Debate on Silicon Alley Insider: What kind of profit can YouTube get?

What is YouTube? A bottomless pit or an asset that can ultimately bring real income to its parent company Google?

Mark Cuban is a billionaire entrepreneur who created HDNet, the first HD television network in the United States. He has long believed that from YouTube can not be confused. According to him, it’s time for Google to stop paying bills for network bandwidth and storing content on the site that is impossible to sell. For example, even innocent videos (such as shooting teenagers from New Jersey jumping on pogo stilts) often contain copyrighted music. This means that YouTube will not place on this page a single AdSense ad unit - a content service from Google.

Citi analyst Mark Mahaney, however, considers YouTube to be a very great service (after all, this is the fourth site in the world in terms of the number of unique visitors and the seventh in page views). Consequently, Google has nothing left but to earn on it. Even the original way of advertising video is not necessary to invent. He claims that the Internet giant may receive $ 500 million in net income next year.
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We wrote about the study of Mahani last week. The result was an interesting debate between the two Markovs in the comments section. Below we present this discussion, a little edited.

Kuban: Does Mark understand that by law YouTube is not allowed to sell advertising space on pages with videos for which the site does not have a license?

That is, even if you upload a video to the resource where your cat sings, there can be no advertising around the video. A telecommunications company Viacom also will require not to place any advertising on the categories on the page. Hence the question: how much traffic is generated on YouTube pages with licensed content? After all, this is the only pages that can be filled with advertising.

And if the video hosting service would generate enough traffic only thanks to pages with licensed content, and even get profits from it, we would hear the following about YouTube.

- Site management would say that it knows how to monetize content.

- Content providers would brag about their earnings, which in turn would attract content creators from all over the world.

Instead, we see how the YouTube team creates a separate Screening Room resource for the film from an independent cinema company. Reasonable move, because it will allow service staff to check how the company is able to generate traffic outside the main site. Although, again, such films can be considered content that is nowhere else able to make a profit.

All that the YouTube leadership can do now is to invest some of the money that is spent on subsidizing global bandwidth, in working with content providers. Then the fate of the service will change. Yes, the resource can even become an HDNet partner and buy movies from it. Everything that brings money to independent filmmakers is good. But, taking into account the conditions of today's market, what do you think will make the choice of filmmakers? Will they show their works in cinemas and receive a commission for this? Or will they be broadcast on YouTube for the same commission?

Mahani:

1. Yes, YouTube will not be able to expand its areas of activity by 2009. However, it is nice to see that the unprofitable leader still generates some profits (in compensation).

2. Yes, I understand that the resource can advertise only on pages with licensed videos. Our report was intended to give some caution. However, it’s hard not to agree with the conclusion that the YouTube website forum is becoming increasingly important for content creators. This is not a presidential debate shown on Hulu and CNN video services. And really there are no options for generating income like self-service and a share of profits for those who upload videos with singing cats to the site?

3. I would like to know the number of content providers offering legalized materials to YouTube. Most likely, it has increased, but it is not easy for the uninitiated to guess specific numbers.

4. If Google’s management and YouTube are doing everything right, they should already get more revenue than MySpace.

5. I will never argue with Mark Kubaonm.

Kuban: Be sure to argue with me, Mark. After all, it is thanks to this that our discussions are interesting.

As for the YouTube forum, I must say, it develops differently - it loses its importance. Channels previously declared significant are no longer as such (if they still exist within the site). I bet there will be no more debates at the national level on YouTube.

Content providers most likely have already deleted their videos from the site or replaced them with so-called “connecting videos”, which send traffic to other resources. In fact, this is what YouTube has become for professional content creators - not the location of their videos, but a kind of starting point for other sites. (Like Hotjobs when looking for a job.)

I think that’s why YouTube employees developed Screening Room - to check the creation of portals, on which they can control all media and advertising, as well as see how much traffic they transmit. The service wants to be a media company, but for now it only draws on free hosting.

I also believe that Apple (AAPL), along with its free media player iTunes, can be an interesting trump card in this whole story. If it activates and starts creating content that is easy to download and licensed, and will also sell ideas to independent filmmakers, and I’m willing to bet that the company will issue it as an exclusive deal, the content creators will turn to exactly where the money will be offered ...

The most difficult thing in all of this is the fact that if the Internet giant Google had invested 25 million per year in licensing content, the search engine would have solved all of its problems long ago and become a desirable place to host films shot by independent directors.

Translation: Roman Yuriev, toodoo is a social network of saytofanatov.