18 April 2009

New Models for YouTube as Google Revenues Decline

17 04 2009 - News of a decline in Google's revenues, new partnerships for YouTube, and the prospect of subscriptions for premium video content all point to the heavy burden the profitless, money-sucking YouTube has injected into Google's balance sheet.

While Google (Nasdaq: GOOG)'s first quarter '09 revenues rose 6.2 percent to $5.51 billion from $5.19 billion a year ago, they declined 3 percent from the fourth quarter of '08, marking Google's first revenue decline in consecutive quarters since the company went public.

Internet Evolution reported earlier this week that Google is losing up to $1.65 million per day on YouTube, effectively paying for each visitor that comes to the site. With its first decline in revenues in five years, and pressure from video competitors like premium content site Hulu LLC , Google is feeling the combined effects of the economy and its very expensive, not at all profitable pet, YouTube Inc. (Thanks to Mashka for the metaphor!)

And recent news from both Google and YouTube suggests they sense the urgency as well.

Yesterday YouTube said it has rolled out a Hulu-like channel for full-length content -- television shows and movies -- through a deal with some Hollywood studios, including Sony, Lions Gate, and MGM, to share advertising revenues. The site will run in-stream ads against full-length content.

Further, in an interview with The New York Times, Google CEO Eric Schmidt said his firm may, in the future, ask users to pay for other premium content (not necessarily the content on that channel) via subscriptions or micropayments.

But it's questionable how well this will actually work. At this point, YouTube's new content channel has an odd array of shows and movies to choose from, including The Addams Family, I Dream of Jeannie, and Married With Children. (I'm not exactly hearing "cha-ching" here...)

A subscription model could work, but Schmidt said the site would only charge a fee for some premium content, and would exclude all user-generated content (UGC). Surely no one would pay to watch kitty clip puppy's toenails, but without UGC, analysts estimate that monetizable content on YouTube makes up only 3 to 10 percent of its database.

It's unclear whether there is a profitable model for YouTube. And as the site shifts its focus to premium content, the You that made YouTube so popular in the first place may just get lost in the mix.

Source: Internet Evolution

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