YouTube's Potential Revenue

I heard last week from a pretty good source that YouTube is serving 100 million videos per day. Say what you will about YouTube’s content (unlicensed, kids falling of skateboards, etc), that’s a huge number. And it got me thinking about how much revenue could be extracted from such an audience.

Let’s say that advertisers will pay on average a $15cpm for a ten second pre-roll ad in front of licensed content and high quality user generated content (lisa nova, etc). And let’s say that 60% of the videos being served on YouTube are unlicensed content that could be licensed with the right business deal. And let’s say that another 20% of the videos being served on YouTube are user generated content that is high quality. That leaves 20% of the videos being served that are not monetizable. I realize these are unsubstantiated assumptions, but my point is not to be accurate, it’s to make a point.

If you make those assumptions, then YouTube could be generating $440 million in annual revenue at their current volume of videos served. $213 million of that revenue would be passed on to content owners assuming a 65/35 rev share in favor of the content owners. And another $70 million would go to the creators of high quality user generated content. That would leave YouTube with net revenue of $150 million at it’s current run rate.

Here’s the analysis. This is, unfortunately, a screen shot of a google spreadsheet. What I’d really like to do here is embed the google spreasheet into this page so you could all play around with my assumptions because I am sure they are wrong in some meaningful ways.

I also want to dig into the theoretical revenues to a creator of high quality user generated content. Take Lisa Nova, who to date has produced 16 videos, and generated a total of 2 million views on YouTube. Using the same assumptions as I used in the above analysis, Lisa would have made about $20,000 to date from her 16 videos, not a bad take for 3 months work. Certainly not the kind of economics that the major studios want to see from web video, but not bad for a do it yourselfer like Lisa. Here’s the spreadsheet I ran for Lisa Nova.

I realize that there are many people (including possibly YouTube management) who think introducing a 10 second pre-roll will negatively impact the viewing activity. It could certainly cause the audience to move elswhere in search of ad free video content. It could also reduce the amount of views.

But I don’t think so for a couple of reasons. First, 10 seconds is so short. It’s not even worth doing the work of fast forwarding to bypass a 10 second video. Second, if users are allowed to tag ads they don’t like and favorite ads they do like (kind of like the way personalized internet radio works), then the ads will become more relevant and will start to be seen as content in itself.

But that’s really a digression from my main point. 100 million videos served per day is a huge audience that ought to be worth a lot of money to YouTube and the content creators whose content is being viewed on YouTube. Instead of filing DMCA requests to take down the video, content owners should be cutting deals to run the same content with a 10 second pre-roll and sit back and collect checks.

I think its going to happen. Probably soon.