Monetizing YouTube

Early this week YouTube’s Head of Monetization quits the company to work at a smaller company that presumable might be easier to monetize. Since Google Inc. (NASDAQ:GOOG) purchased YouTube for $1.65 Billion in October 2006 the issue of monetizing video content has been a major issue for the company. Even though YouTube has yet to become a cash cow for Google it has become an online phenomenon and traffic powerhouse. According to Compete.com YouTube has captured a 50.4% market share of the online video market. That equates to a market share increase of 2.4% from March 2008 and 12.3% when compared to April 2007.

In terms of market share Google blows away the competition with the closest competitors being Yahoo and Fox Interactive Media which each have less than 10% of the market according to Compete.com. However even with 64 million monthly visitors (source comptete.com) YouTube is having trouble converting these videos (and eyeballs) into dollar signs. The much smaller video site Hulu.com seems to be doing a much better job monetizing their content with revenue estimates of $25 million on less than 1% of the market.

YouTube Revenue Valuation Based on Zero Costs

Bear Stearns estimates that 2008 revenues for YouTube will be $90 million, of which $22 million comes from InVideo advertisements. Using the Bizak Business Valuation Calculator (right) we can get a rough estimate of YouTube’s revenue valuation and EPV (Earnings per Visitor), which is the amount of money earned from each visitor to the site.

If you divide the yearly revenues by 12 you get a rough monthly revenue estimate of $7.5 million. We then enter these numbers into the calculator. At this point we’re assuming YouTube has zero costs but in actuality we know this to be false. We’ll factor in the enormous bandwidth costs of video hosting in the next section.

Based on the Bizak calculations YouTube has an EPV of $0.12 and a Bizak Estimate (business valuation estimate based on revenues) of $360 Million. This valuation is obviously a lot less than the $1.65 Billion Google paid for YouTube, however YouTube is a premium brand that must be (and was) factored into the purchase price.

YouTube Revenue Valuation Including Costs

Back in July 2006 it was estimated that YouTube’s bandwidth costs were $1 million per month, which was based on 12.9 million visitors per month. Today (according to Compete.com) YouTube receives 64 million monthly visitors which is 3.5 times the amount it saw in 2006. If you estimate YouTube’s monthly costs on my very unscientific method that would mean their bandwidth costs them $3.5 million dollars every month.

Entering these calculations into the business valuation calculator gives you some major changes to the estimates. First off YouTube’s EPV has been cut in half to just $0.06 per visitor. This means that YouTube earns just six cents for ever visitor who goes to the site – this number is very low. The Bizak Estimate has also dipped to $318,000,000 compared to the $360,000,000 above and $1.65 Billion purchase price.

Hulu.com Estimates

If you remember Hulu.com makes $25 Million in revenues per year on just 821,899 monthly visitors, according to Compete.com. If you compute these estimates (without costs) into the Bizak Calculator you get an EPV of $2.53 and a Bizak Estimate of $99,999,984. This Hulu.com EPV (excluding costs) is comparable to YouTube’s $0.12 EPV. Lets factor in costs since they too host video which is costly. We’ll error on the high end and estimate that it costs Hulu $1 Million a month ($12 Million/Year) to host their videos. Even with these costs Hulu does a better job monetizing their platform with an EPV of $1.32 compared to YouTube’s $0.06 EPV.

CPV – Costs per Visitor

The YouTube calculation (after costs) has monthly earnings of $4 Million and a CPV (costs per visitor) of $0.06. For ever visitor to the site YouTube spends 6 cents in the form of server costs rather than advertising. With Hulu their CPV is much higher at $1.21 with earnings of over $1 million per month. (Both of these estimates are based on costs estimates which could be higher or lower than actual costs.)

