billion
2007: $2.009 billion
2008: $453 million (Q1 only)
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