How is Google Making YouTube Profitable?
After almost three years since its YouTube acquisition, Google still has yet to make a profit on its $1.65 billion purchase of the video sharing website. While YouTube recorded 420 million-plus unique visitors in June 2009 and is now second only to Google in terms of overall search queries (according to data by marketing research firm comScore), YouTube has yet to bring in enough revenue to compensate for its massive bandwidth and infrastructure costs. Google however doesn’t seem to be worried, and has recently made several improvements to put YouTube on the road to black. Specifically: Better partnerships with users, more ad products, and network tie-ins.
Calling all users! Viral videos are often launched on YouTube, but they don’t always lead to profit — for YouTube or for the users that post them. The company is now hoping to change that. Instead of just monetizing videos from its “partners” (users accepted into the Partner Program because they post regularly and have a wide following), YouTube will now enable ads and revenue sharing on individual videos that prove to be popular. Obviously, the more videos users post, the better chances not only of a hit, but also of advertisers to come around.
Calling advertisers! Aside from banner ads on its home page, YouTube now offers “Click-to-Buy” links, as well as advertising space before, during or after a video. YouTube is also touting its “content management” tools, which it says can help rights holders monitor when their products are being used so that these rights holders can capitalize on the opportunity. Google cites the viral hit “JK Wedding Dance” as an example. Rather than block the video from using Chris Brown’s “Forever” music track, rights holder Sony Music placed “Click-to-Buy” links over the video, enabling viewers to purchase the song on Amazon and iTunes. Google says the move resulted in increased “Click-to-Buy” traffic, not only on the “JK Wedding Dance” video, but also on the official “Forever” music video.
“Despite compelling data and studies around consumer purchasing habits, many still question the promotional and bottom-line business value sites like YouTube provide artists,” says Google in a July 30 blog post. “But in the last week, over a year after its release, Chris Brown's ‘Forever’ has again rocketed up the charts, reaching as high as #4 on the iTunes singles chart and #3 on Amazon's best selling MP3 list. We’ve seen similar successes in the past with partners like Monty Python.”
Calling networks! YouTube knows, however, that it can’t just rely on user-generated content to bring in advertisers. Facing stiff competition from rival sites like Hulu.com, which offers full-length videos from shows like “Saturday Night Live” and “30 Rock,” YouTube is angling to bring in more professional content of its own. It recently signed deals with media companies like Time Warner and Walt Disney, and is ramping up negotiations with other networks.
Will these improvements finally make Google’s investment in YouTube worth it? Obviously, the answer will depend not just on how much content YouTube brings in, or how many views each video gets, but on how many users actually click on ads and make the transition to purchase. Plus, with a plan that seems to benefit various groups in the value chain – monetary incentives for video publishers, quality content for video consumers, and innovative selling opportunities for rights holders and advertisers – YouTube might not be the only one that ends up making a profit.
