Youtube’s Desperation

Youtube has been messing with the magic quite a bit lately.  Wide screen, high quality and the drive me crazy pre rolls to subscribe among many others. (BTW, watching the subscribe button scurrying around the screen was fun the first 300 times).  But lets talk Youtube business. Thats the source of their desperation.

From all appearances, Youtube is trying to squeeze every last nickel they can out of Youtube.  Overlay ads. Adding licensed content from major media companies. Segregating professional content like movies and TV shows. They are doing everything they can think of to create advertising inventory.  Pre rolls, overlays, display ads, you name it. And thats before you get to the inventory the creators of the videos insert and overlay in the content itself.  Does anyone else out there think that the  advertising in youtube videos is more intrusive than any other form of content ?

Without writing a dissertation on the subject, what are the quick and dirty conclusions that we can draw from all of this ? Why all the desperate maneuvers ?

I see two plausible options:

1. Youtube’s video delivery  costs are far, far higher than the estimates we give them credit for. Youtube says they have 13gbs of user uploaded content EVERY SECOND.  At 12 cents per gbs, thats about 50mm dollars per year in upload costs. If over the coarse of a year, each of that video is watched only 10 times, thats another $500mm in bandwidth costs.  If videos are watched more than 10 times, the number grows exponentially.  Thats a lot of money, but if that number happens to be low, its easy to see why Youtube would be desperate in this economic climate.

or

2. Youtube is truly scared they are going to lose, or may feel they have already lost the Viacom case.  They could fear  a judgment that requires them to breakup Youtube into 2 websites. One only with content for which they have licenses and the other for purely user generated content on which they have zero advertising.  That doesn’t really sound like Google, but their actions do suggest they may fear they will have to negotiate a settlement with Viacom and the other plaintiffs.

In a recent NYTimes article they admitted to having lots of bodies doing nothing but reviewing for porn. Recently they said they are going to set higher standards for sexuality and profanity.  If you can review for levels of porn, sex and profanity, you can review for copyright violations.

Youtube seems to be acting as if they have already lost the suit. Rather than integrating licensed content into the “community” of user generated content, they are doing everything they can to segregate it. That is consistent with what I would guess Viacom would ask for in a settlement.

If I’m Viacom, I ask not only for a big chunk of cash, but also for them to stop violating the DMCA .  The solution is for them  to set up 2 seperate websites. One for content for which they have licenses and on which they can sell advertising, and the other on which they have user uploaded content and on which they can not sell any advertising. That would put them completely in compliance with the DMCA and make content owners happy.

The good news for Youtube is that other than the check they will write,  they are well on their way to solving this problem. A look at the current Youtube home page demonstrates the new reality of user generated content. Everyone wants to get paid Rare is the widely viewed video that doesn’t have a profit or stardom motivation. For everyone else, they don’t really care where their videos are hosted. They use Youtube  to take advantage of the free hosting costs and will be viewed by friends and family.

Where does that leave Youtube ? Actually in a far better place. Two websites. One of which becomes a video search engine , with out any advertising, that hosts purely amateur video. The other becomes a Hulu on steroids. A destination site that becomes a real media site. It becomes the ultimate content DVR where users can expect to find professionally created content along side the amateur videos that Youtube thought enough of to license.

This segregation would also mean that Youtube could leverage all the monetization skills of Google and probably REDUCE the number and types of ads that have infested the current Youtube.  The new site could be designed to maximize user satisfaction and revenue rather than skirt the language of copyright laws.

There is no question that Youtube is taking monetization to an extreme. Its either because their costs are more than anyone has estimated or because they are trying to squeeze every last dollar out of the current Youtube configuration before a big change

25 thoughts on “Youtube’s Desperation

  1. i have a basement basketball league. if any wants to join say yeah. you must have 2 48 inch backboards with any hoops and three to five people. if you dont have a basement and perfer a gym then thas okay.

    Comment by inwithit -

  2. Mark,
    The law is clear: It is up to the copyright holder to prove a violation of copyright and notify the violator. It is not YouTube’s responsibility to search every video for copyrighted content.

    I think the better question is why the search on YouTube is AWFUL! And GOOG owns it!

    I think it is normal for GOOG to try and find a way to profit from YouTube. You cannot just put up a text ad.

    Comment by bill ross -

    • From MC>
      you might want to look at the DMCA again. If they look for anything and review the videos at all, they have to look for everything

      m

      Comment by markcuban -

  3. You Tube doesn’t have to morph into two websites. the big value of You Tube is as the first place you go to search for a video they want to see, b/c to date, it’s still the most likely to have whatever you want to watch. you can spend five minutes looking on Hulu for a SNL clip that you can find on You Tube in one search. so you suffer the lower quality for the convenience.

    all that ad experimentation definitely sucks, but three years out I see You Tube as the place to go for all video:cheap, UGC stuff will still broadcast cheap and cheerful without ads, and professional content will broadcast at higher quality with ads.

    Comment by Justin Connolly -

  4. I wrote a blog post inspired by this. Google needs to think about more direct monetization.

    http://www.slowblogger.com/2008/12/how-i-would-monetize-youtube.html

    Comment by slowblogger -

  5. Youtube definitely appears to be on the defensive. I wonder if they are also facing the fact that there is an additional dynamic – that long-tail content will attract a diminishing number of advertisers.

