The weather here is overcast and in the mid 70s today. What a change from the blizzards of the last couple of weeks. Maybe the snow and blow season is finally coming to a belated end. I can but hope! Since the weather is boring, I will take this opportunity write instead about something that has caught my fancy from the news - Google and its ownership of YouTube.
How many of you have followed all the bruhaha about the amount of money Google is losing running YouTube? If you want to see a really depressing view, read this. The basic factoids are that Google will make about $240 million in ad revenue on YouTube, but it will cost them about $711 million to operate the site. Some simple math then leads to the $470 million dollar loss for the year. No company can long afford to lose a half billion dollars on a single property and enjoy it. Heck, most of us couldn't afford it even if we moved the decimal point 6 places over.
The most interesting thing to look at is what the effective CPM (Cost Per Thousand) would have to be for YouTube to break even. The estimates I have seen posit about 75 billion video streams being fed this year by YouTube. Even if we are optimistic and believe that Google can find an ad for every video (hard given the idiocy of some of the content) and assume that Google actually gets to keep the revenue on the popular copyrighted works, we come up with something on the order of $10 CPM on average. That is almost impossible to achieve. Add to the dilemma that current estimates claim that only 3% of the available ad slots are sold and you see a real problem.
To quote the Silicon Valley Insider's analysis:
The economics are hard to overcome. Assuming YouTube delivers the 75 billion streams that Credit Suisse projects for 2009, and assuming YouTube manages to slot an ad for every stream (which is practically speaking, impossible, given the nature of much of their content), YouTube would have to achieve a $9.48 CPM for every video impression shown. Presumably, the videos YouTube is already monetizing represent the best content available, with diminishing returns as they reach deeper and deeper into a repository rife with copyright violation, the indecent, the uninteresting, and the unwatchable. Hulu claims to be charging a $30 CPM, of which roughly 70% goes to the copyright holder. Averages for other proprietary content hover around the $10 CPM mark. CPMs for user-generated content, assuming you can attract the advertisers, tend to be measured in fractions of a dollar.
So the real question for Google is how to find a new way to monetize the ever growing traffic on YouTube. This seems to be one of the better known counter examples to the old adage that "traffic is everything on the internet." The adage only works when the traffic doesn't lose too much per visitor. It will be interesting to see what the year will bring for Google and YouTube. Even Eric Schmidt (Google chief) is sounding cautionary about YouTube as a potential loss leader for the foreseeable future. (Listen to Eric here.)
So what do you think? Is there a way for Google to stop the bleeding without killing the site? Do you view things on YouTube? Do you ever click on he ads on YouTube? Do you think Google should do the obvious and kill the amateur video and go to only commercial content ala Hulu? Inquiring minds want to know. (Besides, I'm just plain nosey!)