YouTube: Profits Still In The Pipeline

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YouTube is growing at a staggering rate, but its profits are always just round the corner, says David Jamieson

Last year was going to be the year that, finally, YouTube turned a profit for Google.

In January 2010, an analyst at Barclays was bold enough to put numbers on his predictions – 55 percent increase in revenue, year-on-year, to a figure of $700m.

By July, it was ‘on the verge of imminent profitability,’ said Nikesh Arora, President, Global Sales Operations and Business Development at the Fortune Brainstorm event.

Google CEO Eric Schmidt

September saw YouTube  ‘nearing profitability and its revenue is doing quite well,’ according to Eric Schmidt, speaking to journalists on the sidelines of another conference.

The year was full of promise and promises. But Google is secretive about YouTube’s earnings, dropping hints like these rather than releasing empirical financial data, so definitive analysis is challenging.

A numbers game

However, some of the numbers that were floated couldn’t fail to impress.

According to the Barclays analyst last January, Google was monetising more than a billion videos a week, 90 percent of the Ad Age top 50 had advertised, its ad products evolved to include display ads, promoted videos and in-video pop-ups. It screened its 500 millionth promoted video in October.

It is four years since Google spent $1.65bn to acquire YouTube, a purely user generated web phenomenon even then, and began selling advertising on it.

But it seems YouTube is still not quite there yet. Last week, speaking at investment bank Allen & Co’s annual media conference, Schmidt reportedly said YouTube was getting better at making money but whether it was profitable or not “depends on how you do the accounting.”

This is an improvement on the tautological nightmare of being on the verge of imminence but YouTube is still not quite there.

Yet the numbers keep on growing. Celebrating its sixth birthday in May this year, YouTube said a staggering 48 hours of content was uploaded every minute and daily views stood at three billion.

Creative approach to copyright

It has been a long hard slog to reach this point but the signs are positive even if the speed of progress has failed to impress.

YouTube now creatively tackles the problem of hosting copyrighted material by offering rights holders three choices: sharing revenue on ads within the content, tracking and analysing the viewing metrics, or blocking it outright.

According to YouTube director of content Chris Maxcy talking to the New York Times last year, this saw lawyers fade into the background of meetings with content owners. At a stroke, the site’s content is improved and any remaining legal costs are offset against the income generated.

Then there is the display advertising and promoted content for which YouTube gets to keep the lot.

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