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.
You are right toriatte, they took the initiative of buying YouTube for fear that their competitor might have purchased it. But one thing is clear, in this business it is always "let's try and see". This time they seem to have screwep up for now. But don't be sorry for Google they are making the balance elsewhere. And nothing prevent then from "throwing YouTube away now", they will just need the courage to do so.
Nice articel Nicole and I've been reading the exact same thing. I'm not really sure what Google expected with their purchase of YouTube. They as wel as anyone know the ups and downs of ad based revenue models. I think they might have done it more to keep someone else from grabbing them. That might be best all around and I hope Google doesn't mess this up. When the bean counters get involved it can really mess things up...
Even if it is time regret at Google for aquiring Youtube, they would have told another story if the deal were a success. In this business, it is "let's try and see". Aslo, with YouTube, we should not think of it as only a lucratrive business model, but rather how it helps in advancing "commnication model". Google should be proud of taking part in this model. They should not only mourn on the money they are losing with YouTube. They are making the balance elsewhere.
True, and if you are a serial acquirer (like Google, really), history shows that your business model becomes more of acquiring than your original core business. Losses and operational inefficiencies can be masked by another acquisiton, until you run out of targets.
I have no doubt that Google's leadership has had more than a couple moments of regret regarding the YouTube acquisition. But there has to be something more going on than a reluctance to admit they pulled an EBay-Skype thing.
Think about it.What if they made a mistake in buying Youtube and are now afraid/delusional in admitting it?
Atleast that's the impression one gets from Ebay in their latest moves to spin-off Skype[Its beyond me why they bought it in the first place].
The only people who make money in these Mergers and De-Mergers are the Investment Bankers.Shareholders just suffer[According to Businessweek in the IT Industry a good 75% of all Mergers end up destroying Share-Holder value;oh by the way Oracle decided to buy up Sun;add another one to that list!!!].
I think there is a profitable model for YouTube. I don't think they are in such a model now unless YouTube props up Google Click-Throughs in such ways that Google revenue is enhanced by the volume that clicks through Google on their way to YouTube.
YouTube has the potential to be the entertainment platform for homes, a competitor, really to the infrastructure providers such as Time Warner, Comcast, etc.
(Of course, a fly in the ointment is that YouTube doesn't control access into homes like these providers do).
At question is whether television and video over the Internet will converge, melding into one. Or, will video over the Internet eventually replace channel-by-channel television?
It seems like there is the proverbial chasm that must be crossed to take Internet video to make it mainstream television....a bit like what was needed to make wireless Internet at your home--once clunky to set up--now simple wi-fi.
If something like that happened, it seems like YouTube would be the nuevo platform, the program guide, basically.
(It's kind of hard, though, to get past that little fly in the ointment, though. I guess if all the content was stored locally at the edge of the local loop, these providers could become partners with YouTube, but it seems like they would be taking on a lot of the storage expense--regardless, that's kind of the model they are in today.
YouTube would just become a content holder, like Viacom--oh, another fly in the ointment, YouTube doesn't really produce any of that content).
Look, I'm trying. The only way you can buy into a long-term revenue model for YouTube is if you buy into the fact that content will be distributed and viewed in methods we haven't yet defined (or at least, methods I haven't yet defined).
Or--if YouTube was a cash cow, why wouldn't Google consider spinning it off? I still think YouTube is doing more for Google than for itself.
British Telecom has come up with an interesting idea called Phorm for Internet Users in the UK.Its a different matter that most Regulators don't like it.
http://news.bbc.co.uk/2/hi/technology/7998009.stm
http://news.bbc.co.uk/2/hi/technology/7999635.stm
Will this model work?Or will something like it?Its interesting to note that Google is not against it.They just want to see how much regulators and people can handle (in terms of Invasion of Privacy),before unleashing the full force of All that Data that their Servers Store.
I really liked what Koshcner here said,about getting rid of Clips which are posted multiple times.Maybe you can pay Users (with download credits,etc) on Youtube's website to flag and do that for you.
Needless to say,its interesting times for Web 2.0 Strategists.
All youtube needs to do is refine its ad model and be more creative in that area. They have already started showing text ads and some graphical ads too. What they need to do is show video ads at the beginning, middle or end of videos. Given that they already know so much about the person who's watching the video, they can show up a relevant ad on run time. I feel thats the best way youtube can come out of the crisis.
Subscription models work well...in fact, I'm a long time subscriber to two of them...Netflix for video and Rhapsody for music (I'm listening to Jethro Tull's Aqualung right now).
Quite frankly, Rhapsody has been around long before p2p started letting us download for free (well, free, if you can afford a $143,000 fine). And Netflix subscription by mail is a stable solid business model.
I have thought about catalog services that people will pay for and it seems these two have somethings in common.
1. Comprehension. I'm willing to pay $15 a month for Rhapsody to Go, but only because its fairly complete. That is, I don't have to subscribe to multiple overlapping services. Same with Netflix. I'm not just looking for media, but the ability to grab exactly what I want when I want it.
2. Low cost. Pirating always seemed like a bad bet to me. Basically the few dollars you save versus the potential of wrecking your financial life in a lawsuit. Netflix costs me $24 a month + Rhapsody is about the cost of my ISP Clearwire at $35. Seems reasonable for nearly every album and movie produced by Man.
3. Easy to use interface. Netflix has been doing magic with javascript before script kiddies could say "JQuery". Rhapsody has delivered a multimedia music dashboard long before you could say...um...dashboard. Social media? How about sharing reviews and music lists and recommendations?
4. Closed space. I know, Web 2.0 is all about unlimited interface. But you know what? A lot of people like to shop where its safe. This is one reason for the success of Amazon. As long as I'm in Netflix or Rhapsody I don't have to worry about clicking on a phone dialer or virus installer.
Is there a future for the non-monolithic media site? Or the peer-to-peer types like YouTube? Hard to say...one thing that YouTube could do a lot better is presentation and editing. Too much amophousness can be a bad thing. How about some live "Tube Jays" to play the Top Ten vids streaming live every night? Definitely if you want to charge people a subscription you're going to have to provide value that can match Rhapsody or Netflix.
How about this then? A Web 2.0 subscription that gives you 20 credits to 20 key sites in all areas of information -- Internet Evolution, Time, CNN...and so on. $20 a month split 20 ways, but spread across hundreds of millions can go a long way! That takes care of comprehension. Add in universal log in, cross site commenting and there you go.
I cannot see them making money from paid subscription for premium content. It will flop and users will go else where to get the content. Moreover, if it is newely released content (new DVD movie release) similar to what NetFlix is doing by screaming newly released movies, people will pay. The Hulu model is by far the best web 2.0 video content model out there to generate funds. I think the Hulu model is the direction youtube will take. I don't think that google wants to get into the video screaming business such as the one Netflix is investing millions in.
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