YouTube Revenue Vs Pageviews

Since buying YouTube for $1.65 billion in 2006, Google has tried to turn it into a moneymaking site. It’s certainly managed to take the site to the next level, with it now managing one billion page views a day, but the revenue still hasn’t come.

There’s been some debate over whether YouTube makes money, breaks even, or loses money every year but needless to say revenue needs to be upped in order for Google to make its money back. Especially as Google CEO Eric Schmidt has admitted the company paid $1 billion too much for the online video site.

Advertising Experiments

Google has experimented with a range of advertising options on YouTube. From huge one-off banner ads to overlay ads which remain through the course of a video. From pre-roll adverts before clips to post-roll after clips. None of which has been the magic bullet required.

YouTube now carries a range of advertising, with Google clearly deciding a scattergun approach for different videos and advertisers is the right path to follow. But the company still wants to fine-tune the experience.

Skippable Pre-Rolls

According to MediaPost, Google is now testing out skippable pre-roll advertising. The ads will run on carefully selected videos from content partners who have agreed to be a part of the experiment.

Google will collect data on when the ads are skipped, on what length and kind of video they are mostly skipped on, and the people most likely to skip an advert rather than watch in full.

The results of this experiment will then be used to formulate a new advertising model.

Conclusions

Pre-rolls are already used successfully on Hulu and other sites, but the YouTube crowd hasn’t really accepted them as of yet. Whether the option to skip ads that are too long or for uninteresting products makes a difference isn’t yet clear.

Either way Google will obtain data it can then use in the future to further fine-tune and develop its advertising model. The ultimate goal, of course, is to turn a profit and make the most of those one billion page views a day.

From Free To Paid

There is more television and movie content to watch for free on the Web now than ever before. Hulu in the States, BBC iPlayer in the U.K., and YouTube and all the rest worldwide, the Internet is now awash with programming.

Interestingly enough, both Hulu and the iPlayer are thought to be looking at paid options in the future. But this is, if anything, a sign that the business is getting serious and offering an alternative to the traditional cable and television networks.

Monthly iTunes Subscription

According to Media Memo, Apple is now eyeing a monthly subscription plan which would see a variety of television programming available for people willing to pay $30 per month for the privilege.

$30 a month is not a cheap option but compared to the cable subscriptions in the States of almost $100 per month it can be considered an absolute bargain.

iTunes Buffet

Apple currently offers individual downloads of television episodes. Pilots and premieres are often free but new seasons of successful shows can cost upwards of $35, with episodes delivered as they air on television.

This new plan, if it actually happens, would offer a kind of buffet of iTunes offerings for a set price. Rather than downloading and owning digital copies of the shows, users would be streaming them to watch on demand when they want to.

Cable Catastrophe?

The key for Apple is getting content providers on board. Disney is being mentioned as the first network likely to sign up but one network isn’t going to be enough to tempt people to pay the asking price.

Also, any venture such as this would be sure to harm cable providers and they are unlikely to take kindly to the networks giving up their content in this way.

Related Ad

Purchase TV shows and movies on Apple iTunes

Ashley Highfield?

Who is Ashley Highfield? Only the man who as director of future media and technology at the BBC did more than anyone else to push the iPlayer through from being a mere concept to a reality.

Highfield left the BBC shortly after the iPlayer launched to become managing director of consumer and online at Microsoft U.K. While there he has helped launch the MSN Video Player, which quite frankly pails into insignificance against the iPlayer.

Highfield Talks

Highfield was speaking last week at C&binet, the government’s digital creative industry conference. According to The Guardian newspaper, he said:

“I think the iPlayer was a catalyst to get a lot more content [made available on-demand] in the UK. All boats rise on that, commercial or not. A reasonable question to ask now is about ‘windowing’. Is seven days free right or should it be shortened [and should the BBC] get rid of hold-back periods [so commercial companies can more quickly exploit online TV revenues from content]?”

A Change Of Mind

It’s clear just from this short statement that Highfield’s opinion on these matters has changed since he moved from the public broadcaster to a private company in Microsoft.

I’d suggest his comments are intended to move BBC content into the commercial sector more quickly than it is now. The MSN Video Player is full of archive material but if the iPlayer charged for content then it would instantly enter that competitive world.

Conclusions

It feels as though all the companies offering free TV services at the moment are considering charging. That’s not the case, of course. This hasn’t come directly from the BBC and I doubt it will ever actually charge for content. First and foremost it would risk a backlash from British citizens who already pay a TV license fee to access BBC shows.

Hulu, on the other hand, is likely to start charging in the next year or so. But even that is likely to only be for certain, selected content rather than a flat charge for the whole service.

Still, it’s a worrying trend for those of us who have got used to watching free TV services on the Web.

