An analyst predicts that YouTube will generate revenues topping $1 billion in 2011, meaning profitability is all but guaranteed. The reason? More advertising, better advertising, and more revenue from advertising.
Ever since Google bought YouTube for $1.65 billion in 2006 there has been a debate raging over whether the site will ever turn a profit. Revenue has steadily increased over the years, as the video count and video view count has. However, so has the cost of running the site.
YouTube now looks set to be a $1 billion business, and an integral part of Google as a whole. But do huge revenues equal even small profits?
A Profitable 2011?
According to Citi analyst Mark Mahaney, YouTube is on course to bring in $1.3 billion in gross revenues in 2011. This is up from the $825 million estimated for 2010. In 2012 revenues will hit a whopping $1.7 billion.
Mahaney also explains why the increase. Although the number of people watching videos has increased, the biggest cause of the upturn is the efficiency of the advertising Google is placing against videos. A year ago 60 of the Top 100 videos had ads, but it’s now 81 of the Top 100.
The number of ads has increased as well, with many videos boasting two ads rather than one. The type of ad and the company behind them have also improved, with generic AdSense ads having been replaced by ads for high-profile brands.
An increase in revenue doesn’t necessarily mean YouTube is going to turn a profit, mainly because of the overheads involved in running the site. Serving all those videos costs a small fortune, and YouTube also doles out a fair amount of money in revenue share to video creators.
However, I’d guess YouTube is profitable at this stage, or if not yet will be very soon. Maybe that over-the-odds asking price Google paid for it all those years ago wasn’t such a bad deal after all.
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