Forbes YouTube Revenue Estimates

The calculations above are based on the Bear Stearns revenue estimate of $90 million. Forbes estimates that YouTube will bring in $200 million in revenues for 2008. Plugging those estimates into the business calculator we get an EPV of $0.21 and a Bizak Estimate of $758,000,016 – considerable better than the $0.06 EPV and $318 million valuation (on $90 million revenues) but lower than the $1.65 billion purchase price.

YouTube EPV of $0.50 = $1.65 Billion Purchase Price

Based on all the estimates outlined above (and they are estimates) YouTube needs to earn fifty cents for every 64 million people who visit the site monthly in order to have a $1.65 billion valuation. An EPV of $0.50 equates to monthly revenues of $35,300,000 ($423,600,000 yearly revenues) which then give them a valuation (according to the Bizak business valuation calculator) equal to their purchase price.

Monetizing YouTube

YouTube currently generates about a quarter ($22 million) of its revenues from InVideo Advertisements. The remainder of their sales come from front page ads ($175,000/day) and branded YouTube channels which go for $200,000 each. If YouTube was only concerned about dollars they could easily expand their InVideo Ads, however this would definitely hurt their market share. Clearly Google and YouTube are treading lightly.

The InVideo Ads are very unobtrusive but I find them ineffective. I go to YouTube to watch videos, not to click on text ads. Text ads are for Google.com. YouTube is for videos. I have no problem watching advertisements as long as they are in video format.

The other 75% of YouTube’s revenues come from corporate partnerships and advertising from deep pocket companies. This is definitely essential for revenues, however I feel YouTube is shutting out the small business owners and individuals who would pay for better placement of their videos. Adwords didn’t generate billions for Google by focusing only on big business. Rather Google Adwords allows anyone with a website to place a text ad on their site. Why can’t I do the same with my videos?

We’re all familiar with the right hand column of Google that’s reserved for sponsored advertisements. Google is about textual content and so are these ads – they fit. Since I go to YouTube for video why can’t I bid my video to be placed along this familiar right hand column? Except this time on YouTube and instead of small text ads it’s a small picture of my video. As a small business owner who relies on internet traffic I would be more than willing to pay extra to have my video be seen by more people. Users would still have the option to upload videos for free but now they would also have the option to pay for additional exposure.

If only 5% of the 46 million monthly visitors opt to use this service then that equates to over 2 million people per month. If they average a monthly advertising budget of just $50 then that’s an additional $100 million+ per month. That’s a lot more than the big boys are currently generating for YouTube.

World Politics – Iraq, Iran, United States, World Leaders, Terrorism

There are a lot of amazing discoveries these days with the advancement of technology, biotechnology and medicine however a lot of these breakthroughs still need to benefit the nations and people who desperately need the help. Many are still devoid of basic food and medicine – not to mention the world is becoming a very hot (politically & environmentally) place to live. Many of the world’s problems stem from abject poverty. Organizations like the Red Campaign and the One Campaign are doing their part to “make poverty history” before it’s to late.

“The World End”

 

The newsman said the borders could no longer bend

From the South to the Middle Seas

All the way to the West End

 

I guess I saw it coming

All the fighting

The innocence dying

I thought it was just TV, not reality

 

Was it a bomb?

Was it greed?

Was it because people are in need?

 

Should I have cared about AIDs in Africa?

Or the troubles in Sudan?

Should I have driven less?

Or said hello more?

 

The politicians are placing the blame!

 

Communism

Socialism

Imperialism

Fanaticism

Catholicism

 

What about terrorism?

Was democracy to blame?

For The World End!

 

Apathy, Greed, Excessive Need

Religious Fanatics, Godless Nations

Immigration cessation within a diverse nation

McMansions, SUVs, Designer Jeans

Excessive suburban means

 

Abraham

Did you know your sons would act this way?

Abraham, Abraham, Abraham

Did you know that some would want so much?

When others need so little?

 

Was it a bomb?

Was it greed?

Was it because people are in need?

 

People ARE In Need!

 

 

Song lyrics, video music and production by Tom O’Keefe – www.tomokeefe.com