This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Business News Digital
YouTube is a big fat loss, probably
By CMU Editorial | Published on Tuesday 7 April 2009
Google are generally very cagey about which of their services make money and which of their services haemorrhage it, though it’s no secret YouTube, one of the web firm’s most costly purchases to date, is some way off making money.
And that is one of the reasons why Google bosses aren’t that keen to pay song royalty societies PRS For Music and GEMA any more money for the rights to include their members’ songs on the video site – they haven’t said it, but you sense what they are implying is “we’re losing money paying you the nominal rates you’re getting now, and you want more?”
As an indicator of Google’s YouTube challenge, we have comments made late last week by Credit Suise analyst Spence Wang in a note to investors, in which he predicted that the web firm’s video service will make a loss of about $470 million this year, because the cost of delivering the content, not to mention the royalties it has already committed to pay to the record companies and publishers and the like, are no where near covered by ad revenues.
Wang reckons only 3% of possible ad spots on YouTube are sold, and that rates are horribly low, making the whole video venture a real loss leader, despite its huge success in terms of traffic. It all suggests, as I think we’ve suggested previously, that Google’s business model works when it comes to providing relatively low-cost ad-funded web services like search, email and document sharing, but when you apply it to a more expensive video-on-demand platform, especially if you start to factor in content costs, the pennies per click model doesn’t add up the same. Especially if video viewers turn out to be less likely to click than search engine and web mail users, which generally they do.
Of course the fact that Google, despite being a billion dollar concern, is losing millions on YouTube could be used as an argument as to why PRS For Music and GEMA should be willing to be more flexible, and a bit more bargain basement, than they seem to be. Though that assumes that there is no other business model out there that can make a YouTube-style service work. If there is – and I think there might be – then a faltering YouTube doesn’t necessarily have to play into the hands of the video site’s illegal competitors, and Google can just quietly write YouTube off as a mis-adventure.
Though until such a business model is found and proven – and there are already contenders out there, MUZU maybe, and perhaps the seemingly optimistic Ek and his Spotify – these will remain shaky times as artists, songwriters, collecting societies and (some) labels stand there ground and demand a bigger share of what might be non-existent cash.
