The Secret 'Profits' Of YouTube
from the don't-worry,-be-happy dept
It's become quite common for folks who dislike "web 2.0" or the concept of "free" business models to mock YouTube as an absolute disaster. For example, music industry lawyer (and hater of all things "free") Chris Castle has already declared the site dead (which is news to, well, just about everyone). Over in the UK, the Independent is running an odd little article that goes back and forth on whether or not YouTube is a real business proposition and then tries to extrapolate from there whether or not "free" works as a business model. The whole discussion is a bit off -- since YouTube really doesn't represent a good example of a business model that uses free, since the bandwidth costs of hosting video is so high. To use that as a proxy for the concept of free would be a mistake, since most other business models don't have that same issue.That said, really the only truly worthwhile parts of the article are the ones where analyst Keith McMahon speaks up. He seems to be one of the few folks out there who actually has bothered to look at YouTube within the larger context of Google itself, and makes a few important points about (a) why YouTube helps Google in many other ways and (b) Google benefits from the widespread belief that YouTube is losing tons of money:
"There are many urban myths surrounding the way that companies extract value from the internet," he says. "Google's spin-off benefits from owning YouTube include the accumulation of our data and strengthening of their network design -- and the more time people spend watching online video, the more advertisers will pour into marketing on the internet as a whole. There's no doubt that Google can afford YouTube."This leaves out another point as well: the more that people believe YouTube is unprofitable, the less likely they are to build serious competitors. I have no idea whether or not YouTube is actually profitable directly yet (I'd doubt it), but I think those who are insisting that the acquisition by Google was a bad idea, or that YouTube is somehow on its deathbed, haven't taken much time to understand some basic trendlines or the larger picture of how Google views YouTube, and the opportunities it has to make money via YouTube down the road.
McMahon also believes that by keeping quiet about YouTube's hidden benefits and by allowing the misconception of it as a deeply unprofitable business to circulate, things work very nicely in Google's favour when it comes to negotiating with copyright holders in the world of TV, movies and music. Copyright holders can't demand money that isn't there, and it would certainly take no more than a hint of profitability at YouTube for lawyers to descend, threatening court cases and demanding higher royalties. In the new, topsy-turvy world of online economics, it seems astonishing that losses on paper have actually made YouTube a more powerful online force.
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Filed Under: bigger picture, free, profits, youtube
Companies: google, youtube
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The Secret 'Profits' Of YouTube
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"The fundamental problem of acquiring public companies is that you have to pay more than the market price -- so the claim is either you know better than the market (never true) or that you will realize synergies that increase the value of the acquired company (almost never true)."
It seems that google knew better than the market.
http://techdirt.com/articles/20080713/1709131662.shtml
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"There are many urban myths surrounding the way that companies extract value from the internet," he says. "Google's spin-off benefits from owning YouTube include the accumulation of our data and strengthening of their network design -- and the more time people spend watching online video, the more advertisers will pour into marketing on the internet as a whole. There's no doubt that Google can afford YouTube."
I wonder if this benefit can be quantified, though. It sounds kind of like saying that Wal-Mart would benefit from poking holes in condoms because then more pregnancies would occur, thereby increasing the population and market. Is the difference that great?
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Re: The Secret 'Profits' Of YouTube
Not that I want to get into it in depth here, but I would like to mention that I think Facebook is going to find a harsh reality down the road when they discover that their users really aren't in a mindset to be marketed to while they are socializing online. However, the data they have on their hundreds of millions of users could be of great value to a larger partner, like, say, Microsoft...
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Google Video
-Matt
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Actual Numbers
Estimates of Youtube's losses are $174M-$470M / year. That they are deeply unprofitable is not a misconception. Doesn't detract from the overall point of your post, just pointing out that there are numbers out there.
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An Echo Dot.Com Bubble?
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Sadly when I want something quick, easy and works on the internet my mind typically goes to Google. Youtube is just another facet of this.
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So what does it really cost Google when I watch 10 minutes worth of high-quality video on YouTube?
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Re: Re: The Secret 'Profits' Of YouTube
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Before the dot net bubble collapsed people spoke about future value and incorporated it into the companies valuations ....
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The transition will take many years even with perfect execution on Google's part. The entrenched power structure in TV media buying is still very profitable/strong and they don't need or want Google involved.
Here is more background:
http://www.adweek.com/aw/content_display/news/digital/e3i67f2ad037eba0dd6900535147f1391 47
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Cost Centers vs Profit Centers
Once one wraps their brains around the thought processes of utilizing a cost center for profit, and keep in mind that YouTube is a cost center, then one can see that this strategy makes a bit more sense.
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Re: Re: Re: The Secret 'Profits' Of YouTube
True, but they also said the same things about google early on.
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The Secret Youtube Profits of *Record Companies*
But the record companies haven't shared a penny of it with artists, including my client who had the #1 Youtube video during the month leading up to his record company's "investment" with Youtube (really, it was a settlement agreement). My client drove millions of users to Youtube to see the video, which is what gave his record company the leverage it needed to negotiate its sweet "investment" deal with Youtube. That's why he and other artists like him deserve a chunk of his record company's profit on the deal.
Regrettably, so far, none of my clients' lawyers have had the gumption to hold the record companies' feet to the fire on this issue.
If you are remotely interested in this issue, I encourage you to read Marc Cuban's 2006 re-post of a report from an anonymous source that is at least mostly true: http://blogmaverick.com/2006/10/30/some-intimate-details-on-the-google-youtube-deal/
For those of you who think that Artists are lucky to have the exposure on Youtube, that may be true for unknown artists, but for artists like my client, what good is increased popularity when it cannibalizes your income? Youtube and the record companies have piggybacked artists' brand equity and my client has reduced income as a result, even though he may be more popular than ever (people don't want to buy his record when they can watch his videos for free on Youtube).
Beyond the measley share of ad revenue that the record companies finally began to report in late 2008, entertainment companies should be held accountable to share Youtube and other hidden profits with the content creators.
I just need a client with a lot of leverage who is willing to fight for this!!!
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"...since the bandwidth costs of hosting video is so high."
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Record companies don't ask too much cash for their material.
There are ways a company can get money from other companies that it owns (consultancy fees).
Aaron, Ryan, CuiJinFU & Hephaestus don't seem to get it.
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Re: The Secret Youtube Profits of *Record Companies*
If you've got that problem solve it with the record company. Youtube started sharing revenue. It's you job to make sure that your client get what he deserves from taht revenue.
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Re: The Secret Youtube Profits of *Record Companies*
The thing is that after the fans have bought it, the sales will diminish because there will be less people interested.
In other words usually 90% of the sales in the first 10 years after the album appeared will be in the first 2-3 years and among these each year it will be less profitable.
I can guarantee that your client's income hasn't been "cannibalized" by Youtube (record comapnies did it, like you wrote). If you want to do something for your client send a memo to Youtube where you ask that the videos to have a "Support the artist, buy the record." inscription in the description. If he can live a good life he should be thankful for that. Since he's an artist sh should learn to cash in on his popularity (advertising anyone?).
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