“Google’s YouTube acquisition is looking less and less like a financial boondoggle every day. YouTube is now selling ads against 9% of its content, versus 6% a year ago (and remember, this is a market in serious recession).”
The reason for that is simple: while its revenues should grow at a more-than-respectable 20% in 2009, the number of streams it serves will grow at a rate almost double that (38%).
As Credit Suisse estimates half of YouTube’s expenses come from bandwidth, this means that the growth in revenue is only just paying the bandwidth bill for the growth in traffic.
Add in all the additional costs in infrastructure, people (and now licensing) and it’s clear that it will have to sell a hell of a lot more advertising than 9% of inventory to bring it into the black.
Basically, at the moment, every time someone watches a video on YouTube, it costs Google about 10¢. Delivering ad revenue of 10¢ per view is going to be a really big challenge, even for Google’s mighty ad sales machine.
What’s interesting is that Michael notes that major content creators are coming on board to YouTube, having opposed it for years:
“It also seems like the commercial content producers that were so up in arms about YouTube’s “theft” of their copyrighted works are not only backing down, but stepping up. The latest word is that Sony is going to experiment uploading full-length feature films to YouTube.”
Of course, content like legitimate movies makes it a lot easier to sell ads than, say, chipmunks. If Michael is right, and the content creators ride to Google’s rescue, that will represent a remarkable turnaround – from the dream of “user generated content = revenue” to having to the reality of being rescued by content from major studios. Won’t that be something?