    Because Google and other crawlers are far-reaching, the more precise your search gets, the more likely you are to quickly find what you’re looking for. The long tail world by definition is a huge collection of precisely-defined categories. As a property, if I can be found anyway, I will be less inclined to maintain my ad spend once I’ve achieved critical mass. I wrote about this idea here: http://interacc.typepad.com/synthesis/2008/12/long-tail-advertising.html.

    If this is a reasonable thesis, then Youtube’s future looks even more grim…

    Comment by Shafeen Charania -

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  7. I like the changes being made at YouTube, I would like to see them further integrate
    “professional” content, and I believe they are on the right track.

    Beyond this I believe YouTube is a very important tool for the common man, too bad if it steps on the toes of elitest gatekeepers.

    Comment by dfmediainc -

  8. Youtube just booked 100mm+ visitors and 5.4B+ videos viewed in October. I do not think that monetizing will be a problem if those numbers continue; Regardless of how they do it.

    Comment by econ365 -

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  12. I don’t care.. I use AdBlock Plus with FF.. Can’t see any ads anyway…

    Comment by Jim Gatos -

  13. DMCA reform, anyone? On Google’s D.C. agenda?
    How do you think it should be reformed, Marc?

    Will the new administration and new congress be amenable?

    Comment by Phil Wolff -

  14. I think your bandwidth cost calculation may be off:

    Using your numbers:

    13 gb/sec * (60 secs * 60 mins * 24 hrs * 365 days = 31,536,000 sec/yr)
    = 409,968,000 gb/yr * 0.12 $/gb = 49,196,160 $/yr

    So $50 miilion upload costs/yr and $5 billion download costs/yr.

    Comment by jeffpr -

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  16. Where did 0.12 per GB come from?
    Even discounting peering for which the cost is pretty much just back-haul links
    , I think your bandwidth pricing is on the high side.
    If we assume that Youtube/Google has reasonable negotiating skills and can get
    at least rack-rate for bandwidth pricing they should be paying no more than
    $4 per mbs per month (Cogent’s lowest advertised rate).
    So if we assume 100*13gbs is the max rate then we get an expected monthly bandwith
    bill of of:
    $4*13*1000*100=$5,200,000
    Yearly that comes out to:
    $62,400,000

    Comment by holdenkarau -

  17. How would YouTube for movies become Hulu on steroids? Hulu already has the connections, the higher video quality, the snazzy interface and without spending millions of a major visual and back-end overhaul, YouTube for professional content is going to look like a cheap Hulu
    imitation. With much lower quality video to boot. YouTube can’t be a competitor to a studio supported and endorsed site.

    YouTube’s whole reason for existence is amateur video and random video clips from users. What you see happening with it now is the effect of trying to turn a neat little gadget into a business. It just doesn’t really work that way.

    Comment by gfish -

  18. I’ve had videos on YouTube for years, but I only recently joined the “partner” program. I love all the advertising. They can put as much stuff as they want around and on top of my content as long as I get to make money from the movies I make. As a short filmmaker there aren’t a lot of opportunities to get paid, and YouTube is now providing me with a small, but steady stream of revenue. I also appreciate the new widescreen player, and the ability to play 720p video. A few months ago I considered them a necessary evil. Most people saw my videos on YouTube, but they saw them in extremely low quality, and I didn’t get paid. But as of this week they provide everything I want for from a video hosting site.

    Comment by kylegilman -

  19. While it is certainly not in it’s death throes quite yet, it is definitely looking like YouTube may need to be hooked up to life support if it stays in the current state it is in. Splitting it up probably would be for the best if it wants to be able to stop the bleeding and compete. There is no doubt that the niche it occupies is being infiltrated by serious, more specialized players that are better at generating revenue, like Hulu (which this blog made me aware of, thanks); blip.tv is another that I’d think could be serious competition, at least for drawing in the highest-quality amateur content (they split the profits from advertising 50/50 with the creators). It will be interesting to see what happens.

    Comment by bucfanpaka -

  20. not a bad solution, Mark. i manage one of their content partners
    deliverables, their content matching ID’ing system works but is a big
    hairy mess.

    Comment by colortinibroadcastingsystem -

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  23. I don’t think YouTube needs two separate sites. I think they’re shooting for innovative User Interface to solve their issues. This is why they make incremental UI and design changes quite often – they listen to their community. Also, don’t discount the value of the YouTube API. That Developer toolset can enable partners to build out whole branded niche sites on the technology of YouTube – properly and creatively put to use, anyone (say me or CBS) can make a YouTube that works for them. And whether that video site is actually at YouTube.com or CBSvideo.com, it’s all still “powered by YouTube”.

    So two sites – I don’t think so. But maybe a thousand or so. ;)

    Comment by bobjenz -

  24. I think you miss the bigger picture that YouTube is a Google company, and Google has become desperate of late to create new revenue sources (i.e. ads on Image Search) as well as postitive revenue-attached press to mollify Wall Street as the economy has turned south and GOOG has dropped along with the rest of the stock market. The halo is off of Google, and they are becoming just another company looking to squeeze every dime they can out of all of their properties (think for a second how long Google was willing to have big, expensive products like YouTube delivering very little revenue) and make themselves appear as prosperous and attractive to investors as possible.

    Comment by Cap'n Ken -

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