Fred does a great post on YouTube's revenue potential. He takes the premise that if you put a 10 second pre-roll video on every video at a $15 CPM and split the earnings in a Google Adsense way you would wind up with a $150M a year business.
It's a great read, but there are a couple of issues.
1. A $15 CPM for 10 second preroll on unqualified video is not gonna happen. It would be more like a $2-3 "junk" CPM like you see around the web today. $15-25CPMs are reserved for *qualified* videos with a high editorial benchmark. If an advertiser is going to break the $5 CPM barrier they are going to want to know what type of video is on the other side with very rare exceptions. Real branding folks do not just throw their advertisements on content. They want to be associated with high-quality editorial.
2. The second YouTube starts putting ads in front of content they are gonna get sued. Howard Stern was talking about YouTube today and was upset that they had his stuff up there. The reason YouTube has dodged a bullet to date is because of three factors: low quality video, lack of monetization on their part, and the 10 minute length. They put a pre-roll ad in front of Lazy Sunday or the Emmys (which I watched on YouTube exclusively!) and they are done--like done, done.
3. They are not going to sellout their inventory. When you have as much ad space as YouTube or MySpace you are never going to have any scarcity, and that is what drives high CPMs. Niche properties get the $15-25CPMs because they are sold out. YouTube's flood of traffic is not going to sellout.
Fred comes to a $150M *potential* number. I think they could do 10-20% of that number today, and over time they might get to half the $150M number *if* they get video owners (think SNL) to hand over archives. However, these folks are going to want a floor CPM.
If I was a video holder I would go to YouTube and say you can have all our stuff for an $8 CPM and you keep all the upside and we want an upfront, non-refundable advance of $3M a year.
If YouTube did that they would be a real business. Of course, of other folks tried that and never got there.
In the past I've said YouTube is not a real business. I think YouTube is now half of a real business, and that half is people sending dorky, but entertaining, video messages to each other. These dorky videos are never going to get major advertisers on them, so YouTube needs to find a way to work with the professionals (without stealing their stuff) if they are going to make a business out of this.
Also, I don't think YouTube is gonna get bought at this point. This is the hottest M&A market *ever* for Web companies. Just look at Viacomm firing Freston over losing MySpace to Fox and bringing in a new guy who's focus is to find the next MySpace earlier. Whoever buys YouTube gets left holding the lawsuit bag--just like Napster. I wouldn't touch it with a Yahoo's 100 foot M&A pole!
YouTube yearly revenue potential: Fred says $150M a year, I say $20M.
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(Page 1 of 1)2. No doubt. And IMO, as soon as they run ads a good piece of the userbase will evaporate.
Posted at 11:49AM on Sep 7th 2006 by Rob Hyndman
3. i expected a retort like that from a self proclaimed youtube hater.
but the wild card here is when the content owners (and i mean tv primarily) make deals with youtube. last year they decided to sell tv shows on iTunes. the next move is to license their content for distribution on youtube and take a guaranteed CPM or a rev share (maybe both).
i'll bet you a sushi dinner of the winners choice in NY or LA that it happens in the next 12 months.
4. i actually think youtube will get someone to sell them video in the next 12 months... not sure it will be ABC, NBC, or CBS, but I could see MTV doing it in light of the shake up over there.
I think YouTube has a shot at becoming a real business if they start paying folks for their content.
5. so much buzz about a company with no real business plan yet. the question can they translate traffic into real revenue? i agree with your more conservative assumptions about CPM - $15 seems far too high but fred wilson is a VC without any money in youtube (at least, not yet!)
mark
Posted at 3:27PM on Sep 7th 2006 by mark evans
6. Sorry I just realized that Fred had aready factored in a generous split for the content producers. I missed it the first time. My bad.
Posted at 4:22PM on Sep 7th 2006 by Bill Streeter
7. I started to brain storming and investigate on starting a company that would basically be the adbrite of video websites. Ie sell pre-rolls on not so hot market websites, like college humor websites and so on.
The problem is that you have to sell SO MANY advertisements, and you have to keep the CPM low, but the over head of serving a video in bandwidth costs is much higher then serving a text ad. So is things like managing the video ads themselves.
So $8CPM, i would bring in 4/5 of a cent an advertisment shown. I would probably have to give the website I am showing the add on 1cent of that. So I am bringing in 1/5 of a cent an ad.
I am pretty sure it is going to cost me more then 1/5cents to serve each ad, when I add up all costs.
However, i didn't want to sell ads like this, i wanted to get 10cents an ad shown at least. That is a $100CPM.
Ways to do this would have to be some sort of combination of CPM, and click advertising. With flash videos they can get more then showing a preroll advertisment.
If you find some videos on pornotube.com they have messed around with puting clickable ads over their flash videos. One could now show a pre-roll video, then put a clickable advertisment on the video aswell (maybe at the end or at the bottom). Now you can charge $8CPM and 10cents a click. This could work out to maybe a $20CPM. Higher depending on the auction of click costs ala google.
Posted at 12:18PM on Sep 8th 2006 by Kebie
8. Nice shot. Youtube traffic is mainly powered by bored office workers. The only way they can emerge as a high end video service is to introduce intelligent filtering to get rid of all the junk. Youtube long term strategy should be : tracking quality rather than focusing on quantity.
Posted at 12:00PM on Sep 10th 2006 by Jean-Baptiste Rudelle
9. Waiting for Adsense for videos....
Posted at 5:44AM on Sep 19th 2006 by Paul Elosegui
10. "Also, I don't think YouTube is gonna get bought at this point."
I just found this post via Google by pure accident. It was entertaining to see read things when you have the advantage of what happens in the future. It's interesting to see what kind of #s does YouTube show at the end of 2008.
11. Chiming here albeit late. I wrote about this in Will Richmond's VideoNuze about a month ago. A couple of clarifications. Bear Stearns reported that YouTube is on track to make $90-92M in revenues this year of which $22.6M of that is for video overlay ads. One thing to point out is that YT is doing overlays on their "partner" content, not all YT UGC content. Big difference. So this is, by and large, professionally produced content. What's unclear is just what the % breakdown is between UGC and partner-provided video. I did a little math on my post and I figured out that @ $22.6M a year for video overlays on partner-provided video is about 4% inventory of all YT available streams (UGC + partner produced). Bottomline: It's not that impressive. Here's the post: http://www.videonuze.com/blogs/?2008-04-11/The-Reality-of-Web-Video-Advertising-Just-Doesn-t-Seem-to-Add-Up/&id=1453#comment
Posted at 9:49AM on May 13th 2008 by Mugs Buckley
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1. I think you're right on about this. I've made some of these observations myself, and there is one other factor that I think you missed: revenue splits with the creators. If I post a video that gets thousands of views on Youtube and they put a pre-roll ad on it, and they don't give me a cut of at least 50% I'm probably not ever going to post anything on there again. So not only will revenue sharing with content creators cut their CPM down, not doing it will drive good content creators away to other services like oh I dunno, Revver and Blip.tv or to just hosting content themselves. So factor that in and what does that do to their profit potential?
Posted at 11:10AM on Sep 7th 2006 by Bill Streeter