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.

Comments

[John Dodds]

"I realize these are unsubstantiated assumptions, but my point is not to be accurate, it's to make a point"

Would you acccept that statement from a start-up seeking funding from you?

I generally agree with most of your posts, but not this time. Surely you only have a point if the assumptions are correct and previous commenters have all highlighted major problems with them.

[Bobby Chindaphone]

Ten seconds is like an eternity. Consider this: You're searching for "toy car" on Google, and you click on the first result you see. Would you wait more than 5 seconds for it to load? Think realistically - no way. I'd just simply hit back and go to result #2.

[Zero]

$15 CPM? The company I work for specialises in personalised video production, and we've been working on various outlets for advertisers. But based on all the figures I've run, a $15 CPM rate is, I think, ridiculously high. When you consider that DoubleClick are charging 35c/CPM, and they well and truly have the potential to serve video content, I think your figures might need to be slashed by at least 900%.

I'm not really at liberty to say what we charge for personalised, targetted stuff on a CPM basis, but I can basically point out that trying to sell standard, unpersonalised video at $15/cpm would be a hard sell.

[Michael Downing]

Good points all,

A couple of important points to note however from somebody in the trenches so to speak:

- A full 45%-65% of the 100 Million videos number is "off-site" meaning those are videos streams occuring through a request from an embedded video in a blog page (MySpace, Blogger, etc.)

What that means...is that your montizable volume of video...even with stratospheric Youtube numbers is more like 8-10% of the total.

One other important point:

- 10 Second pre-rolls, would be deployed at some frequency level...meaning not every video view would have pre-roll, typically 30%, or 1 of every 3 videos

Some random other data points:
- - There is genuinely ALOT of demand from agencies and brands to market through UGC channels

The problem...copyrighted content and Adult content....Nokia does not want to put an ad next to a guy shooting a bottle rocket out of his rear-end

The other problem...
Lack of segmentation and targeting, there is too much "flea-market" chacteristics to current models (think MySpace) that make it hard for brands to do a real ROI analysis

I do not think ads alone will cause a massive migration, hard to ID a historical or otherwise example of that.

-MD

[fmk]

re: "I heard last week from a pretty good source that YouTube is serving 100 million videos per day."

that would be the official july figures announced by the company and reported all over the media during august, that would. you really are plugged in with your "reliable sources", aren't you?

[Jonathan Mendez]

Pre-roll? Surely you're kidding.

And those assumptions...yeesh.

[Nic Brisbourne]

The big exits from the social networking arena e.g. MySpace and FriendsReunited here in the UK ($320m to ITV) were "stragegic acquisitions" of high traffic sites. Financial metrics were irrelevant.

The big numbers being touted around for YT will follow the same logic. My guess is they won't risk reducing traffic for the sake of traffic if they can sell out soon.

Tangential evidence for this argument is the way YouTube (i.e. it's VCs) are allowing other social networking sites to use it's site to offer a free video feature to their members. If they weren't chasing traffic really hard surely they would seek to charge for this?

Shame I am so late with this post that it won't get read! Still can't complain too hard, I was sunning myself in France.

[Cliff]

If you want to post your spreadsheet to blog, EditGrid can be a handy tool as well.

[pwb]

With AdWords-style auction buying of tags/keywords, YT could make way more than $15 CPM.

Screening *all* videos would be fairly easy and inexpensive via Mechanical Turk or something similar.

The haters need to come up with better arguments.

[Jason]

The better solution for YouTube would probably be to find some sort of licensing/distribution arrangement on their content. 10 second roll-outs, click outs and click through strategies and even a host of adwords will eventually fade from the primary fads--they have limitations. Google Ad words work because people who come to google are working in words. Even the Google adwords embedded on sites do best on content rich sites that actually relate word content to word content.

I think your numbers look nice, but let's say they only make a 1/8 of those revenues because of some of the very valid points made by various posters, from the guy who commented on the Today' Shows profits to those who think rightly so that 10 seconds will turn off viewers. Atom Films tried it as have many other video sites. Just ad revenue seems like a dead end... but there's a model other than Google that's a legend on the Internet. It's Ebay.
If someone like YouTube aquired a company like the 9thx.com or another Video Auction site and welded that onto their viewership, then they could turn 5% of their video downloads into long term purchases of video content. 5 million downloads a day at 2-10 dollars (target price of say 5 dollars) with a carriage fee of 12% say, maybe even a special subscription service for some high end content and now the website leaves the 1 to 1/2 percent market for something more like this:

5 Million Videos a Day sold (95 million a day of just junk like they're already doing)
Gross Sales 25 Million
Gross Revenues of 3 Million a day

Add onto this the idea of licensing royalties off of some of these videos or even merchandising content off of the Video fads started, then you have a popular way to brand and sell physical objects like Hats, Shirts, and iPod cases.

And all of this doesn't preclude them from eventually adding an advertising element, but it just seems like advertising would be like strip mining compared to a small amount of hands off entreprenuership building. Imagine what Lisa Nova could make if she actually started limiting her videos after a couple of months on YouTube? Switching the content over after a roll out of her own could turn it into something profitable and collectible. good thinking, just not the whole picture.

[Mech]

I agree with John Dodds people aren't going to be waiting for 5-10 seconds of screening ads. I think people would prefer a program such as LePlayer, were you could watch video while going on with there work.

YouTube now is sucessesfully because it has the feel of video on demand if they start adding things in between people would not like it.

[Paul Elosegui]

The AI field will take years before Adsense for videos is effective

[Po]

Out of your minds. Really. Nuts.

[Anil]

Fred, why dont you look at juwo?
I have a slightly different business model in addition to banner advts.
http://juwo.com

[Peter Drew]

See my article from a Video Marketers Perspective here

http://www.peterdrew.net/thevideosense/big-changes-in-video-marketing/

Peter Drew

[G Pick]

Yes, YouTube made about $15 million last year. But, let's remember that Google's stop price is selling at a multiple of 50 times earnings to, basically, the $1.5 Billion purchase price was about double that figure.

I agree to an extent with the above figures. YouTube should, with the help of Google's Engineers and Resources, be able to convert the company into a machine that should be able to generate over $100 million this year. At the same multiple, that translates into a worth of over $5 Billion.

Google paid for the deal in cash so the deal, overall, was a steal for Google, especially considering the current trajectory of the site's traffic puts in on course to be the single number one site on the Internet by the end of this year. With those users, the revenue potential could even exceed the 45% of the revenue currently generated from Google's main site www.google.com.

www.digital50.com

[Tim]

Load up on Google stock, it is going to $1000 ( yes that is right, 1 Grand ) per share by the end of 2008

I am keeping 100 shares for retirement