Is YouTube Really Doomed?

The Silicon Alley Insider pokes holes in the YouTube business model in a story called “YouTube is Doomed.” (the story was penned by Benjamin Wayne, the CEO of a competitor, Fliqz, but he brings up some excellent points).

Do I really want my YouTube?

Do I really want my YouTube?

According to the story, Credit Suisse Analyst Spencer Wang found:

  • YouTube’s operating costs are $711 million
  • YouTube’s revenues for 2009 are estimated at $240 million
  • This means YouTube is on track to lose $471 million this year

Not a great return for a company that Google shelled out $1.65 billion to acquire in 2006.  The problem, according Wang, is that YouTube isn’t able to sell advertising on 97 percent of the pages it delivers to viewers.  Advertisers, it turns out, don’t want to put ads around grainy, amateur footage made by high school kids.

The Guardian also tackles the question of YouTube’s viability and puts the problem in a nutshell: “For once, the advertising weakness isn’t likely to have anything to do with the recession – it’s just that user-generated content isn’t very appealing to advertisers. Oh, and there are some high-profile problems over allegations of copyright infringement and royalty payments too.”

YouTube might not yet be the moneymaker that Google had hoped for, but its difficult to call it a failure.  At least not yet.  The site has more than 100 million viewers and just yesterday announced a music deal with Universal Music Group to showcase music videos.  The rocky relationship YouTube has had with movie and TV studios seems to be improving – although there is still a lot of copyright infringement taking place on the site.

If Google is patient with YouTube it will probably figure out a way to monetize it.  But how long Google is willing to wait is the big question.  The biggest challenge for YouTube might be that the novelty of user-generated videos may be wearing off.  How many dumb videos is a person willing to watch?  Many of the most celebrated viral videos on YouTube have proven to be professionally made.  It’s tough for an amateur with a Flip camera to compete against professional writers, producers and actors in creating quality video.

I know I’d rather watch content made by say – Steven Spielberg – than say a sophomore drama student at Tip-A-Canoe High School in Kansas.  Call me crazy.

So the future of YouTube likely depends on its ability to attract the professionals to the site.  That means more deals like the one it just announced with Universal Music.

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