It looks like the “conservative” estimate by John Dvorak late last year that YouTube was generating $15 million or so per month in advertising revenues was off by a factor of about twelve. Bear Stearns analyst Robert Peck reviewed a recent Google SEC filing and says YouTube generated approximately $15 million in revenue for all of 2006.
The markets are still digesting the San Francisco Chronicle “the sky is falling” story and the recent good news/bad news coming out of GooTube. But it’s just too early to tell if Google stole YouTube away from its competitors (as some Yahoo shareholders say), or if they swallowed a poison pill that they’ll soon regret. It’s clear that the big content owners like YouTube, they just don’t like it enough to put it in an iTunes-like monopsony position around television content. They are going to want to back many horses in the race.
Ahh, a “monopsony”
haha… good job Michael.
I never heard of this word before - but somehow I could visualize what it meant - exactly in the way that it has been visualized here in Wikipedia (see the graph):
http://en.wikipedia.org/wiki/Monopsony
It’s so simple!
yeah, well, I have to use my degree in economics occasionally so my parents don’t regret the expense.
You know it makes sense now why Mark Cuban is so negative against YouTube.
Because Mark knows that after all the hoopla about Web2.0 is done, Chad Hurley and Steve Chen would be known as THE guys who sold an inflated bag of sand to the Big Dumb Internet Company, taking away the notoriety that Mark had held for himself since selling Broadcast.com to Yahoo! in 1999.
With all these issues with YouTube.. It seem like Google bit off more then they wanted!!
Its also mystifying that google decided to buy YouTube.. Surely they must of done some research in to its financial background, before paying billions for it!!
Also Michael, when do you start updating your website (USA Time), I’m from the UK, and cant seem to work out when to log to your website for the latest news for that day?
Cheers
Andrew
http://www.specsfinder.co.uk
Andrew - we update all day, but middle of the night in California (right now) is often when news breaks.
The idea for online video is right, YouTube just isn’t the platform to deliver the content.
If YouTube consumed $1M worth of traffic a month a few months back then I guess we left to agree that YouTube so far is making a loss.
So what has YouTube really done for Google? Big deal that millions of users visit the site, unless they can make some money from this thing then the big red wagon ain’t worth a penny.
Google bought YouTube because Sequoia wished it so. Pretty simple.
Well for now, YouTube is really on the top! The reason is, cyber people just can’t resist not visiting it. Right?
Google bought YouTube so Google’s lawyers would be handling the major litigation involving online video.
Video is imporant to Google’s future, they don’t want it screwed up the way music got screwed up by Napster.
WIth the amount of money Google graciously dished out for YouTube and Youtube’s reluctancy to expand it’s markets in order to keep YouTube exactly that, YOUtube, it makes you think that Google basically extended their wallet for one reason: BECAUSE THEY CAN!
UH OH!!! Google’s gone Hollywood!
Next thing you know Google will be in and out of rehab, in jail for DUI, and shaving all of it’s hair, or erm… queries off.
And still, I don’t feel sorry for him.. I mean it.
Along with his “pulled out of my hair” estimate of upside, Dvorak was careful to point out the downsides. One he might have added to his list: Sumner Redstone has no taste for the Google Juice… er Kool-Aid.
I agree with the fact that Google wanted to “own” both a large convergence of eyeballs and lead the way (both legally and content-wise) with regard to video on the web.
Everyone can agree that video on the web will be a multi-billion dollar a year industry in the next few years. Google already has portal #1 for those viewers. The price they paid for YouTube will look like pennies on the dollar by 2010. Just because it hasn’t happened overnight is no reason to panic.
It was a risk and I believe a very calculated risk. Give them a couple years or less. Google and YouTube aren’t going anywhere soon.
@Mike D,
You are spot on. It was all Sequoia doing. It was a simple plan: get (and quickly liquidate) more Google stock. If YouTube had been financed by someone else, I doubt this exit would have been possible.
However, in the end, you have to tip your cap to them (and the founders) for pulling this off. Seems like the other UGC sites are just going to gradually fade away - I was suprised that there hasn’t been knee-jerk acqusitions from Google competitors.
- Chris
yeah - do to the fact how much Google makes, they can afford many years of Youtube’s loss.
