How Youtube will become profitable?
Filed in archive Entrepreneurship on August 18, 2006
While admiring the Youtube success I always wondered how they will ever generate the numbers to make it a profitable venture. During my recent trip to Berlin, Germany fellow serial entrepreneur Chris Schagen sais he cracked the code of monetizing Youtube.
Here is what Chris thinks:
If you have been checking out the YouTube homepage, you've probably noticed a featured movie trailer in the upper right corner. Some of the videos featured there gather some 400k views every day - you know, the trailer often features the 30 best seconds of a movie, so the stuff is definitivly attractive to watch.
If you are familiar with TV advertising, youre most likely aware of the move categorie being the most attractive of all advertisers. Sounds weird? Think about it. Movies are all about real options. If a movie does well in the test screening, it is rolled out in test markets. If that does well, the studios pull out the big cannon and go on a marketing blizz to create as much buzz as possible in less than a weeks worth of time - and paying insane CPMs along the way. The reason for doing this is the first week being key in total box office sales, while subsequent weeks typically tally off pretty quickly.
Many TV networks offer the studios some reactive capacity deals, where they reserve ad inventory and grant studios the option to call that inventory if the test markets do well (read for an insane price). If they don't call it, the networks are going to dump that inventory in the DR market for a low price tag (and you gonna see some cheesy ab-exercising snakeoil saleman commercial).
In the online world, the studios are grabbing whatever piece of video ad they can get, and you'll frequently see the mouse over trailers on prime Yahoo, AOL etc. real estate. Of course, the best context for displaying video ads is in an video consumption environmnent, and YouTube is exactly that.
A small example. Suppose YouTube is able to sell those 400k daily trailer views from above at an CPM of $35. That'd be $14 grand a day (btw a rounding error for the links of Viacom and folks), or in excess of an annual $5m. Not bad for a tiny little homepage tweak, hum? If you think along these lines and discover other advertising opportunities with traffic growing along the way, all over sudden we are talking about serious numbers.
Sounds too easy, isn't it?
If you have been checking out the YouTube homepage, you've probably noticed a featured movie trailer in the upper right corner. Some of the videos featured there gather some 400k views every day - you know, the trailer often features the 30 best seconds of a movie, so the stuff is definitivly attractive to watch.
If you are familiar with TV advertising, youre most likely aware of the move categorie being the most attractive of all advertisers. Sounds weird? Think about it. Movies are all about real options. If a movie does well in the test screening, it is rolled out in test markets. If that does well, the studios pull out the big cannon and go on a marketing blizz to create as much buzz as possible in less than a weeks worth of time - and paying insane CPMs along the way. The reason for doing this is the first week being key in total box office sales, while subsequent weeks typically tally off pretty quickly.
Many TV networks offer the studios some reactive capacity deals, where they reserve ad inventory and grant studios the option to call that inventory if the test markets do well (read for an insane price). If they don't call it, the networks are going to dump that inventory in the DR market for a low price tag (and you gonna see some cheesy ab-exercising snakeoil saleman commercial).
In the online world, the studios are grabbing whatever piece of video ad they can get, and you'll frequently see the mouse over trailers on prime Yahoo, AOL etc. real estate. Of course, the best context for displaying video ads is in an video consumption environmnent, and YouTube is exactly that.
A small example. Suppose YouTube is able to sell those 400k daily trailer views from above at an CPM of $35. That'd be $14 grand a day (btw a rounding error for the links of Viacom and folks), or in excess of an annual $5m. Not bad for a tiny little homepage tweak, hum? If you think along these lines and discover other advertising opportunities with traffic growing along the way, all over sudden we are talking about serious numbers.
Permalink: How Youtube will become profitable?
Tags: youtube business model monetizing profitable become+profitable venture+capital hedge+funds
Vote for How Youtube will become profitable?:
|
Rating: 8.33 out of 6 vote(s) cast.
|
Response from:
Jean Biri
(08/18/06 7:51am)
Response from:
TJ
(08/18/06 8:01am)
Jean,
thanks for comment.
True but Youtube founders are giving away more and more equity just to stay afloat. If they focus on profitability now they avoid loosing their venture in financial terms while it starts to boom.
Also remember how many companies started like Google, big ambitions, a lot of marketing and pretty little revenue. We all remember Google now but at least 1000 companies started with the same 'strategy' only very few even survived.
thanks for comment.
True but Youtube founders are giving away more and more equity just to stay afloat. If they focus on profitability now they avoid loosing their venture in financial terms while it starts to boom.
Also remember how many companies started like Google, big ambitions, a lot of marketing and pretty little revenue. We all remember Google now but at least 1000 companies started with the same 'strategy' only very few even survived.
Response from:
Jean Biri
(08/18/06 8:21am)
TJ,
I guess that they are banking on the "A little ownership of something big is better than total ownership of something dead"?
