Posted April 4, 2009 10:01 pm by with 17 comments

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First, the good news. YouTube is the most popular video site on the Internet. They’ill make $240 million in revenue. They just signed a deal with Disney to help bring in that money. But the bad news is pretty bad—$711 million in expenses, according to Credit Suisse.

About half of that bill is bandwidth alone, $360 million. Don’t worry, Credit Suisse showed its work:

To arrive at the estimated $360 million bandwidth tab for YouTube, the analysts assumed the site will receive 375 million unique visitors in 2009 and that a maximum of 20% of those users are on the site at any given time. Credit Suisse’s analysis then assumed each user downloads a video at 400 kilobits per second, to yield a peak bit run-rate for YouTube of 30 million megabits per second.

Other reports have placed YouTube’s revenue this year anywhere from $120 million to $500 million.

Of course, bandwidth costs aren’t new: Facebook has been battling rising costs and falling revenue-per-users for some time. On the other hand, YouTube has been searching for effective monetization basically since Google acquired the company.

What do you think? Can YouTube make money to sustain itself long enough to find a business model that really works?

  • Ouch! I have always wondered how you tube can stay in business. Bandwidth is still an expensive item on the market. While it is getting less expensive videos eat up a ton of resources to both upload and download to computers. In recent months I have seen a good attempt but one I have found to be annoying when they added adsense to all of their videos. I expect to see some more types of ads in the near future that will either be welcomes or destroy the site further. Non the less I love youtube and just started to use it myself!

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  • Estimates of capacity utilization are commonly inflated by a factor of ten in commercial contexts. For evidence, one many only look to over-subscription rates on residential loops.

    Credit Suisse appears to be vastly over-stating bandwidth use. I’d be surprised if more than 10% of users were on the site at any one time, with many of them drawing on slow connections and caches.

    The ability of YouTube’s corporate parent to internalize and cross-subsidize bandwidth could be enough to enable YouTube to break even.

  • They seem to be working on deals recently and I’m sure they’ll be in profits within a year or two. Google bought them for a reason, and profit is the reason.

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  • Yes, Google will find a way to make You Tube profitable. Google is patient. When they believe in the long term viability they are not afraid to invest in the long term. They also seem better at finding good engineering and financial solutions than competitors and that seems likely to continue. The demand for You Tube like services are likely to remain high. I don’t see it as likely someone will find a better way to meet that demand than Google will (both in the engineering and revenue areas). So my bet is that Google will continue to serve that market (and expand with more and more deals with content owners) and find a way to make it profitable. But I don’t think they have any need to worry if it isn’t profitable this year or next year. They have the same ability to focus on long term success that Jeff Bezos at Amazon has displayed in the face of short term focused critics.

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  • YouTube has enermous upfront CapEx to maintain itself. What i see is the next “Tech Bubble” coming to Wall Street with these evaluations.

  • YouTube has been battling this issue since it’s inception. I, for one, hope that Google figures out how to get it done. YouTube provides a great user experience and a great opportunity for business, musicians and artists to market themselves. I don’t see it going under, though. I think that, in the grand scheme of things, the added benefit to Google will eventually outweigh the costs.

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  • with google in backside of youtube, i believe they would be stay longer and get profit soon…

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  • PS3

    That is a huge loss. I however think it is temporary, as for what I heard, they are working on more and more deals so they should be on + within a couple of years.

  • Youtube can do that. I am confident in saying this. Youtube now the KING of video sharing (plus they are Google’s Backup)

    Thank you for this article

  • My company takes advantage of the free exposure youtube provides as the cost of airing television ads is just too much for a small company to absorb. Our product helps relieve pain without drugs – every household should have at least one in the freezer (and they can be heated too)! If youtube started charging for bandwidth or “hits” some of the best products wouldn’t have a chance to reach the mass market.

  • I just started using youtube and I love it. I can speak my mind with my face becaues when I speak something it comes across different then if I wrote it in words. I hope youtube doesn’t go out of business.

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  • I think that if ISPs start charging users for bandwidth overages — which several are currently testing in the US, including Time Warner… then many users may reduce the amount of youtube videos they watch. This in turn reduces revenue as well as costs, but might make the revenue amount in line with costs.

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  • It was a decision Youtube made when they first started, a video database for anyone to broadcast themselves. It is no wonder a phenomena because everyone goes there. If they want to cut expensive, they should either start monetizing with better tactics like they are doing now with video ads and banner ads, or they should completely try a different alternative which I believe is unlikely. The thing is people won’t stop watching videos and if there is bandwidth capacity and the ISP are charging people, then video databases are no fun at all.

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  • It’s long overdue for YouTube to charge for the uploading of video’s – after – most are just advertising anyway. I suppose this will now come about.

  • where is all of that expense coming from?

  • I was like ….Ouch!
    I was always wondering how much revenue of youtube.
    I love youtube and just started to use it myself!
    I really hope youtube will be success.