Cable Technology Feature Article
April 06, 2009
Would You Rather be YouTube or Disney?
By Gary Kim, Contributing Editor
If you had the choice, would you rather own or manage Google's YouTube or a more-traditional aggregator and packager of content like Viacom, Disney or Time Warner? Do you think the financial upside is bigger at YouTube (News - Alert) or for the other content companies? Ignore for the moment the question of whether YouTube is a distribution channel (like a cable operator or iTunes), a content aggregator (network) or a portal (like Hulu).
Would you rather have a two-sided revenue model, deriving revenue from business partners (cable, telco, satellite) and advertising, or just the advertising? Would you rather own a "new media" or an "old media asset? The answer might be more complex than most of us think.
Credit Suisse analysts Spencer Wang and Ken Sena suspect Google (News - Alert) might lose nearly half a billion dollars on YouTube in 2009. Despite having a library of approximately 150 million to 160 million videos, many analysts estimate that YouTube is only able to monetize about three percent of its video inventory.
On the other hand, major networks see advertising revenue shift to the Web, while ad-skipping behaviors such as use of digital video recorders are lessening the perceived value of network inventory, and raising hopes for Web-based channels.
That means affiliate fee revenues (payments from distributors) are an increasing contributor to the network business model. None of that presently is possible for YouTube, which has other, more pressing issues.
For the moment, the objective is simply to increase the amount of content that creates ad sales opportunities. Unlicensed content on the site is not the best venue for ad sales. Advertisers so far have been hesitant to place ads next to most user-generated content and there are some back office and operating issues (video formats).
That said - YouTube serves up 41 percent of all videos viewed in the United States. And there is a widespread belief that, over time, ads go where the eyeballs are.
Still, there is a tough business model to grapple with: just a fraction of YouTube’s inventory represents an ad well. For the legacy networks, 100 percent of their inventory is an ad venue. User-generated video is here to stay. But the question remains: how does one create a sustainable business model around that content? It seems unlikely YouTube will be able to do so solely on the basis of its ad inventory.
All the larger existing networks get significant revenues from partner payments. If one sees YouTube as more akin to a distributor than a network, one confronts the fact that major distributors get most of their revenue from subscription fees.
In the near term, it seems highly unlikely YouTube can create a massive subscriber revenue base, or a way to sell ads against the majority of its inventory. Legality of the content isn’t the issue. There simply will be too few viewers for most UGC to attract advertiser interest.
Gary Kim is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.
Edited by Stefania Viscusi