- Google, is god. Of the internet, if your site is #1 for anything decent you can be rich. its jst being honest
Google clearly saw the segmented viewers leading to targeted CPM and more ads. They are, after all, an ad business. However, they have traditionally made their money targeting ads based on other people’s content, and all that content was managed and owned by 3rd parties.
Now that they own YouTube, they have to take responsibility for the content they’re indexing and serving. In a world of copyrights, they now have a big problem that YouTube never cared about. Now Google has to realize it’s become a media company, something with which they have no history or experience.
Wonder what they’re going to do when other sites start indexing the “exclusive” content for which they’ve negotiated license rights. Given their stance on indexing libraries, I can’t see that they can fight the other side.
On the other hand, since it was an all-stock deal and their market cap went up by more than they paid for YouTube, the actual amount spent is sort of irrelevant. On the day after the deal, they’d effectively paid -$800m for it. It’s not like they’d have had a lot of other opportunity use for the stock given the amount of cash they’re throwing off every month.
Dumb, dumb, dumb. I am giving 5 to 1 odds that Google never shows a payback on the YouTube investment. Takers?
@Neal: Right, Google didn’t pay much acquiring Youtube given the jump in the stock price attributed to the deal. However, don’t forget that stock price can go down as well. There are great expectations with Gootube; so, if this turns out to be a fiasco, chances are the stock will plummet. Gootube is no Google Talk, nor Froogle — if it fails to meet expectations, people will notice.
Wait tell video ads then bam 12x the income or MORE.
There has been plenty of Google skeptics before …
Let’s face it, it is about reach and distribution, and Gootube has it
For distribution to matter, you need content. Wasn’t the “bad news” in the “good news/bad news” story (recently posted here) about content?
wow, that’s a pretty mis-calculation.
but still, it’s all about audience, and they’ve got it. eventually bandwidth and data will be “too cheap to meter” & the only thing that matters is market share.
Wow…off by a factor of 12 huh. Guess that goes to show the difference between pro forma’s and reality.
There is a ton of potential in a ton of ideas…it’s all a matter of how to realize that potential though.
Micah
http://foodforethought.wordpress.com
I think that “Gootube” (to use Cuban’s appellation) really has to jump on revenue sharing. Not because this will encourage the production of content on YouTube, but because it will encourage the viewing of content on Youtube. It’s very difficult to incentivize people to view a site like YouTube which, unlike traditional broadcast networks, has no real distributive advantage (like, for example, FCC clearance and a satellite). People can create and watch content anywhere. The best thing they can do to make their site sticky (and therefore get pageviews), is to lock users in, and with the anemic social components of YouTube not strong enough to force people to stay, getting revenue incentives on board will be key.
If it really does matter and it isn’t fixed, it won’t really hurt Google. They are too big.
But I put my money on Google. They are out there driving, thinking, figuring it out. And they’ll make this work. After all, wasn’t it only $1.6B? :p
If that yearly revenue number is right, can you imagine what the cpm must be. Seems awfully low.
The economics are worse than what is being written.
Revenues are low because Google can only sell advertising around the content they have licensed, or on their index pages. Unfortunately for Google, if you look at CBS, NBA (and i guess bad for me ), BBC, there are no ads sold. So I would say the revenues are probably LOWER now than in 2006 because Youtube was more desperate and probably took business that Google would not.
Overtime they will obviously go up, but their legal bills, content licensing bills and overhead bills will go up faster. They have put themselves in a very difficult position to monetize content.
THe smartest thing they are doing is the user optin for video that will allow them to sell ads on a users video. Not because that is a unique idea, but because most people will opt in and the requirement for Google to clear copyrights on those videos will reduce their risks and increase their inventory.
The bad thing for those that opt-in, is that if they upload infringing content and it makes it on to Youtube, then the users will no longer be anonymous and you can bet that media companies will issue supoenas and will take action against Youtube users.
Combine that with copyright owners gathering at the gates with lawsuits and it wont be cheap or pretty in the end
And all they have to do is change over to confirming copyrights prior to posting and all these hassles go away…
i’m convinced that this youtube/google deal is not a busts
youtube has amassed too big an an audience for something to not work out
i just don’t see it.
sure there revenue is only 15M, but they’ll more than break-even in the greater realm when it’s all said and done
“youtube has amassed too big an an audience for something to not work out i just don’t see it”
The same thing could have been said about Napster. Didn’t people learn from the first bubble that a massive audience does not always translate into massive profits (or any profits at all)? Especially when that audience has been built on the backs of content owners who you haven’t had to pay for licenses.
