Markets

The Sound of "Ka-Ching!" is Finally Coming to YouTube

By David Weir

Updated on: October 12, 2009 / 10:30 PM EDT / MoneyWatch

The conventional wisdom among those following the media industry has long been that YouTube is a long-term losing proposition for its owner, Google, and that the video-sharing unit does not have any viable business model.

Fourteen months ago, in challenging those assumptions, I suggested that Google was trying to educate the media companies whose pirated videos account for roughly a third of the monetizable content on YouTube to the potential for creating new advertising revenue streams.

In that post, I posited the following model:

Continue letting the users find the content and post it to YouTube.
Use Google's "Content ID" technology to identify the rightful owner of the video clip.
Convince the owner to leave the clip up.
Sell ads against the content.
Negotiate a revenue share.
Sit back and collect the money, thus the name of that post: The Sound of YouTube's Pirated Videos? Ka-Ching!

Although (to me) it sounded like a viable model, it did require an educational effort directed at the media companies, never an easy task. Plus, since that time YouTube has continued to operate as a loss leader on Google's balance sheet, I couldn't help but question whether I might have been mistaken about the company's strategy to reach profitability.

So it was with a great deal of interest that I read Miguel Helft's article today in The New York Times, in which he states that "YouTube appears to be mastering the art of turning video piracy into revenue for itself and its partners."

Helft reports that in addition to its Content ID system, YouTube has formed partnerships with three key software companies whose systems it says will help it identify video clips "almost immediately after a program or live event" airs.

YouTube also says that about a thousand media companies are currently using its Content ID system, which indicates the video sharing service may be approaching the scale necessary to improve its bottom line. In the end, the two most important factors to remember about Google's strategy for YouTube are:

Disruption. The search giant's propensity is to disrupt existing industries, in this case the entrenched traditional media industry.
Scale. YouTube operates with such a larger volume than any competing service that its monetization has to take place on another scale altogether. Traditional models do not apply.

Today's developments have caused me to re-up my optimism that the company has remained on the right course to eventual profitability.

Related Bnet Links: