April 17, 2009 - 3:58am
Do you like watching videos on the Internet? You are not alone. According to experts, 75% of Americans watched a video online last month. No doubt YouTube is the leader in this space with hundreds of millions of videos viewed every day. However, its revenue is not as impressive as its popularity. What is the company going to do to make more money this year?
Since Google bought YouTube for $1.65 billion in 2006, both companies have tried to invent a formula to turn the huge online traffic into a moneymaking venture. However, Google's annual report states that the company has not realized significant revenue benefits from its acquisitions of YouTube yet.
The analysts say that the company which dominates online video market made less than $200 million in 2008, or 1% of contribution to Google’s yearly revenue. It was able to monetize only about 4% of video uploaded by its semi-pro partners and media companies.
Analysis of YouTube traffic and ad strategies suggests that YouTube is likely to generate about $240 million in revenue in 2009, up about 20% from the prior year. On the other hand, the bills for bandwidth, ad-revenue shares, content licensing, endless storage, sales and marketing will reach about $711 million. The Credit Suisse report states that YouTube could generate an EBIT loss of approximately $470 million this year.
It is necessary to keep in mind that YouTube is part of the Google Family, a major player in the online advertising industry. It earns most of its revenue by allowing businesses to advertise on its search result pages. Every time you perform a search in Google, you will see ads displayed along your results.
No wonder that Google intended to repeat the same successful strategy with YouTube. In 2007 they launched “YouTube InVideo Ads,” a set of flash overlays displayed on the lower portion of videos, and included YouTube videos in its AdSense product. In addition, the company tried pre-roll and post-roll ads (showed before and after a video) and "in-the-chrome ads" that were placed in the frame around the ad.
However, the ads displayed on the pages as well as inside the videos didn’t work as well as the company planned. The advertising weakness was not caused by the recession. The reason is that user generated content isn't very appealing to advertisers. That’s why YouTube can’t sell advertising on 96% of its pages. Would you like to display an ad of your car-manufacturing company in the video showing fighting monkeys?
Trying to solve these problems and generate more revenues, the company offered two solutions. First of all, they decided that the ability to match ads with video content would improve earnings from each clip. Google has combined AdSense for Video with Content ID. This innovative feature will identify the content and add a lower overlay ad to the videos.
Then, YouTube is going to redesign its website to separate premium content from user generated content. The new design will offer four categories: Movies, Music, Shows, and Videos. The first three categories, as their names suggest, will display premium movies, shows, and clips from Google’s partners. This traffic will be monetized with advertising. The Videos channel will display amateur and semi-pro content that most advertisers prefer to avoid.
In addition, YouTube is taking measures to enlarge professional content. While it has been showing CBS shows for a while now, YouTube recently signed a deal with the movie studio MGM to display some of its older movies on the website. It also agreed to upload popular clips from Lions Gate films on the site. ESPN content will fully arrive on the site in mid-April, followed by ABC Entertainment, ABC Family, ABC News and SOAPnet in the beginning of May.
However, trying to implement all these innovations to make more money, YouTube shouldn’t forget about its users. The latest moves to enlarge professional content can reduce its community that has turned the website into the leader of online video market. If YouTube lost its users, then who would watch new videos and ads?
Since Google bought YouTube for $1.65 billion in 2006, both companies have tried to invent a formula to turn the huge online traffic into a moneymaking venture. However, Google's annual report states that the company has not realized significant revenue benefits from its acquisitions of YouTube yet.
The analysts say that the company which dominates online video market made less than $200 million in 2008, or 1% of contribution to Google’s yearly revenue. It was able to monetize only about 4% of video uploaded by its semi-pro partners and media companies.
Analysis of YouTube traffic and ad strategies suggests that YouTube is likely to generate about $240 million in revenue in 2009, up about 20% from the prior year. On the other hand, the bills for bandwidth, ad-revenue shares, content licensing, endless storage, sales and marketing will reach about $711 million. The Credit Suisse report states that YouTube could generate an EBIT loss of approximately $470 million this year.
It is necessary to keep in mind that YouTube is part of the Google Family, a major player in the online advertising industry. It earns most of its revenue by allowing businesses to advertise on its search result pages. Every time you perform a search in Google, you will see ads displayed along your results.
No wonder that Google intended to repeat the same successful strategy with YouTube. In 2007 they launched “YouTube InVideo Ads,” a set of flash overlays displayed on the lower portion of videos, and included YouTube videos in its AdSense product. In addition, the company tried pre-roll and post-roll ads (showed before and after a video) and "in-the-chrome ads" that were placed in the frame around the ad.
However, the ads displayed on the pages as well as inside the videos didn’t work as well as the company planned. The advertising weakness was not caused by the recession. The reason is that user generated content isn't very appealing to advertisers. That’s why YouTube can’t sell advertising on 96% of its pages. Would you like to display an ad of your car-manufacturing company in the video showing fighting monkeys?
Trying to solve these problems and generate more revenues, the company offered two solutions. First of all, they decided that the ability to match ads with video content would improve earnings from each clip. Google has combined AdSense for Video with Content ID. This innovative feature will identify the content and add a lower overlay ad to the videos.
Then, YouTube is going to redesign its website to separate premium content from user generated content. The new design will offer four categories: Movies, Music, Shows, and Videos. The first three categories, as their names suggest, will display premium movies, shows, and clips from Google’s partners. This traffic will be monetized with advertising. The Videos channel will display amateur and semi-pro content that most advertisers prefer to avoid.
In addition, YouTube is taking measures to enlarge professional content. While it has been showing CBS shows for a while now, YouTube recently signed a deal with the movie studio MGM to display some of its older movies on the website. It also agreed to upload popular clips from Lions Gate films on the site. ESPN content will fully arrive on the site in mid-April, followed by ABC Entertainment, ABC Family, ABC News and SOAPnet in the beginning of May.
However, trying to implement all these innovations to make more money, YouTube shouldn’t forget about its users. The latest moves to enlarge professional content can reduce its community that has turned the website into the leader of online video market. If YouTube lost its users, then who would watch new videos and ads?
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