Should YouTube start charging or not?Starting this weekend, YouTube will start.
This behavior follows a trend I've noted in traditional media outlets. First, media mogul Rupert Murdoch said no more freebies for search engines, then the New York Times hinted (and today confirmed) that users would have to start paying for a certain amount of access to articles. Now, YouTube is partnering with the Sundance Film Festival and filmmakers to charge users around $5 to view a range of movies from the 2009 and 2010 festivals. It's still cheaper than a movie ticket - but is this a direction users will follow?
As Benjamin Wayne is CEO of Fliqz reports; According to a report by Credit Suisse, YouTube is on track to lose roughly $470 million in 2009. No matter Google’s $116 billion market cap: a half-billion dollar loss on a single property, even one as large as YouTube, is a bitter pill to swallow. Even Eric Schmidt, talking to the New York Times about the YouTube acquisition, was quick to say that, going forward, Google would “be more careful with potential large expense streams, which are of uncertain return.”
Credit Suisse estimates YouTube will manage to rake in about $240 million in ad revenue in 2009, against operating costs of roughly $711 million, leading to a shortfall of just over $470 million. This half-billion dollar loss comes after more than a year of feverish experimentation in various forms of advertising, cross-product embedding, licensing and partnership deals. YouTube is adamant that ultimately they’ll find an advertising solution that will enable the ungainly behemoth to reach profitability. Looking at the math, it doesn’t seem likely.
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.
What are Google’s options? They seem unlikely to sustain a billion-dollar annual experiment with no path to revenue, no matter how much they paid for the original asset. In an organization feeling the sting of layoffs, is this really where Google wants to spend its money? It all depends.
Google could take a lesson from its neighbor, Hulu, and focus only on proprietary content with existing consumer loyalty and real monetization prospects. With its massive audience, this is a viable option, and a direction in which YouTube has already taken some baby steps. Axing user-generated content would seem to be anathema given the site’s roots, but it may be the surest way of putting the business into the black.
Personally, I dont have a problem paying for YouTube or Hulu. I find it utterly entertaining and informative on a daily basis and I cant imagine a future without a single source of endless video. With that said, there are more than 300 video sharing websites in total to date as listed in REELSEO if you still want it for free. http://www.reelseo.com/list-video-sharing-websites/