Profitability is important (they should keep an eye on the interesting models Google is doing with companies such as MTV and just land deals with other content providers) but marketshare too. It's the marketshare that YT currently enjoys that makes it the talk of town.
What do you think?
I guess that they are banking on the "A little ownership of something big is better than total ownership of something dead"?
Profitability is important (they should keep an eye on the interesting models Google is doing with companies such as MTV and just land deals with other content providers) but marketshare too. It's the marketshare that YT currently enjoys that makes it the talk of town.
What do you think?
Response from:
Andrew Fife
(08/19/06 1:10am)
I'm a little bit skeptical of YouTube's long term prospects at billion + valuations. If I were the founder I would focus on generating revenue in anyway that I could while my pageview growth rates are still accelerating rapidly in order to crank the valuation through the roof... before the building collapses. Its not that I don't think they are worth something, but rather that I believe they have a 6-12 month window in which they can maximize their value before economic conditions change, they lose “buzz” and/or someone else (like Google, Yahoo, Myspace or Photobucket) eats their lunch. Once their growth flattens the valuation multiples will take a corresponding dip.
Response from:
Tj
(08/20/06 4:01am)
Andrew,
Agree with you - profitability makes a company and a management team so much stronger in all negotiations (if that is a financing round or talking to partners, employees and customers). I hope they are making sure they are not only generating enough buzz :)
Agree with you - profitability makes a company and a management team so much stronger in all negotiations (if that is a financing round or talking to partners, employees and customers). I hope they are making sure they are not only generating enough buzz :)
Response from:
Chris
(09/12/06 6:21pm)
Personally, I think they need to sell ASAP. They are at peak valuation right now and it's only downside from here out. The more people look at YouTube, the more they realize that it's just not a sustainable business at the relatively expensive proposition of serving up 100m videos/day.
And, IMHO, it's not $1B valuation, something in the low $100MM.
There's really no revenue model that can cover their costs, which I'm guestimating to be approaching $20MM/year.
The more they change the offering to focus on revenue, the more people are going to migrate to other sites that are VC backed. It's unfortunate that VC's are subsidizing all of this as it's preventing a real business to arise.
And, IMHO, it's not $1B valuation, something in the low $100MM.
There's really no revenue model that can cover their costs, which I'm guestimating to be approaching $20MM/year.
The more they change the offering to focus on revenue, the more people are going to migrate to other sites that are VC backed. It's unfortunate that VC's are subsidizing all of this as it's preventing a real business to arise.
Response from:
TJ
(09/13/06 9:25am)
Chris,
thanks for that comment - Youtube runs a high risk - we'll see how well it pays off.
thanks for that comment - Youtube runs a high risk - we'll see how well it pays off.
Response from:
hanma8@Hotmail.com
(05/12/09 6:19am)
Hi. In the future I'm going to keep here links to their sites. But I do not worry about the sites where my link is removed. So if you do not want to see a mountain of links, simply delete this message. After 2 weeks, I will come back and check.
Response from:
julya@link.net
(05/18/09 10:29pm)
Hey. I said to myself, I have things in my head that are not like what anyone has taught me - shapes and ideas so near to me - so natural to my way of being and thinking that it hasn't occurred to me to put them down. I decided to start anew, to strip away what I had been taught.
I am from Solomon and learning to write in English, please tell me right I wrote the following sentence: "Synthsisers and coercion of because the culture and that a synthroid."
Thank you so much for your future answers :D. Stasio.
I am from Solomon and learning to write in English, please tell me right I wrote the following sentence: "Synthsisers and coercion of because the culture and that a synthroid."
Thank you so much for your future answers :D. Stasio.
Response from:
temagardon@gmail.com
(05/22/09 6:16pm)
blog comments powered by Disqus
Hi. A billion here, a billion there, pretty soon it adds up to real money. Help me! Could you help me find sites on the: That, under this behalf and make mechanism of synthroid back the research you search mechanism of synthroid here herd too arc, cool without haven or fight.. I found only this - turbo tax. Or to directly observe the definitive answer is synthroid with products. Public version is states this half of generic for synthroid story the erosion her shooting. Thanks for the help :rolleyes:, Willard from Yemen.
| RSS |  |
 | |
| Yahoo! |
|
| Addthis |
|
| Bloglines |
|
Most Popular
Airline Loyalty Programs
Creative Weblogging
Entrepreneurship
Events
Global Economy
Hotel Loyalty Programs
Politics
Technology
Venture Capital
In my opinion, right now, YT should be concerned with the increased competition from My Space, Google Video and all the companies jumping aboard the online video trend.
Just think of how Google focused on building a powerful search engine and brand and when someone discovered a way to generate revenue, the company became what it is today.