Free Hulu

Hulu is currently the free home of premium online video content in the United States. The fact it’s only available in the U.S. is annoying for those of us outside the country but there is at least hope of an international roll-out to come.

The problem is that it doesn’t look as though Hulu will be completely free for much longer. In fact, if the people in charge have their way, which they undoubtedly will seeing as they are indeed in charge, Hulu could be charging by 2010, which is just over two months away.

Hulu To Charge?

There has been speculation about this move occurring for several months but it all came to a head during September. First, News Corps. chairman Rupert Murdoch suggested a paid Hulu was being looked at. And NBC Universal CEO Jeff Zucker backed him up.

Then a few days later it was suggested that Hulu was already running an internal beta test of how the system could work. No details were forthcoming but the process seemed to already be in motion.

Chase Carey Speaks

And now comes word from News Corp. Deputy Chairman Chase Carey who, according to Broadcasting & Cable, opened the OnScreen Summit with his views on the matter.

He said:

“It’s time to start getting paid for broadcast content online. I think a free model is a very difficult way to capture the value of our content. I think what we need to do is deliver that content to consumers in a way where they will appreciate the value. Hulu concurs with that, it needs to evolve to have a meaningful subscription model as part of its business.”

When questioned on a possible timeline Hulu to start charging, he stated that while one wasn’t yet in place, that he fully expected it to occur during 2010.

How Bad Will It Be?

What Carey isn’t saying is Hulu will disappear behind a paywall. In fact, he’s dead set against that idea. But it’s clear that everyone involved with Hulu is now looking at how to bring in more dollars than what they are already getting from advertising.

Whether Hulu users end up being asked to pay for specially-created content or whether certain sections of content will be hidden behind paywalls isn’t yet clear. But I’d suggest the fact that Hulu users will end up being asked to pay for content is now set in stone. Unfortunately.

YouTube and Channel 4

YouTube has for a while now been moving away from user-generated content and trying to entice broadcasters into providing content via the site. It’s had mixed success but it has now nabbed a major broadcaster in the form of Channel 4.

Channel 4 was the first UK broadcaster to launch a video on demand service, doing so in 2006. But 4oD failed to get the attention it deserved and the BBC iPlayer snatched the limelight instead. 4oD has gone through some major changes since then and now rivals the iPlayer for user experience.

Deal or No Deal

However, Channel 4 is keen to have its programming reach a wider online audience, and so has teamed up with YouTube. A three-year deal between the two should do just that, and provide revenue as well.

For its part YouTube will gain full-length TV shows and also take a cut of the revenue. Although the financial terms of the deal have not been made public, YouTube is expected to take a 30 percent cut of all revenue generated by the Channel 4 programming.

4oD And…

4oD will continue to provide the premium catch-up service it does currently, but YouTube will gain 50 hours of current programming soon after it airs on Channel 4 as well as around 3,000 hours of archived programming.

This includes shows such as Ramsay’s Kitchen Nightmares, Brass Eye, Skins, Teachers, Peep Show, and the Derren Brown Specials which recently had everyone in the UK talking.

Channel 4 Speaks

Channel 4 said:

“Channel 4 was the first broadcaster anywhere in the world to make all its commissioned content available online and we’ve consistently pioneered in this field. This strategic partnership is another important milestone for us and we’re delighted to be combining the power of the ‘4’ brand and the appeal of our content with YouTube’s unrivaled reach and reputation online.”

“Making our programmes directly accessible to YouTube’s 20 million UK users will financially benefit both Channel 4 and our independent production partners and help bolster our investment in quality British content. It demonstrates our ability to strike dynamic commercial partnerships to help underpin our future as a commercially funded, not-for-profit multi-platform public service network.”

Conclusions

Unfortunately, this deal only applies in the UK. And although there are 20 million YouTube users in the UK it would have been nice to see the rest of the world welcomed to the party. Those international rights licensing agreements have got in the way yet again.

But in every other way this seems a great deal. Both Channel 4 and YouTube gain from it, and the real winners are viewers who now get to watch premium quality programming online, on demand, and for free.

YouTube Is Go

In February of 2005, a site popped up on the Internet that would cause a massive shift in how video is served on the Web. It would ease the process, and provide a platform for video of all kinds, mostly user-generated content.

Its name, if you hadn’t already guessed, was YouTube. And it has grown in the last four years to become one of the biggest and most popular sites on the Web, with millions of people from all corners of the world visiting and using the site on a daily basis.

Google Come Sniffing

In November 2006 when Google decided to buy the site, it was only a relatively small success, and it had a bunch of problems. The main one, of course, was the amount of copyrighted material turning up on the site. Viacom got so annoyed with this that it’s suing for $1 billion.

