Is YouTube a Massive Money Loser?

By  |  Friday, April 3, 2009 at 4:39 pm

youtubelogo1International financial services company Credit Suisse has burst Google’s bubble: Its analysts report that YouTube could be on track to lose $470 million this year due to outrageously high operating costs and a poor business plan.

Credit Suisse estimates that YouTube has a gross income of $240 million a year, but that its expenses far exceed that, totalling an astonishing $711 million. According to the report, about half of YouTube’s expenses come from meeting bandwidth demand, while the remainder derives from licensing costs, hardware, marketing, and other operational expenses.

The analysts determined YouTube’s bandwidth costs by assuming that 375 million unique visitors would visit the site in 2009, with 20 percent of those users consuming 400 kilobits per second of video at any given time. That works out to 30 million megabits being served up per second. That’s a heck of a lot of bandwidth to devote to videos of sneezing pandas.

However, Credit Suisse’s revenue forecast deviates from other reports. In March, Jefferies Co. said that YouTube would earn $500 million, and Screen Digest predicted $120 million in earnings earlier this week.

The Credit Suisse analysts’ proposed path to profitability is for Google to change YouTube’s business model to place an emphasis on premium content over user-generated content–like Hulu. NewTeeVee, a blog dedicated to online digital media, reported that Google is poised to unveil a site redesign that will do just that.

That would be the end of YouTube as we known it, but we are living in a new economic reality. YouTube built its business without ever having any viable way to become profitable in the short term, and it cannot continue to lose money just because its users are accustomed to receiving free entertainment. That just does not cut it anymore– shareholders won’t tolerate white elephants forever. Even Google shareholders.

 
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17 Comments For This Post

  1. magallanes Says:

    Hi everyone:

    I knew it, a couple of years ago, i tried to ran a short video and exceed my hosting quota in less that two days. So, to host a video is so damn expensive and youtube is obtaining little or not profit about this service.

    But may be youtube, while is expensive, is using the unused power of Google, and lately i am seing that youtube is lagging a bit more.

  2. PL Says:

    It sounds like the Credit Suisse analyst doesn’t understand peering. Google operate a backbone network and peer with other networks to deliver the content. Google will obviously incur costs to operate their network, but they won’t be paying market-rate IP transit.

  3. Paul Says:

    Google has been slowly killing YouTube anyway. Pulling videos over copyright law despite fair use, removing audio from videos, putting invasive ads overtop content.

    Let it die, and move over to a different site. There are so many better YouTube clones out there now anyway, its time to let this whale die where it beached.

  4. Eric Says:

    Wouldn’t just making youtube users pay a small yearly fee simply take care of this problem?

    Like $5 a year or something from every youtube user? Seems like a no-brainer to me.

  5. Rob Rose Says:

    Let’s put this a bit in perspective. At a $500m loss – that represents about 2.5% of their total revenue (assuming approx. $20B in revenue). While certainly not inconsequential – and not an argument for not finding a business model – I think I’d spend two and a half percent of my revenue for having an asset like YouTube. Google can spend that for a long time coming.

  6. James Says:

    OK, so there are 375m unique YouTube visitors? That sounds plausible, and I would be one of them as would be many/most of my peers. We don’t spend 20% of our time downloading a video at 400kb/s or even 10% of our time watching an 800kb/s video. If the same calculation is done based on different assumptions, YouTube is profitable.

  7. Lauren Says:

    I have to say, as a fellow YouTube user, I am extremely tired of all the
    changes in the designs. YouTube is down half of the time for users due to these.

  8. Jack Says:

    Knew long ago that it was expensive to run and couldn’t see how a standard adsense ads account could pay for it.

    Two things to remember.
    1. Bandwidth costs come down substantually year on year and although this year it may loss money, next year it will be less and after a few years could be profitable. VERY PROFITABLE.

    2. Also I don’t think that google will run a standrad adsense account with them. Many estimate standrad adsense accounts pay 70% to its publishers. Of course google gets 100% since it owns it but in addition to this could decide to run more expensive ads on youtube site than on normal sites. AND NOT SUBJECT IT TO SMART PRICING.

    I’d say once google can pay the cost over the next few years, it’ll be very profitable in the future. To be the technical owners of all that content is amazing.

  9. Steven E. Streight aka Vaspers aka Pluperfecter Says:

    Why doesn’t YouTube charge users for special services, premium service, that bands, labels, Hollywood, corporations would use?

    Or charge for DVDs of user selected videos, in a much higher quality of sound and image, for example, X number of psychedelic rock videos, for X number of dollars?

    Some kind of extra service, or packaging of selected content, might work.

    A Best of YouTube DVD you subscribe to, with various versions based on interest (from NASCAR to hiphop to tech tutorials)?

  10. yoni Says:

    I agree,

    A small subscription service of $10 a month, as well as a cap on how many views a video can get before becoming charged for.

    But put it in decent proportions, such as a cap of 1 million views, then the person will have to start paying a small amount like maybe $1 per video per year for every million views,

  11. Anonymous Says:

    And nothing of value was lost.

  12. WindUpGuy Says:

    YouTube video quality should of stayed stranded instead of going hi-def and wide screen.

    Additionally, it should still be free to upload videos, but they should have a premium subscription services available(for $15 a month), where if you pay $15 a month, you can upload videos in hi-def, wide screen, and longer than 10 minutes.

    But with a free account, you can only upload videos that are no longer than 10 minutes with regular quality.

    How about that for an idea?

    Well if that was to happen, it would make the big head lines.

  13. rahul Says:

    In future cost of Bandwidth will be cheaper, and so does the cost of hardwares, terabytes of hardisk are getting more affordable by each day.The only thing which gona increase in future is Online advertizments,slowly but surely TV audions will get hooked to youtube.com and then
    I think google has invested in future , also if an website can influence goverment of a country then its worth a running.

  14. lindaparker21 Says:

    well i don’t think that you tube is a massive money loser because you tube is earning allot so chill..jumbo loans

  15. Dr. Len Schwartz Says:

    It shocks me to read how much money YouTube is predicted to lose this year. With 375 million unique visitors watching videos on YouTube this year, there must be a way to advertise on the site, which will keep it free to the public.

  16. Charle Says:

    This is what i was looking for thanks man for sharing it.

  17. Kevin Says:

    Lots of high profile internet websites don't make money and are either held up by investors, or companies that also have profitable products, in hopes that they will become profitable. This shouldn't be a shock to anyone. Digg itself isn't profitable yet.

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