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How Youtube will become profitable?

Filed in archive Entrepreneurship by tj on August 18, 2006

How Youtube will become profitable?


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 cannonlinks 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?






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Tags: youtube  business  model  monetizing  profitable  become+profitable  venture+capital  hedge+funds 

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