WSJ: YouTube doesn’t make money, despite billions of viewers

YouTube has never made money. Despite the top 3 videos on YouTube having well over 3 billion viewers, hosting millions of other (some viral, some ignored) clips and bringing in over a billion users per-month, YouTube can’t generate enough revenue to pay its employees and keep the doors open on its own. Why?

 

An easy answer is that the infrastructure that makes Google’s video empire possible (and all youtube’s video content partners), is not free as in beer or information. All the bandwidth used for watching high school kids ghost ride their parents cars, the server and datacenter infrastructure, video storage (think billions of GB of storage), transcoding (think millions and millions of hours of transcoding), and related video services has always required Google to have a revenue stream from YouTube besides “advertising” which they haven’t built out. I remember talking about this in 2007: how can youtube possibly sustain itself? Well, it doesn’t need to.

 

The Wall Street Journal says that YouTube didn’t contribute to Mountain View’s earnings. The issue, or one of them for a lets-try-and-pay-for-all-this-with-banner-ads, is that most users arrive at videos via links, rather than daily visits to the YouTube homepage where Google could charge a premium for ads.

WSJ.com also mentions that the site’s reach isn’t impressive, with one source’s estimate that nine percent of viewers account for a suprising 85 percent of streaming video views. That aspect of YouTube’s audience makes it a much less appealing audience for the ad buyers, even as Google pushes their original content to compete against “the corded set top TVs”.

My theory is that Google has intentionally been losing money with YouTube, or very aware that they weren’t going to make any, and went into the acquisition in 2006 eyes wide open. Don’t forget, YouTube wasn’t Google’s first and only online video streaming service, they were pushing Google Video pretty hard as a direct YouTube competitor when they acquired it.

Why do I think this? A couple reasons: Under certain circumstances, a company can make money by losing money because of write offs. YouTube allows Google Inc, the parent company, to write off hundreds of millions of dollars a year. Does this math work out at the accounting level with a publicly traded company the size of the devourer of worlds, all mighty Google? Maybe, but I’m no accountant.

The second reason is the audience. They want the audience for “remarketing”, for juice, to keep YouTube viable as money pit for the company. Eyeballs have been worth something to someone since day 1 of the internet. It just doesn’t work without traffic. YouTube drives traffic to Google in the short term and long term tail.

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