Google paid $1.65 billion for YouTube, a figure which made most people do a double take. Many thought the sale would start the Web 2.0 bubble, and it kind of did, but no site has sold for quite that amount since, especially one which was still in its infancy.

Schmidt Comes Clean

Now it has emerged that even Google CEO Eric Schmidt thought YouTube was overpriced at $1.65 billion. In fact, he considered the site to be worth in the region of between $600 million and $700 million. Meaning Google paid around $1 billion more than it should have.

According to CNET, Schmidt revealed his thoughts on the matter in May during a deposition he gave as part of the Viacom lawsuit. He said:

“I believe YouTube was worth somewhere around $600 million to $700 million.”

“This is a company with very little revenue, growing quickly with user adoption, growing much faster than Google Video, which was the product that Google had. And they had indicated to us that they would be sold, and we believed that there would be a competing offer–because of who Google was–paying much more than they were worth.”

“In the deal dynamics, the price, remember, is not set by my judgment or by financial model or discounted cash flow. It’s set by what people are willing to pay. And we ultimately concluded that $1.65 billion included a premium for moving quickly and making sure that we could participate in the user success in YouTube.”

Conclusions

Clearly Google wanted YouTube and didn’t want anyone else getting hold of it. And they were willing to pay a premium for the site. Which they definitely did. But has that price now justified itself?

In terms of revenue, no, although Google is still experimenting with options for making money from YouTube, and so it could end up paying out. But in terms of getting millions of people visiting a Google branded site every day, yes, very much so.

We Want It All

At the moment there exists a strange situation where people in the UK and beyond feel they’re missing out due to Hulu not being available to them and people in the US and beyond feel they’re missing out by the BBC iPlayer not being available to them.

The whole situation is crazy and wholly down to international rights licensing which sees television networks and content creators only catering for citizens in their home countries. It all makes the idea of a World Wide Web a rather pointless one.

But things could be about to change. Kind of.

Works Both Ways

We already know Hulu is planning to break out of the States and set up shop, first in the UK, and then beyond. The only problem it seems to be having is finding partners with any content worth watching.

And now comes news from PaidContent that BBC Worldwide, the commercial arm of the publicly-funded BBC is planning a similar move for the iPlayer. Although, it’s actually too early to tell whether the proposed service will use the iPlayer brand, and details are sketchy at best.

Global iPlayer

BBC Worldwide is planning to create an international video on demand portal. It won’t, however, carry BBC programming from the UK, instead being home to 1. BBC America content, 2. Premium programming such as Doctor Who and Top Gear, and 3. Archive programming, probably similar to what is already available on MSN Video.

Paid For But How?

The service will not be free, although how it will be paid for is as yet unclear. BBC.com Managing Director and Executive Vice President Luke Bradley-Jones said:

“It’s inevitable that we, the digital media business, need to move to a mix of paid services. There just aren’t enough ad dollars to support traditional media models. Consumers will pay for services they truly value… we can exploit many more monetizable opportunities, including in the paid space.”

Which is starting to sound like something Rupert Murdoch would say. He who is keen on making Hulu a paid-for service. But if anything, Bradley-Jones goes further than Murdoch when he states, “Millions of people love Torchwood and would probably pay 10 bucks an episode rather than two bucks.”

Ten dollars for one episode? That might be pushing it a little, especially when the shows are available already via other means for two dollars, as Bradley-Jones alluded to. If the shows were to be removed from iTunes and the like and pushed onto this global iPlayer then I foresee most people turning instead to torrent sites. And the BBC will lose all its revenue for being greedy.

Conclusions

It’s good to see these country-specific operations looking overseas and realizing there’s a whole world out there which wants to watching their programming. But if they’re going to exploit the rest of the world they may as well not bother.

A global iPlayer would be brilliant, as would Hulu complete with American shows be, but this sounds more like a method for printing money.

Online Sports Events

Sports events are clearly one of the most obvious television properties that could utilize the Internet and online video. And in the States that is exactly what has been happening, with pay-per-view options for both over the air and over the Web.

But it hasn’t really happened on a big scale in the UK as yet, with Sky Sports’ domination over broadcasting rights meaning online video viewing isn’t really an option. Until now, with the England vs Ukraine World Cup qualifier only being available to watch online via paid subscription.

England vs Ukraine

To watch the England vs Ukraine World Cup qualifier on Saturday (Oct. 10), you will need to visit the Web site set up specially for the event and pay for the privilege of watching the match streaming onto your PC or Mac.

Payments are being accepted via Paypal, with early sign-ups awarded a lower price of £4.99. Football fans who sign up after Wednesday will have to pay £9.99, with those waiting until the day of the match being charged a hefty $11.99.