It’s going to take a bit of luck, smart negotiating, a real business model and humility for Google to make YouTube work. The challenges, namely copyright issues and arrogance at the negotiating table, seem to be hampering Google’s efforts. When Joost, a beta-stage startup with a fraction of YouTube’s current audience, can strike a deal with Viacom and Google can’t, it tells you that audience is almost meaningless if you don’t know how to leverage it properly.
“sure there revenue is only 15M, but they’ll more than break-even in the greater realm when it’s all said and done”
“Breaking even” is not a phrase that you like to hear when you just spent $1.65 billion on something that has high operational costs and only generated $15 million in revenues in the preceeding year. Just to put things in perspective: if Google took $1.65 billion in cash and invested in instruments that paid 1% interest, it would make $16.5 million each year (before compounding), which is more than YouTube is generating in revenues. Even if YouTube is able to increase revenues to $100 million/year, it would technically take 16 years to “break even” (although it paid in stock so the calculation is not as clear cut) and while nobody can guarantee much, I can guarantee that within that timeframe, somebody will come up with the “next big thing” that outshines the YouTubes of the world. YouTube’s only real asset is its audience and brand. It doesn’t have any defensible technology and there are a ton of other YouTube wannabes that have been well-funded and have deals with content owners.
The revenue numbers released highlight something that a lot of Web 2.0 observers should pay attention to: despite the rosy projections that a lot of people come up with for popular startups, reality is almost always quite different. I, and others, have argued before that YouTube’s problem is that most of its inventory is probably not saleable. Major brands and advertisers don’t want to be associated with video content that is unknown and may be offensive, and YouTube’s primary driver for popularity was not user-generated content, but rather professional content like the Daily Show, music videos, etc. That content is saleable to major brands and advertisers but Google seems inept at closing some of the big licensing deals it needs.
“The price they paid for YouTube will look like pennies on the dollar by 2010.”
Is that because you’re predicting massive inflation or are you doubling up on Dvorak’s projections?
Who knows what will happen by 2010. I think it’s a bit of a stretch to predict where the Internet will be then, especially since there’s enough debate over where the global economy will be (and the two are directly linked for obvious reasons). Look at how fast the Internet startup landscape has changed in the past 3 years. Most of it couldn’t be predicted, just as nobody predicted that a little search engine with a funny name could dethrone the major players of search at the time (Yahoo, Altavista, etc.). Bottom line: predicting where YouTube will be in 3 years is like predicting the weather in New York on March 6, 2010.
As Cuban indicates, they can’t go far monetizing videos of college kids barfing. The audience reach that others mention was built on use of copyrighted material. They’ll either pay up or watch competitors (like Joost) take the lead.
Maybe this is why Microsoft is suddenly aggressive on the copyright front:
http://www.nytimes.com/2007/03.....peech.html
Seems like when Google bought YouTube it was a gamble that they could sign on the big media guys to expensive licensing deals fast, or monetize all these videos with ads. Viacom has obviously thrown a wrench into this - doesn’t seem to be happening. Hopefully this doesn’t mean an impact on Google’s stock, since we all know Google doing well is lifting many boats that are Web 2.0.
To say $15 mil per month when its actually around $15 mil per year - they got it all wrong by a long way. But anyway, Google should have known what they were buying.
The main reason YouTube stinks at making money, despite very high traffic, is low ITP. What could that user watching loneygirl24 possibly *intend to purchase* ?
In the end, it’s all about ITP and context.
Yes, YouTube made about $15 million last year. But, let’s remember that Google’s stop price is selling at a multiple of 50 times earnings to, basically, the $1.65 Billion purchase price was about double that figure.
YouTube should, with the help of Google’s Engineers and Resources, be able to convert the company into a machine that should be able to generate over $100 million this year. At the same multiple, that translates into a worth of about $5 Billion.
Google paid for the deal in cash so the deal, overall, was a steal for Google, especially considering the current trajectory of the site’s traffic puts in on course to be the single number one site on the Internet by the end of this year. With those users, the revenue potential could even exceed the 45% of the revenue currently generated from Google’s main site http://www.google.com.
http://www.digital50.com