Google Says YouTube Won’t Lose $500M This Year, I Say Prove It

In a NYTimes.com article today, a YouTube spokesman said that a recent report published by Credit Suisse that indicated YouTube would lose nearly half a billion dollars this year was "inaccurate and based on conjecture". For a company that has no business model and will never be profitable with their current mentality, this denial on YouTube's part should come as no surprise.

What Google has failed to do is give anyone any reason to believe them. Simply saying a published report is "inaccurate" means nothing without them giving us any kind of clarity, which they won't do. The report said that YouTube would lose about $470M for the year and Google is not saying is how the report is inaccurate, or what the margin of error is. Google could be accurate with their statement as they could be losing more than $470M this year, or could be losing less. But even if the numbers in the report are off by say 30%, YouTube would still be losing nearly $300M this year alone. That's still a huge number.

YouTube can't be profitable, not this year, not next year, not three years from now. It has no business model, but not for lack of trying. YouTube is the quintessential example that dispels the notion in this industry that all you need is lots of eyeballs to have a profitable, sustainable business model. Google has tried paid downloads with their video store, ad rev share models of every kind, licensing of premium content and now in the NYTimes.com article it says YouTube "might eventually ask users to pay for some of its premium content". What hasn't YouTube tried?

Licensing premium content is only going to make YouTube lose even more money, not less. Their cost of licensing and distributing that content will be greater and the only way to make up for that cost is with an increased number of eyeballs to the content, yet even that won't guarantee success. While YouTube is the king of eyeballs, if the premium content they reference is targeted to a wide audience, YouTube's CPM will be lower since the ads won't truly be targeting a core set of viewers.

While the NYTimes.com article says that the recently announced content deals which includes Sony, Lions Gate, MGM and others, "are significant because YouTube dominates online video", who wants to "dominate" an industry by losing hundreds of millions of dollars a year? The author of the article is quick to point out that YouTube "is struggling to profit from its digital popularity", but does not say what YouTube classifies "premium" content to be or how that plans to help them make money. I'd be willing to bet that when we see the entire list of content coming to YouTube under this "premium content" announcement, none of us, as consumers, will classify it as "premium" content. The dictionary defines the word premium as "best", "finest" and "first-class", not exactly words I would use to define "The Addams Family", content YouTube is getting under this "premium" announcement.

  • Neno Brown

    Dan, you discount the download space of which Youtube are well positioned to destroy Netflix, Apple etc. The new Youtube Content Class System positions them nicely to take advantage of downloads combined with ads. The problem I see for Youtube is stream delivery costs, may be Youtube breaks even.

  • Youtube is a bust. Yes it has MILLIONS of users. No it doesn’t make money. Yes Google needs a writeoff since they are literally printing money over there but no this doesn’t mean it’s a business they should keep. I think they should use the money they lose on YouTube to do something productive like actually do something other than search well. So far that hasn’t happend. I am sure Steve will jump in on this now. 🙂

  • Hi Neno, you have me confused. Netlfix does not do any downloads, only streaming. So how is YouTube going to “destroy” them or their business model? It’s not a fair comparison. Plus, to date, no one is downloading any premium content from YouTube, only Apple. While it might be your opinion that “Youtube are well positioned to destroy Netflix, Apple etc..” there is no data of any kind to back that up. Well positioned how?

  • Drew

    A few months ago, Techcrunch ran a contest to come up with a business model for Digg. I think they actually picked one of the better choices — firing lots of people and using robots if I recall. Perhaps Dan you should run a similar contest for YouTube or Hulu or Veoh here in the narrow confines of streaming video folks. I’m sure if we put our heads together we could fix YouTube. And think how grateful Eric et al would be for the free advice.

  • And lets not forget legal fees and the incredibly huge risk associated with losing Viacom and other lawsuits.
    The fact that Youtube has had to take the Hulu route this late in the game just makes the Viacom position even stronger. It shows that there is value to the content that Youtube was letting be posted on the site with their consent.
    While claiming to profess the value of a video eyeball, the reality of Youtube’s business is that they have chosen to subsidize the video bandwidth needs of users around the world.
    Its a google video stimulus plan, without the possibility of returns.

  • LP

    Well, this news is a little late. Google proved investors right. YouTube has made enormous amount of money in the past years.