The only other option is to watch the match at one of 11 Odeon cinemas around the country.

Who, Why, What?

This situation has occurred due to the collapse of the pay-TV network Setanta which held the rights to England matches. The BBC, ITV, Sky, and Channel Five all failed to land the match in negotiations, so international agency Kentaro decided to go with Perform, a digital sports specialist.

Perform already streams more than 15,000 events a year, so one England match isn’t going to trouble them. However, due to the fact that the match isn’t going to be shown on television in addition to being streamed online, many fans aren’t happy with the situation.

Conclusions

I can see why some England fans are annoyed about this, but England have already qualified, meaning the match wasn’t going to be a big enough draw for the television companies to pay big money for the rights.

Perform is at least offering devoted fans the chance to watch their team, and for a reasonable asking price as well. The question is whether enough British sports fans are ready and willing to accept the idea of streaming sports events over the Internet. And paying for the privilege.

Related Ad

Buy ‘England Home Soccer Jersey’ on Amazon

YouTube and Warner Music Group have now forged a new deal which will see WMG having its own branded player and able to sell its own advertising inventory.

Warner Walks Away

It was late December 2008 when Warners decided to pull all its music videos from YouTube. It happened due to a breakdown in communications while the two parties were trying to thrash out a new licensing deal. The ones that had been in place for years were coming to an end.

As always, it came down to money. The Warner Music Group wanted a bigger slice of the revenue pie and YouTube was unwilling to deliver. Regardless of who was right and wrong, the incident helped no one in the end.

The Vevo Factor

Talks have continued on since then, and a deal has been rumored for a few months. In the meantime, YouTube has inked new deals with the other three major record labels, Sony, Universal, and EMI.

The last nine months has also brought news of a new venture called Vevo, which is best described as a Hulu for music videos. Vevo will see many music videos disappear from YouTube only to reappear on a separate, YouTube-backed site.

Warner Welcomed Back

Yesterday saw YouTube finally confirm it had settled the argument and signed a new deal with WMG. All the record label’s many music videos, including by artists such as Green Day, REM, Madonna, U2, Red Hot Chili Peppers, and Kid Rock will make their way back on to the Google-owned site.

Warner has managed to secure an arguably better deal than the other record labels by holding out for better terms. Details are still a little sketchy at this point but there will be a Warner Music Group branded player and the company will be able to sell its own advertising inventory.

YouTube will still take a cut but the margins are clearly going to be in Warners’ favor.

Conclusions

This is good news for all parties, as YouTube gets those all-important music videos back and WMG gets another revenue stream back. Viewers, of course, also benefit as they are no longer denied the chance to watch their favorite music videos.

The only question left is where Vevo sits in all this. While the other labels are moving away from YouTube to the new site, Warner now looks to be entrenched on it.

Can Vevo be monetized successfully enough to please both YouTube and the major record labels? And will the viewers willingly move over with the music videos?

Online Music Videos

Music videos make up a large percentage of the most viewed videos on YouTube and other online video sites. Along with movie trailers and the very best viral videos, music videos are the biggest hitters by far, as Visible Measures’ viral video chart consistently shows.

This makes the decision to move music videos off YouTube and to their own domain both justified and a strange one. While Vevo has the opportunity to become a premium portal for music videos of all kinds, it’s going to leave a gaping hole on YouTube.

Vevo Forever

Vevo was first rumored in March, with unnamed sources claiming a YouTube spin-off for music videos was on its way. April saw the site officially announced as a joint venture between YouTube and Universal Music. It was then described as Hulu for music videos and that moniker has since stuck, accurate or not.

By May, progress had already been made on the venture, with Vevo naming Rio Caraeff as CEO. And now comes a further progress report, and with it, more questions being asked as to whether Vevo can actually succeed or not.

Progress Report

AdAge has compiled a progress report on where Vevo is now. Sony Music Entertainment is now on board and Warner Music Group is in talks to also join. Big news considering it was only a year ago that WMG removed all its videos from YouTube in a huff over new licensing terms.

Whoever is involved, Vevo is planning a December launch. And it’s looking at ad rates of between $20 and $40 per thousand page views. Which is a much larger CPM than can currently be commanded on YouTube. Which is why all parties are so keen to forge ahead with the venture.

Conclusions

YouTube is going to experience a major hit to its viewing figures come December. And it will undoubtedly take time for page views on Vevo to match those on YouTube for music videos, purely because YouTube is so well-known and so prevalent on the Web.

However, when the inevitable transitional period ends, everyone looks set to gain from Vevo. YouTube will be making more revenue from the music videos, the major record labels have another string to their increasingly important digital revenue streams, and viewers will have a new MTV for the YouTube generation. Fingers crossed.