Should Google dump YouTube?

YouTube logo Its been two-and-a-half years since Google bought YouTube for $1.65 billion. At the time, the 18-month-old online video sensation was struggling to figure out how to convert its immense popularity into sustainable revenue. Its still struggling. Which begs the question: Will Googles patience eventually wear out?

Its a valid question. Figures just released by Credit Suisse project $711 million in YouTube-related operating costs through 2009. A relatively paltry $240 million in ad revenue leaves parent Google $471 million out of pocket. As the deepening recession continues to send advertisers scurrying for cover, its increasingly clear that these numbers wont improve anytime soon. How much longer can Google keep footing the bill?

Storing and distributing all those videos of kids making fools of themselves in their backyards and pets destroying the house isnt cheap. While some conventional media providers have toyed with charging subscriptions, I doubt anyone would pay to see teenagers falling off their skateboards. After four years of free YouTube, users feel entitled, and will quickly find other ways to share teen-skateboard videos if YouTube initiates subscriptions.

So that leaves advertising, and to its credit Google has thrown a bunch of different models at the wall in the hope that at least one of them will stick. But advertisers arent particularly enamoured of kids on skateboard, either. The typical YouTube fare is too unpredictable, too low-quality and too niche. No one outside the skateboarders immediate circle of friends cares, and even if they do they wont pay for the privilege. Already-frightened advertisers wont take a chance in this climate of fear. And they wont buy in when the market improves, either, as theres simply no monetizable value in homebrewed content.

The answer for YouTube and other properties like it lies in legitimacy. Deals with CBS, Disney/ABC and most recently Universal Media Group to distribute commercial content hold promise. Hulu, the hugely successful site that hosts NBC and Fox shows, among others, has emerged as the first seemingly workable model for legitimately distributed, commercial-grade content that appeals to studios, distributors, audiences and advertisers alike. To its credit, YouTubes deals and channels point toward a more Hulu-esque future, but as long as theyre buried in a sea of self-produced, low-quality content, advertisers will continue to shun Googles video subsidiary.

As hugely popular as it is, the YouTube brand remains tarnished by its roots in populist, difficult-to-navigate fare that very occasionally goes viral. And even when something does hit the popularity motherlode, theres no way to cash in on the resulting traffic spike. Google has learned the hard way that monetizing video is infinitely more difficult than search-related services. Itll take a lot more time and money and even that may not be enough.

Google may not be ready to ditch YouTube just yet. But the clock is clearly ticking. As a publicly traded company, shareholders wont forever accept dropping half-a-billion dollars annually without some potential for eventual profitability. At some point, YouTube either has to start paying for itself, or Google, vaunted champion of converting seemingly impossible properties into gold, will unthinkably admit defeat and move on.

Source: TG Daily

Tags: Google, YouTube

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